Many investors still consider primarily Amazon ( AMZN -2.66% ) as an e-commerce business. Others may see it as a cloud computing business, given that Amazon Web Services (AWS) is the most profitable segment of the business.
I tend to think of Amazon as an infrastructure company. The common link between e-commerce and the cloud is that Amazon has built a massive technology and distribution platform, which third parties then “plug in” and use to their great advantage.
Now, it looks like Amazon is potentially building a third new infrastructure, with equally scalable opportunities.
Ironically for a company considered an e-commerce game, this new infrastructure is for physical stores!
Just Walk Out sprint ahead
Although it’s been talked about here and there for a few years, Amazon now seems to be throwing its weight behind its “Just Walk Out” technology, especially in recent months.
For those who don’t know, “Just Walk Out” technology is an artificial intelligence platform that uses sensors, cameras and proprietary technology that allows shoppers to walk out of the store without having to wait in line and to pay a cashier.
Amazon opened the first Amazon Go store equipped with Just Walk Out technology in 2016, in a store on its campus. The original store was for employees only, before opening to the public for the first time in 2018. Small-format Go stores now number 42 in the US and UK.
However, what may be more exciting are Amazon’s new larger-format grocery stores called Amazon Fresh. Starting in late 2020, the new grocery format also includes Just Walk Out technology on a larger scale.
As the pandemic recedes, Amazon is now pressing the gas, opening Amazon Fresh stores at an accelerated pace. Amazon is expected to open three new Fresh stores in the coming days in Southern California, marking the company’s 14th Fresh store in the region alone and 30th in Southern California, Washington, Illinois, Virginia , Maryland, Washington, DC and Pennsylvania. Meanwhile, Amazon also plans to open stores in New York and New Jersey soon.
Oh, and remember Whole Foods, which Amazon bought in 2017? Amazon is also retrofitting select Whole Foods stores with Just Walk Out, outfitting two stores in DC and Southern California with the technology in January and February.
Third parties embark
While Fresh stores are great, what makes the Just Walk Out opportunity really huge is if third-party retailers start to feel they need to embrace the technology to stay competitive. After all, a cashier-less experience is not only faster, but reduces labor costs and generates higher throughput. These benefits should allow Amazon, or any store that uses Just Walk Out, to set lower prices than those that operate with old-fashioned cashiers. Once this best experience kicks in, it will be hard to go back.
Just as Amazon opened up its own technology infrastructure to other companies, resulting in the behemoth that is AWS, it is also opening up its Just Walk Out technology to other retailers. Third parties that have already adopted the technology include Hudson convenience stores, Resort World Casino in Las Vegas, and Climate Pledge hockey arena in Seattle, among others.
However, in recent months, some even bigger brands have joined us. At the end of last year, Starbucks announced a concept store in New York featuring Just Walk Out technology. Also late last year, UK-based grocery chain Sainsbury’s opened a Just-Walk Out-enabled convenience store called SmartShop Pick & Go – the first international third-party Just Walk Out store. And less than two weeks ago, the Houston Astros unveiled two different Just Walk Out stores at Minute Maid Park.
The potential is hidden
Amazon management doesn’t talk much about Just Walk Out, and I don’t even know what segment they group revenue into. It could belong to the “physical stores” segment or the amorphous “other” category in its disclosures. Revenues have probably been insignificant so far.
And yet, it’s not hard to see how Just Walk Out could be a great future venture. Amazon’s e-commerce business takes a cut of every transaction, and AWS “rents” its infrastructure based on usage. All payment companies, from traditional banks and credit cards to fintechs, generally operate on the same principle of taking a cut of every transaction they enable.
Most likely, Amazon will operate profitable grocery stores, due to its technology and lower prices. But if Just Walk out technology is widely adopted by third parties in much of retail, where Amazon gets a small share of every transaction, one can see how Just Walk Out could become a giant Business.
Given the aggressive rollout in recent months, I’ll be looking to see if Just Walk Out is discussed in the Q1 earnings release after market close on Thursday April 28th.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.