Source: PaxForex Premium Analytics Portal, Fundamental Insight
Earlier this year, Amazon began offering its Just Walkout technology as a service to other stores. This technology allows customers to take whatever they want from the shelves of stores and pay for their purchases automatically when they exit the store.
One of the reasons retailers may doubt whether they need the system is because of the high initial cost of installing the technology in their stores. Amazon is reportedly spending $1 million on the technology for its small Go stores. Supermarkets are 10-20 times larger than regular Go stores, which means more technology and more complexity.
Amazon may have developed a solution for larger stores. The company recently introduced the Dash Cart, which will appear in the new Woodland Hills grocery store later this year. The system uses cameras, scales, and a small computer built into the cart, making it possible to use a Just Walkout system similar to the full system installed in Amazon Go shops.
There's still a lot to do, and being able to test the carts at its own grocery stores can help Amazon scale the product and service together with other retailers. The potential payback can be enormous.
Amazon has the opportunity to develop products and services for its needs and then offer them to others. Amazon Web Services (cloud computing) and Fulfillment by Amazon (warehousing and logistics) are two massive products that are suitable for this purpose.
Amazon is committed to developing its own retail business using Just Walkout technology. The company reportedly plans to expand the Amazon Go store format to 3,000 outlets. Besides, its plan to introduce Dash Carts in its new Woodland Hills store may mean that the company intends to use carts in other brand stores or maybe expand to branches of Whole Foods.
With a guaranteed customer - itself - Amazon can get real data on how technology affects sales and other customer metrics. Amazon can get feedback on which parts of the product need improvement. Also, the company can quickly scale production and use the core technology to offer it to other retailers for less money. After all, Amazon is not the only company working on a smart shopping basket.
A Dash Cart can help Amazon manage its own grocery stores more efficiently. But equally important can be the ability to develop Dash Cart and Just Walkout technology more effectively.
Total cashier displacement is a $50 billion offer from Loup Ventures by Andrew Murphy in 2018. In fact, Amazon can turn Just Walkout technology into tens of billions of additional revenue by increasing sales and reducing costs for its retail partners.
Importantly, this service could also benefit other services offered by Amazon. On the one hand, it could increase the use of Amazon Web Services (AWS) by retailers. Amazon may not require retailers to use AWS for their Dash Carts or Just Walkout technology, but it would certainly be the most convenient option. Many retailers may be inclined to consolidate their cloud providers by migrating all their operations to AWS.
Another point is that Amazon can provide payment processing services to retailers. At Amazon's Dash Carts grocery stores, customers will be asked to scan their Amazon application for access to payment information. Amazon may not go that far but may require retailers to use Amazon's payment processing service to make the service more smooth. Given that Americans buy $700 billion worth of products every year, for most companies getting just a tiny fraction of those sales would be a big business.
There is also a lot of information about customers that Amazon can get into its hands. These data can be extremely valuable for product recommendations and advertising. Currently, Amazon can use the data from Whole Foods customers to advertise on surfaces such as Fire TV, but this remains a small segment of users. Amazon can convince stores to share customer data using their smart shopping carts to increase sales through in-store product recommendations, thus increasing sales.
Amazon's ability to deploy its technology in more stores can provide significant growth in high-margin revenues. Traders who prefer to invest in FAANG shares may still be waiting for Amazon to close a deal with its first major retail partner, but at the same time, Amazon may well be a good option for opening a long position.