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Amazon Go Store Implications for the Traditional Retail Market

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Abstract

This paper aims to analyse the Amazon Go Store concept and the business model. It demonstrates the potential of a disruptive surge for the retail market. Therefore, this document helps to understand the Amazon Go Store concept and delivers insights for existing retail market businesses. This paper does not cover all perspectives, but the aim is to use this document as a discussion paper to identify possibilities for existing retailers. Based on the Amazon case study (Kittilaksanawong & Karp 2017) the content of the paper will be reflected and analysed. Furthermore, the case study will be analysed, and possible scenarios will be discussed. The Amazon case study describes the growth development of Amazon between the founding in 1994 and the first internal opening of the Amazon Go store in Seattle by end of 2016. If you already know the Amazon case study, follow directly with the next section. For a better understanding of the evolution of Amazon reading the case study beforehand is recommended.
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Amazon Go Store Implications
for the Traditional Retail Market
Josef Baker-Brunnbauer
josef.baker-brunnbauer@product-xyz.com
Document version 1.1, preprint, April 2019.
Abstract
This paper aims to analyse the Amazon Go Store concept and the business model. It demonstrates the
potential of a disruptive surge for the retail market. Therefore, this document helps to understand the
Amazon Go Store concept and delivers insights for existing retail market businesses. This paper does
not cover all perspectives, but the aim is to use this document as a discussion paper to identify
possibilities for existing retailers. Based on the Amazon case study (Kittilaksanawong & Karp 2017)
the content of the paper will be reflected and analysed. Furthermore, the case study will be analysed,
and possible scenarios will be discussed. The Amazon case study describes the growth development of
Amazon between the founding in 1994 and the first internal opening of the Amazon Go store in Seattle
by end of 2016. If you already know the Amazon case study, follow directly with the next section. For
a better understanding of the evolution of Amazon reading the case study beforehand is recommended.
Keywords
Amazon Go Store; Business Model Amazon; Retail Market; SWOT Analysis Amazon Go
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1. Amazon Go: Venturing into Traditional Retail
Amazon Go Concept:
The original case study did not go into details, how the Amazon Go retail concept looks like. For a
better understanding and as well to point out the different customer shopping experience, I would like
to describe some main features and differences to conventional retail stores. Based on the YouTube
video (Silicon Valley Girl 2018) it is possible to see how the first Amazon Go store in Seattle looks
like. There is a check-in counter, where the customer registers via the Amazon Go app to enter the shop.
The tester discovered during the test, that if the tester brings people within the shop, all goods will be
charged to the testers Amazon account (it is not explained, how Amazon matches the guests to the
account owner). The shop ceiling is full of installed cameras, which are permanently monitoring the
customer movements, goods pick up and customer face detection. Algorithms with Artificial
Intelligence (AI) technology are permanently monitoring the shop, goods and customers. To identify
the goods, some products got a special sticker on the top side. There is no cashier in the shop, as all
pick-ups are live monitored and charged to the testers Amazon account directly. Afterwards the
customer compared the shopping with the online received invoice and noticed that the AI algorithms
calculated correctly without any mistake. The customer was happy about the shopping experience but
would like to upgrade the product portfolio with more organic food. Another tester on YouTube (Linus
Tech Tips 2018) recognized, that only a special amount of people is allowed to enter the shop. The
others need to stand in a waiting line before entering.
Based on this short overview, it is important to understand, that the possible retail move does not mean
to open conventional retail shopping stores, it means to change the existing customer shopping behavior
with modern technology. It also means, that the possible strategic move into the retail business will be
more challenging for Amazon. Besides competing with experienced retail champions like Walmart,
Target etc. Amazon will face further challenges like:
Technology: Will the cameras and the AI algorithms work properly?
Experience: Will the customers like and accept the new way of shopping?
Legal: Will the law and customers accept the permanent observation?
Trust: What will happen with the collected customer and product data? How accurate will be the
online and offline user profiling data?
Jobs: Amazon Go stores will not need cashiers and automation will eliminate existing job profiles
(there are around 3.5 million cashiers in the US (Linus Tech Tips 2018)).
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Shopping Concept Differentiation:
Based on the lower number of steps, the Amazon Go store can increase the shopping convenience for
about 33%. There are no check-out lines and repacking procedures (Arren 2018).
Amazon Go
Conventional Store
1. Quick access to everyday products, especially
groceries and convenience goods
1. Quick access  to same products, groceries,
convenience goods
2. Turn-style entry: Consumer enters via
Amazon app on smartphone
2. Enter store and start shopping
3. Consumer goes around the store, picks up
items, adds to bag, shops like normal
3. Pick up items
4. Consumer exits
4. Wait in line for cashier or self-scan
5. Take items out of bag, scan them, put back in
bag
6. Consumer exits
Table 1: Comparison of shopping steps between Amazon Go and a conventional store
2. SWOT Analysis
Amazon Go:
Strengths & Weaknesses
Internal performance
high
low
high
Brand
Extensive product mix of daily
goods
Technology and customer
knowledge
Increasing shopping
convenience up to 33%
Data analytics
Limited penetration in
developing markets
Limited physical presence (yet)
Limited amount of
simultaneously customers
low
Highest revenues in the
industries
Imitable business model
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Threats
high
low
high
Change customer shopping
experience based on new
technology (AI, data, sensors,
…)
Investment in physical stores
Online food shopping
Identifying the proper store
location
Customers want to do shopping
anonymously
low
Future development of physical
retail food shopping
Legal regulations regarding
customer and product data
analytics
Loosing supplier based on
private label products
Eliminating cashier jobs
Table 2: Amazon Go SWAT Analysis
Opportunities
Threats
Strengths
Use data analytics to identify the
best store locations
Eliminate anonymity with best
products and new shopping
experience
Invest money to pioneer the
development of retail food shopping
Weaknesses
Invest in physical stores to be more
present
Use technology to increase the
amount of simultaneously customers
Use online food shopping to
penetrate developing markets
Table 3: Amazon Go classical SWAT analysis
Walmart:
The company’s growth depends on its ability to capitalize on its retail operational effectiveness and
strengths. Walmart can use these strengths to exploit its opportunities in the retail market. The firm can
also use its strengths to counteract the threats to its retail business, especially its e-commerce operations.
Walmart is using the cost leadership generic strategy (Smithson 2019).
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Strengths & Weaknesses
Internal performance
high
low
high
Global organizational size (fund
growth and expansion)
Global supply chain (business
resilience)
Physical stores: 4,761 in 2018
(Statista, 2019)
Competitive disadvantage against
high-end speciality sellers
low
High efficiency of supply chain
(monitoring and controlling
technology)
Competitive advantage against
smaller retailers
Thin profit margins
Business Model is easy to copy
Threats
high
low
high
Expansion in developing
countries
Improving quality standards
(low-cost and low-quality
products)
Development in HR to develop
competitiveness in the labour
market
Healthy lifestyle trend
low
Aggressive competition (large
retailers)
Online retailers
Globalisation
Table 4: Walmart SWAT Analysis
Opportunities
Threats
Strengths
Implement trend monitoring (e.g.
healthy lifestyle trend) for
continuously market growth
Create new HR strategy for internal
development programs
Use highly efficient supply chain
against aggressive retail competition
Weaknesses
Use an innovated business model
for globalisation
Improve quality product standards to
be competitive against speciality
sellers
Table 5: Walmart classical SWAT analysis
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3. Business Model Amazon
Key
Partnerships
Logistics
Associates
Key
Activities
Infrastructure
Research
Innovation
(digi/physical)
content
production
Value Propositions
Marketplace
(digi/physical)
Globalize/Grow/Fufill
Standard convenience
& pricing
Prime convenience &
pricing
AWS
Customer
Relationships
Reviews
Convenience
Customer
Segments
Customers
(buyers)
Businesses
(sellers)
Businesses
Key Resources
Warehouses
Game/film
studios
Infrastructure
Brand
DataAlgorithm
Channels
Amazon Go
Amazon.com
API
Cost Structure
Warehouses
People
Infrastructure: digi/physical
Revenue Streams
Prime
Sales commission
Cloud service
Figure 1: Business Model Canvas Amazon adapted from Business Models Inc. (2019)
Amazon solves problems for consumers and businesses. The Amazon retail business model is serving
consumers who want the best deals delivered to them in the most convenient way. The Amazon services
business model is providing businesses all around the world a way to reach millions of customers,
making marketing and selling easier. The value proposition for consumers is a vast collection of
everything: electronics, computers, books and more. All they offer is at the lowest price and shopping
plus delivery is convenient. The value proposition for businesses is a whole range of solutions to grow
a business, from selling on the Amazon Marketplace, through Fulfilment, to advertising and brand
building. The value propositions for both customer segments are information-based offerings. They are
personalized and customized based directly on the needs and preferences of their customers. It’s always
Day 1 at Amazon, which ensures the entire company is focused on results, makes decisions quickly,
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and is looking outside for important trends. These three elements of the philosophy are actively used
by people within the company to drive and explore value creation for customers (Business Models Inc.
2019).
The Day 1 mindset encourages, motivates, and challenges everybody to embrace change and
experiment with what works for customers and what doesn’t. As a digital native company, Amazon is
using data to drive decisions to improve the shopping and user experience. Since the start of the
company they have been using machine learning, initially to help human editors recommend books
from their huge library. The machine learning skills developed internally has later been turned into a
web service for developers as part of the Amazon Web Services (AWS) proposition, among other
applications. At Amazon, everybody is part of a team responsible for value creation. Their job website
is explicitly recruiting people for teams and they show applicants what it is like to work in a particular
team. Amazon fully uses the diversity in backgrounds and perspectives to improve their value
propositions and invent for customers. Teams are truly in the lead to drive value creation for customers
and as such see the direct impact of the work they do on customers.
4. Future Trends in Retail Business
The future of retail however is not a mystery, it’s simply a continuation of trends already in motion
(Spencer 2018).
Store closures will accelerate
Consolidation and Merger & Acquisitions will increase
Mobile payment will accelerate a cashless economy
Brick and Mortar experiences evolve
Can Google Express become relevant VS Amazon Prime with voice activated shopping?
Generation Z become voice search natives
Retailers sync with millennial values (millennials are seeking for educational insights and add-value
experiences on-site)
Mastering offline shopping experiences
Robotic retail will scale
Retailers need to migrate from Email to SMS
Checkout will become obsolete
Mobile Augmented Reality (AR) becomes a channel for retailers
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Grocery Retail Trends:
Retailers have been dealing with constant change for decades and if anyone has earned a break, they
have. But the reality is that the change and the challenges are not going to stop anytime soon. If
anything, the competition will just get tougher (Sevelius 2019).
E-Commerce keeps growing:
Shoppers have become used to fast home deliveries and click and collect options. The problem is not
that many retailers have not managed to meet customer expectations, it is that many have not been able
to do it in a profitable way. Part of the problem is that picking and last-mile costs have tended to eat
heavily into profits. The good thing is still that more and more retailers are looking at automated options
for picking and fulfilment.
Freshness, convenience and ready-made foods:
Convenience, takeaway food, meal kits, and ready meals are also a growing trend together with online
grocery shopping. These trends are throwing grocers into competition with the food service sector as
well as with each other as grocers are battling to optimize fulfilment and provide flexible delivery
options. One challenge is that grocery does not lend itself to delivery as easily as food service. There
are considerable additional picking and transport costs while food service outlets have benefitted from
opportunities like Uber Eats.
Sustainability and ecological choices:
Interest in sustainability and concern about consumer behavior’s impact on the environment was a
major trend in 2018 and will be even more so in 2019. This will bring huge changes to retail as
consumers increasingly care about making ethical, sustainable and ecological choices when they buy.
Millennial consumers are also increasingly influencing the way we eat, making healthier choices, many
of which reflect their concerns about sustainability and the environment, including shopping for organic
produce.
Workforce management and finding talented employees:
The US unemployment rate is at a 48-year low. Businesses, especially in the retail and hospitality
sectors, that want to attract and retain both permanent and seasonal workers, are offering higher wages
and perks and are even trying to tempt recruits with hiring bonuses as they compete for talent.
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5. Amazon Go Retail Expansion
Amazon is known to disrupted industries, starting with books back in 1994. The latest vertical is retail,
and specifically the grocery industry. Amazon announced to plan 3,000 new Amazon Go stores by 2021
(Walton 2018). By beginning of 2019 Amazon already opened 10 stores over Seattle, Chicago and San
Francisco (Amazon 2019). It is a multi-channel segment, where all big players are investing huge sums
to improve customer experience, via digital platforms, better delivery options, or the increased
integration of technology into the shopping experience. The average American is visiting the
supermarket 1.6 times per week on average. After Amazon bought Whole Foods for $ 13.7 billion in
August 2017, it has become clear, that the future of grocery industry will change (Ladd 2018). Grocery
retailers can close the technology gap with Amazon, by turning their existing stores into smart “Amazon
Go” stores. The company Trigo Vision enables retailers to transform. They supply all the technology
and all traditional retailers can start offering this seamless shopping experience immediately
(trigovision.com). Based on the study research two possibilities are pointed out:
Amazon Go Store Increase to 3,000 by 2021:
Based on digital experience and data Amazon can roll out a massive number of Amazon Go stores.
Therefore, some points are to consider:
Improve the technology (do not bring the check-out queue in front of the building as a check-in queue)
and the anti-theft algorithms.
Be quick, as companies are offering similar technologies to retail competitors.
Use customer and product data to create a unique shopping experience (advantage compared to
competitors).
Based on real time customer and product data, Amazon can control supply and demand, as well the
selling price, in real time, which can create an immense monopoly (what about ethics, legal aspects
and fairness?).
Focus on Online Grocery Shopping and New Service:
The customer experience is for Amazon one of the highest values and fixed within the strategy. Instead
of investing the money into 3.000 physical stores, it would be more customer centric to reinvent the
online food shopping and delivery. Who wants to go to a grocery shop to buy milk? If Amazon invests
in an online food shopping and delivery service, it will destroy the existing grocery retail shops. There
will be no need for companies any more to invest into physical stores. Food can be distributed directly
from central warehouses to the end customers house. This is even more convenient, faster and cost
saving. As Amazon is excellent in optimizing cost for the warehouse process and delivery, the food
concept will participate from existing processes. Based on real time customer and product data, Amazon
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can control supply and demand, as well the selling price, in real time, which can create an immense
monopoly (what about ethics, legal aspects and fairness?).
Overall this study generates a lot of ethical questions about monopoly and market control for the future.
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