Will Amazon Go Disrupt Retail Again?
That Amazon (NSDQ:AMZN) has completely dominated online commerce is beyond dispute-- Macquarie Research estimates that the company accounted for $0.51 for every $1 in e-commerce growth in the U.S. in 2015. And of course, the company is largely to blame for anemic growth by brick-and-mortar retailers over the past decade.
And now Amazon has flipped the script once again. The company has opened its first retail store-- one of a string of many to come according to a report by the Wall Street Journal. But this is not your average retail store. Let's take a closer look to know its implications on AMZN stock.
The first Amazon Go store in Seattle, Washington, is an innovative no-line store concept which utilizes a grab-and-go customer experience without the usual checkout. Let's take a closer look to know its implications on AMZN stock.Just Walk Out Technology
There are no registers, no cashiers, and no lines in an Amazon Go store. Customers simply walk in, pick what they want and walk out. All you need to shop in the store is your smartphone, an Amazon Go app, and an Amazon account. Once a customer gets to the entrance, they whip out their smartphone and hold it to a scanning device which looks and works like a subway turnstile. The customer then simply walks in and grabs what they need and exits the store. Amazon uses a combination of technologies identical to those found in self-driving cars including computer vision, sensor fusion, and deep learning to identify what the customer has purchased then charge it to their Amazon account and send them a receipt. The technology is able to identify when the customer returns an item to the shelf and keep track of what's in their virtual cart.
Amazon says the average store is about 1,800-square feet, smaller than many big supermarkets. For now the company is mostly selling ready-to-eat meals and everyday groceries, which skirts close to the territory of Chipotle Mexican Grill (NYSE:CMG) and Whole Foods Market (NSDQ:WFM). The company says the first store is still in beta and only open to its employees, but will be open to the public in early 2017. The company also plans to open 2,000 grocery and convenience stores across the U.S. with multiple formats including massive 40,000-square foot discount stores and smaller drive-thru retail shops in the coming years. (See Also: Amazon.com Inc: Is AMZN Stock A Multi-Bagger Stock Even Today? )
Source: Business Insider
Can Amazon Go become the catalyst that powers AMZN stock to $1,000?
You can watch the brief Amazon Go teaser video here.Retail Disruption
Stocks of leading retail players including Walmart (NYSE:WMT), Kroger (NYSE:KR),and Target (NYSE:TGT) have been selling off after the Amazon Go launch, indicating that the market recognizes the threat posed by Amazon's new retail play. It's a well known fact that customers hate those long queues at checkout, and that's one big reason why online retailers like Amazon have been flourishing. Ironically, the problem still exists in e-commerce where it's known as shopping cart abandonment. Studies have shown that shopping cart abandonment across multiple platforms averages 72%, and creeps up to 97% for mobile shopping due to problems like sites that take too long to load, small screens, and long checkout processes.
People will do anything in their power, including completely foregoing planned purchases, to avoid cumbersome checkouts. You can, therefore bet that Amazon Go will almost certainly become a hit with consumers. And, the revenue potential for Go stores looks good. Amazon says it plans to open 2,000 stores over the long-run, more than Target's current store count of ~1,800. Target finished 2015 with revenue of $73.8B. Assuming Amazon opens Amazon Go stores at a cadence of 100/year and each store brings in half the revenue of an average Target store, then Amazon could easily be looking at $2B in incremental revenues, or about 2% revenue added to top line growth.
Another valid reason why Amazon Go stores could prove to be a hit lies in Amazon being the suicide bomber of retail. Amazon is well known for its practice of cutting prices to the bone in a bid to steal market share from rivals, which of course hurts its own margins as well. But unlike in the past when Amazon solely relied on its thin-margin retail operations to drive the bottom line, the company now has AWS, a fast-growing and solidly profitable cloud business. The company, therefore, has even more leeway to compete even in industries with razor-thin margins. Amazon can easily take the Go concept to adjacent retail industries including drug stores, retail stores, office supply stores, and maybe even wholesale retail stores such as Costco (NSDQ:COST).
Other than opening Amazon Go stores, Amazon can develop the Just Walk Out technology to a level where it can license it to other retailers, and in the process create a nice recurring revenue stream.Big Opportunity But Risks Abound
Amazon Go is certainly one of the most innovative concepts to hit the retail landscape. The fact that it seeks to solve one of the thorniest problems in the industry gives it huge growth opportunity. But at the same time, there's no guarantee the concept will work. For instance, the use of camera tracking systems, and AI in facial and user biometric recognition could raise genuine privacy concerns. It's also hard to tell how successful the system will be at stopping theft and fraud in unmanned stores.Investor Takeaway
Still, I believe Amazon has a fair chance of making the system work. After all, this the same company that has perfected same-day deliveries, a retail concept that for decades proved incredibly hard to pull off due to the complexity of the logistics involved. Amazon is also testing another utopian concept--drone delivery--proving the company is never afraid of innovating and thinking outside the box. AMZN stock still sports a rich valuation. But given the potential growth opportunities that innovations like Amazon Go open up, investors who buy now for the long haul could be richly rewarded.
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