Our old friend Amazon.com has been at the forefront of our lives for the pat fifteen years or so. It has changed the way many of us shop and has threatened the traditional retailers, long dependent on a physical store or premises to engage with us and more importantly to encourage use to purchase something.
A decade or so ago many retail commentators and academics predicted the demise of physical “bricks and mortar” retailing: we would see the end of the high street and those cathedrals of shopping: the malls or retail centres.
Nothing so dramatic has happened. Like many other predictions: the end of the world and the discovery of aliens on Mars, retailers still haunt the high street and the popularity of shopping malls, particularly in Asia and the Gulf, continues to grow exponentially.
Amazon is the one “constant” in all of this. It has continued to grow and prosper. It has also developed a number of innovations such as Amazon Prime and its on-going work on the use of drone technology to revolutionise the way in which we receive our items.
It has also reinvented itself. Having created a value proposition which is based on the ability to shop remotely, from the privacy of your own home, office or when you are on the go, it has returned “full – circle” to the concept of shopping once again in a retail store. In 2015 it opened a number of retail bookshops in the USA. This move would appear at first glance to challenge much of the core elements of Amazon’s original value proposition. A deeper assessment (see one of my earlier blogs) identified the rationale for such a move and saw it as a repositioning of its proposition in light of changes in the market-place and the way in which consumers engage with retailers.
This fascination with changing the way in which we shop and engage with retailers has now extended to the shopping experience.
In early December 2016, Amazon opened its first grocery store in Seattle. It called it Amazon Go. At the same time, showing some of its overall intent, it registered the name in the UK.
The business model and value proposition revolves around the following features.
The store is designed round 1,800 square feet of physical space. It sells many so-called staple items, such as bread, milk and ready meals.
It uses CCTV technology and sensors to track which items shoppers pick up and place in their shopping basket. It links this information to the shopper’s mobile and processes payment. This allows the shopper to dispense with that tedious routine of queuing up to pay at a check-out or even more (for me at any rate) annoyingly having to operate a self-payment machine. It is built on the principle of “walk-out” shopping.
Essentially it is an amalgam of technologies, featuring the following elements:
- A powerful App (which has to be downloaded by the shopper), using location-based services
- QR code ID
- Integrated payment mechanisms
- Multiple sensor technology
- Artificial intelligence.
In essence it builds on earlier and more simplified systems that were introduced by retailers throughout the last decade. For instance Apple introduced an Easy Pay 2.0 product in 2011 which ultimately did not prove to be popular with shoppers and had a low “uptake”.
Self-checkouts have featured for a number of years in the US grocery market. Again shoppers, after initial uptake, have begun to move away from this technology. However it is growing in the European market. Some shoppers find them irritating: cash or monetary notes are not accepted easily by the machines and you have to re-insert them. It becomes also can be time-consuming when a shopper has more than a small number of items to process.
Amazon Go, at first glance, would appear to build on the perceived advantages of earlier self-checkout propositions.
From a strategic perspective, it is likely to take the consumer more fully into the “contactless” world of robots and technology, where there is little or no need or requirement for face-to-face contact.
Amazon should not necessarily be seen as a “trailblazer” in such developments. For instance Café X, a coffee retailer has created an automated coffee shop, replete with automated baristas to serve the customer. The response of consumers would appear to be positive, judging by its success to date.
The Amazon Go retail store in Seattle is presently open only to Amazon employees. It expects to be widened to the general populace in early 2017.
A US retail analyst has predicted the Amazon Go technology could reduce the retail workforce by as much as seventy-five per cent.
In a more general context, the British Retail Consortium estimates a reduction of around three million retail jobs in the UK market.
In response to rumours that Amazon is planning to open around 2,000 similar grocery stores in the US, senior management had denied such a possibility, stating that it is still in the embryo stages of testing and development.
Some commentators argue that the Amazon Go development is all about moving Amazon more fully into the payments systems market – which is proving to be a lucrative area. In many ways the system is like PayPal, where consumers can shop across different platforms and online merchants, using a single PayPal login.
Taking a broader perspective, it can be argued that this innovation is further proof that companies are moving away from a service philosophy which places personal engagement at the heart of the value proposition. This takes the consumer into a world of remoteness and robotics. It is questionable whether such a concept will lead to better service or lower prices (particularly in the case of the retail sector).
Clearly such use of an amalgam of technologies can help retailers address perhaps the biggest single cost input into their operations: labour. By greatly reducing the need for staff and front-line personnel, it can lead to significant cost savings. This is important in a sector such as retailing, where profit margins are so low (varying from between 1% to 5% in many cases).
Who benefits from this development? The shopper? The retailer? Both? Other stakeholders?
We might want to pause and reflect on this question.
Other issues for assessment include the following.
Does the Amazon Go value proposition / model stack up in the longer term?
Is this an example of a technology-driven product, which takes little or no account of the needs of the consumer?
Where is Amazon going with this development in the longer-term? It appears to be far removed from its original value proposition: that of an online retailer.
What impact will it have on the large food retailers such as Tesco, Carrefour, Wal-Mart, Target and so on?
Are we witnessing an irreversible decline in the concept of customer service?
Is this a potential game-changer?
I would welcome your views.