Amazon’s three-step plan to expand checkout-free retail

Checkout-free retail is still not ready to move out of tiny spaces, though Amazon’s trying to accelerate progress through a trio of initiatives that have come to light over the past few weeks.

The e-commerce giant has placed checkout-free technology in shopping carts, and is reportedly looking at shopping malls and its Whole Foods chain as locations for the Amazon Go concept. These three moves could allow the concept to reach larger footprints while minimizing the amount of conversion work.

The most immediate benefit of Whole Foods is that Amazon already controls the stores, rather than having to build them from scratch like it did with Amazon Go. Many competitors in this market are also working existing chains. And Walmart has opened innovation labs to build new checkout and shopping technology, enabling larger deployments at scale.

Amazon's shopping mall locations similarly will provide a readymade, compact footprint to deploy checkout-free technology; and the shopping cart technology is reportedly designed for Amazon’s own planned supermarket chain. Early work on that chain has focused mostly outside urban cores and will focus on groceries and prepared food.

Whole Foods has more than 500 locations in North America and the U.K., with most averaging about 43,000 square feet. It also has a smaller 365-branded version that’s about 30,000 square feet. That’s much larger than most checkout-free stores, which are usually closer to a convenience store and are often located in high traffic areas such as commuter stations or airports.

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Amazon Go’s network is relatively limited, with about two dozen locations. But it’s been influential in its ability to prove the checkout-free concept can function outside of a lab. Amazon reportedly plans to open about 3,000 Go locations in the next two years.

“[It] definitely puts the impetus on its competitors to have plans for more cashierless tech in the next few years,” said Rachel Huber, senior analyst for payments at Javelin Strategy & Research, adding Amazon has a history of deploying technology to consumers in a way that appeals to a mass audience and accelerates adoption.

Amazon Go has sparked a multi-billion dollar wave of investments in checkout-free technology including dozens of startups and venture capital outlays. Firms such as Zippin, Grabango and Standard Cognition have been building concept stores and amassing retail clients, mostly adding the technology to smaller stores or portions of larger retailers. The category is popular with investors, with Standard Cognition’s valuation passing $500 million. Standard Cognition has used that investment to spur acquisitions that have bulked up its technology with a focus on artificial intelligence and the internet of things.

"The firm that achieves a successful retrofit will put point of sale upgrades on hold, freezing the market for point of sale vendors while grocers try to figure out how to respond,” said Richard Crone, a payments consultant, adding the autonomous retail technology pushed by Amazon Go and its competition is not available through the traditional point of sale technology industry. NCR, for example, is using a cloud-based platform to incrementally upgrade self-checkout technology, contending a massive overhaul is too costly for most retailers.

“The first to do this will have an advantage not only for their own merchants, but by reselling the technology,” Crone said.

During the coronavirus outbreak, checkout-free stores have gained attention as a way to help shoppers and staff avoid contact, and to measure distance between shoppers via the stores’ embedded cameras.

Since Amazon acquired Whole Foods in 2017, the supermarket chain has fed enrolled consumers and data into Amazon Prime’s incentive marketing and fast delivery in competition with Walmart and other chains. Amazon mines purchase histories of Whole Foods shoppers who use Prime memberships for discounts to determine the routing of purchases.

Checkout-free technology, whether from a cart or embedded sensor, allows Amazon to ramp up data collection by tracking purchases in stores. One of the enticements of autonomous retail for all of the competitors is its ability to create granularity — the sensors can map details as small as how much time shoppers spend looking at items.

“The trade-off for these systems is space versus installation costs,” said Ray Pucci, director of the merchant services practice at Mercator Advisory Group. “This has meant the sweet spot is a retail space of about 2,000 square feet, which is a common footprint for a basic convenience store.”

There’s still work to build out entire stores to support checkout-free retail in larger locations, and it’s unlikely it will cover an entire store at the initial deployment. “We might see dedicated areas, or zones, within a Whole Foods store featuring packaged foods and other grab-and-go items,” Pucci said.