Amazon Go is a 100% connected store where checkout are automated. Amazon Go is the convergence of at least 3 important trends :
- the first one is the diversification of Amazon into brick-and-mortar store
- the second one is a trend to decrease costs in the retail sector to increase margins
- the third one is the dream to put all behaviors into data to better predict what consumers will buy next
Trend #1 : Amazon’s diversification into offline retail
The launch of Amazon Go is in itself not a surprize. It is an extension of undergoing proof-of-concepts like popup stores and the recently launched Amazon bookstore in Seattle.
It shows that Amazon is more willing than ever to disrupt the brick-and-mortar retail industry after having launched the e-commerce wave.
To achieve this vision, Amazon can count on world-class supply chain practices, on a network of warehouses, and on an existing network of suppliers.
The unique combination of these 3 factors (warehouse network, suppliers network, supply-chain practices) allows Amazon to be in a one-of-a-kind position to bring a revolution into the traditionnal retail industry.
Trend #2 : less employees, more margin
Margins in the retail sector are thin. It’s an industry driven by volume where vertical integration is key to leverage profits. One good example of such verticalization is Colruyt in Belgium whose profitability is unique in the industry.
Driving costs down can also be achieved in the stores by reducing the number of employees (this strategy is central to Lidl and Aldi where employees are multi-tasking the whole day). The dream of an employee-less store is hence not far away and this is what Amazon wants to realize through technology. The premisses were already visible with self-scan, quick scans and drives.
Amazon made a giant leap forward by bypassing all those incremental steps and moving directly towards a store without employees. This, coupled with the economies of scope and scale leveraged with their online activities, should ensure a profitability never reached before.
Trend #3 : more data about consumer behavior
The last trend is driven by Big Data and behavioral modelling. Online modelling is good but far from perfect. The reason is that behaviors are much more complex than the signals and tracks we leave behind us when we shop. Even the best algorithms can’t model such complexity from the explicit and implicit tracks we leave. Emotions for instance are difficult to predict from a piece of text, let alone from an online mouse movement. Other technologies need to be implemented to grasp more of the human complexity and we think that Amazon Go is a lab to experiment how far vision technologies and sensors can be used to better predict human behaviors.
Although Amazon Go is a real leap forward and a game changer for the retail industry, we think Amazon’s real purpose is elsewhere. With this new type of grocery store, Amazon wants to experiment a new range of technologies to collect new types of data and investigate whether consumers behaviors can be better predicted. Amazon has been a champion of artificial intelligence. It is believed they purchased their first recommender system as early as 1994. Today, especially in the retail sector, recommendation algorithms can only marginally be improved. A real breakthrough will only be made possible by new data collection processes, more intrusive data (as in the case of the insurance sector) and our assumption is that Amazon Go is a step in that direction.Tags: customer experience, market research, retail