Four years after opening its first cashierless stores, Amazon.com is a long way from becoming a household name.
A strategy is gradually emerging that could make Jeff Bezos' company a lot of money without opening a single store.
Selling groceries is not a good business these days. Often, selling software is.
The tech is pretty nifty. Shoppers fill their baskets and then leave without having to check out. The cost is deducted from their accounts.
There is a display at an Amazon Go store.
Amazon was drawing a new line of battle with brick-and-mortar retailers. There are only 30 Amazon Go locations in the U.S. and the U.K.
Bezos and his lieutenants seem to be getting ready to take control of the operating system for the world's shops.
Amazon has signed a lot of deals this year to give its Just Walk Out technology to other stores. Starbucks opened a cafe in New York that uses the system the same week that J Sainsbury opened a trial store in London. It is being used at convenience stores at airports.
The market is similar to the one for the phone. If Just Walk Out is similar to the operating system of the world's most popular mobile phone, it is Amazon Go.
The arrangements could be more lucrative than just selling groceries. The cashierless store systems are software as a service and not proprietary technology. The technology can be licensed from Amazon.
The gross profit margin of the companies that sell software as a service is often 70%. Whole Foods Market had a 34% gross margin before it was acquired by Amazon.
Amazon's cloud business already accounts for more than half of the company's profit, even though it only makes 12% of its total revenue.
The source is Bloomberg.
The rationale behind cashierless stores is that they reduce costs. The grocery industry has tight margins that can make a difference to earnings. The National Retail Federation found that member stores lost on average 1.6% of the value of their products from theft last year. Stores can save money on staffing by employing fewer people. Stores can keep a better grasp on what they have in stock and what customers are buying.
Figuring out all those factors is not enough to close the profitability gap. Even if it were to fire every last one of its employees, it would still not be as profitable as a company such as Oracle Corp., because personnel represent 12% of total costs.
The companies have a risk as well, because supermarket employees worry about their jobs. Retailers are very cautious about how Amazon might use their data. That is the reason why REWE Group and AldiNord invested in Trigo.
Abandoning its plans for physical stores would be the best way for Amazon to soothe grocers. Being a service provider is more profitable. If Just Walk Out is the carrot, then the threat of Amazon Go is the stick.
When Same-Day Delivery Is Too Slow is next.
