Now that the rush of Christmas shopping is over, imagine a store without lines or checkouts. You walk in, tap your smartphone, pick up the items you want. Then you leave. You know, like in the future.
That’s the shopping experience Amazon plans to bring to customers starting next year. This week the company unveiled the ambitious new Amazon Go concept store.
The store will use machine learning, computer vision and sensor fusion to track shoppers’ physical choices with a virtual shopping cart. The cost of the items is automatically charged to your Amazon account when you leave. By design, it’s just like shopping online. That’s the Amazon genius.
Most people don’t understand Amazon. They wonder why a successful online retailer would fiddle with low-margin, real-world stores – even if it developed technology to eliminate much of the labor.
That’s the wrong question. Amazon isn’t really concerned about margins. It’s selling the ecosystem: Amazon Prime, a subscription cash cow that has swollen to an estimated 63 million members.
|At the experimental Amazon Go grocery store in Seattle, Washington, Amazon Prime customers just grab what they want and go out the door.|
Incredible innovation at Amazon is just another reason that I suspect that the current economic environment will ultimately be seen as a second Gilded Age – a period in which entrepreneurial genius is freed up to grow and thrive in ways previously unimagined.
Amazon is the sort of company that seminal traders like Jesse Livermore loved to buy back in the 1880s-1920s because it combines a firm fundamental foundation with undeniable price momentum. Similar companies of Livermore’s era were innovators like Montgomery Ward and Sears, Roebuck and Co. (today just Sears) – two retailers that may seem prosaic now but in fact revolutionized commerce in their time.
Montgomery Ward was founded by Aaron Montgomery Ward in 1872. He had conceived of the idea of a dry-goods mail-order business in Chicago, Illinois, after several years of working as a traveling salesman among rural customers. He observed that rural customers often wanted “city” goods but their only access to them was through rural retailers who did not offer any guarantee of quality. Ward also believed that by eliminating intermediaries, he could cut costs and make a wider variety of goods available to rural customers, who could purchase goods by mail and pick them up at the nearest train station.
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Ward’s first catalog listed 163 items for sale; his rural competitors were not amused, and staged public burnings. Despite the opposition, the business grew at a fast pace over the next several decades, fueled by demand primarily from rural customers who were inspired by the wide selection of items that were unavailable to them locally. Customers were also inspired by the innovative and unprecedented company policy of “satisfaction guaranteed or your money back”, which Ward began in 1875. In the 1890s, Sears, Roebuck and Co. was founded, and eventually its catalog gave Ward a run for its money, creating fortunes for early investors as well as a valuable service to customers.
Amazon is the direct descendant of Ward and Sears, and the Internet behemoth has already begun to make the kind of fortune that Gilded Age robber barons dreamed about. Along the way, Amazon helped drive Ward out of business in 2001. Sears may soon go under, too.
Will the convenience of avoiding checkout lines push people toward Prime membership? Probably. And once they’re inside the ecosystem, Amazon knows they will spend.
A 2015 research report from Consumer Intelligence Research found Prime members outspend nonmembers than more 2-to-1. They’re also far more likely to buy Amazon-branded goods. And they pay $99 a year for the privilege.
“Prime is a somewhat different service than it was two years ago,” said Mike Levin, partner and co-founder of CIRP, in the report. “Amazon has expanded its media offerings greatly, including exclusive video content, streaming music, and now personal photo storage.”
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Just Walk Out Shopping would be a cool addition. It would also put a huge amount of pressure on traditional grocery stores like Kroger Co (KR) and longtime rival Walmart (WMT). Both have struggled to use technology to enhance traditional retailing.
Amazon wants to execute a quantum leap. The corporate press release says the technology is a mashup from the world of self-driving cars. That is understated. JWOS software needs to see what shoppers are looking at and understand what items are leaving the store. And with whom. It’s complex computer science.
“If I were creating supermarkets from scratch, I would have done something like this,” Brent Franson, chief executive of Euclid Analytics told Wired. “I think this is the future of retail. I just expected, until we heard about this, that it was a little further out than it seems — or that Amazon is making it seem.”
Amazon already bet the future of retailing was Prime. Everything else is just a sideshow. That focus is why the shares remain a buy on pullbacks. It’s just getting started. It’s a little like having the opportunity to buy innovative turn-of-the-century retailers back in the early 1900s.