Amazon Go Watches Your Every Retail Move

Amazon Go does away with check out lines, but it tracks you in the physical store and knows what you pick up and put back. Here's how it works.

We have all been there. We run into the grocery store for a few quick items, then we hit the checkout wall of eternity and wait. For most of us, its lost time and usually a frustrating experience that impacts our overall shopping experience in retail stores.

Now, Amazon is seeking to eliminate this experience completely, but not by shopping online. The undisputed king of web retail is opening physical grocery stores. These new stores, dubbed Amazon Go, are retail grocery stores. Amazon began testing the concept over the winter holidays for their Seattle-area employees. The store allows Amazon customers to login, shop, and leave with no checkout line. Customers login to the Amazon Go app at a turnstile entry, then every item they pick up and put into their bags or carts is automatically added to their Amazon account. When members are ready to leave they just walk out the door with their purchase.

The technology is intelligent enough to determine if a consumer picks up a product and returns it back to the shelf and removes it from the bill. When consumers leave the store, they receive an email receipt. Amazon describes the technology as a mix of AI and complex algorithms married to new sensor technology. The shopping experience all but eliminates shoplifting since all products are charged if not returned to the shelf. The customer is charged if the customer is holding the product, places it in a bag, or in their pocket. Also, no cash or credit is accepted and there is no entry into the store without an Amazon account.

Amazon Go is a tremendous opportunity to cut retail costs with its reduced staff and equipment needs, real-time inventory assessment, and integrated customer loyalty. The concept is intended to embody the promise of omni-channel retailing in one location. Members will also be offered discounts and coupons based on their shopping patterns. Amazon's behemoth of consumer data will provide insight into behavior and that could shape future sales efforts online and offline. Amazon said the stores will also realize better revenue per square foot because checkout lanes are eliminated. The stores are expected to offer pick up and go services and curbside pickup in the future.

This is not Amazon's first foray into bricks and mortar stores. It opened bookstores that are available to Amazon members and the general public. The current stores are in Seattle, San Diego, Portland, Dedham, and Chicago. New York will be added this year along with some other strategic locations. These stores are more than just retail locations they will serve as showrooms for Amazon's ever increasing tech suite from Echo, to Kindle, and Fire TV. The stores will also help to convert more people to Amazon Prime for music, shipping, and other services.

These physical stores provide Amazon with a higher operating cost model than its web-only sales since real estate and overhead costs will be added to the cost column, but its stores will feed its online business. Amazon expects to charge the same price to Prime members in the store, while non-prime shoppers will need to pay a higher price of 10-30% over the Prime price. Of course, any out of stock items are available for shipment from Amazon's online selection.

Amazon physical stores could prove a worthy opponent to existing retailers especially with price competition playing such a significant role in the purchasing process of most consumers. Amazon has not commented on how many of these physical locations will be opened ultimately. The retailer is likely waiting to evaluate in-store sales, and online flow-through. If they continue to experiment with pop-up stores as they have done during the holiday seasons, they could also impact traditional retailers with high demand items available in stores close to home.

Marrying a great customer experience with low prices may be the ultimate game changer in traditional retailing, and the biggest surprise is that that the online innovator Amazon is bringing it to locations across the county. For now, however, we will still have to wait for Amazon Go, since a technical glitch that occurs when the store has more than 20 customers inside has delayed the grocery store's commercial rollout.