Amazon Just Walks Out from Just Walk Out: Why The Checkout-Free Evolution Failed
Imagine a time where you pop into your local convenience store. You are ravenous, impetuously waiting to devour a cheeky meal deal without a second to waste. Your mouth is salivating, and you trick yourself, you begin to believe that your appetite will soon become satiated. You deliriously dash to the checkouts, and nothing will get in your way. Suddenly, you stand still, aghast with a feeling of immeasurable disappointment. You discover that there is a massive queue.
But wait! All is not lost, for our benevolent corporate overlords at Amazon have come to save us from all our troubles, to make us believe in this dream once again.
Unfortunately for Amazon, it seems that quite a lot has been lost. In a bid to diverisify their revenue streams and look for new methods of growth, Amazon set their sights on physical retail. In 2015, Amazon opened their first physical store, Amazon Books, in their hometown of Seattle. Since then, they have expanded their physical store footprint across the US and the UK, with a variety of store formats. This was soon followed by their first grocery convenience store, Amazon Go, in 2016. In 2017, they made the decision to purchase Whole Foods — an upmarket grocery store chain Americans often nicknamed “Whole Paycheck”. Amazon clearly seemed to buy into this mantra, paying an eye-wateringly hefty $13.7 billion dollars for the business. In 2018, they launched Amazon 4-Star, selling a smorgasbord of non-food products which maintained a review rating of above 4 stars on Amazon’s website. This expanded to the UK in October 2021, before being entirely shuttered in March 2022 (yes, they really expanded to a new market before shutting down in 5 months)! Hare-brained concepts such as Amazon Salon still stumble on to this day, but the success of Amazon’s physical retail portfolio has been nothing short of a complete and abject failure.
Why Amazon Sucks at Physical Retail
The formula to Amazon’s e-commerce success is quite simple — offering an unrivalled amount of choice, at affordable prices, while maximising convenience through their free and fast shipping. Amazon strives to create a frictionless shopping experience, using the vast swathes of data they collect on users to personalise their online experience. So in theory, it is easy to understand why they would want to apply this same methodology to physical retail.
With Amazon Books, they used data from online book and Kindle sales to help pick a selection of titles to range in their stores. With Amazon 4-Star, they used data from reviews and online sales to do the same.
With Amazon Go (later rebranded to Amazon Fresh), Amazon did not have as much data to rely on, with little to no experience in the notoriously hard to crack grocery industry. They needed a USP, and this is where the decision to focus on convenience starts to make a lot more sense. How could Amazon remove even more friction from grocery shopping? What innovation could they offer that was unique, something nobody else would offer? This is where Just Walk Out came in. Amazon had found a way to make payments effortless, as simple as picking up the items that you want and just walking out, without it feeling like you had made a purchase at all!
However, much like their other retail concepts, Amazon struggled to grasp the differences between physical retail and e-commerce. Amazon believed that their differentiator was technology, and their ability to view things from an e-commerce perspective offered them an unique advantage compared to the legacy supermarket chains who were asleep at the wheel. Sadly, physical retail simply does not work the same way as e-commerce does. People do not want to buy things just because they have good reviews — generally people have a need for a product and they want this need to be fulfilled. Amazon Fresh befell a similar fate, offering a bizarrely obscure product range while failing to stock products that people locally would actually need. Grocery stalwarts such as Tesco and Walmart have amassed decades of consumer data, tailoring their offerings so they are able to offer a range of staples nationwide, with additional lines to serve the needs of the local community. Meanwhile, Amazon chose to position Fresh as a higher end brand, offering niche, higher end products, at a premium price.
Price is another key area of contention with the UK grocery market being extraordinarily competitive, making affordability a key priority for consumers. The rise of Aldi and Lidl in the market share statistics has shown just how willing people were to move to a competitor, even with a more limited range, if it offered significant cost savings. Amazon aimed to charge a premium, lacking competitiveness in pricing while maintaining a poor product range, hoping that convenience would be enough to win over customers.
Plus, was Amazon Fresh even that convenient? During the times I spent in and around checkout free stores, a staff member was employed to stand at the door and explain the technology to people. When customers walked in, they were greeted by barriers and being told to install an app, create an Amazon account, add a payment card and scan a QR code — it sounded like an alien language to many of them. Most people are simply not technically savvy, and this lead to counterproductive results — the thought of all of this fuss was so unappealing it added friction to the process. Instead of changing their behaviour and learning how to use Amazon’s system, they chose to “just walk out” and head to a normal store instead.
So for a company trying to leverage their winning formula in a new industry, did Amazon deliver? The answer is painfully clear. Amazon Fresh offers a poor product range, with poor pricing and a process with plenty of friction.
So much for machine learning
Amazon have tried to make improvements to the store concept, improving their product range, adding Krispy Kreme doughnuts, an easier to understand meal deal, and card payments. In some stores, they added self checkouts, or even the most innovative solution of them all — manned checkouts. However, all of this seems to have come too little too late, with multiple stores closing, and many branches seemingly emptier than a crypto account at FTX. The recent news that Amazon plan to axe Just Walk Out technology in the US shows that this technology failed to resonate with customers and pull them away from the competition. As a result, Amazon have decided to pivot to doing what the competition has been doing for years. While it is meant to be business as usual for the UK operation, it would not surprise me if they followed suit in this market, either renovating stores or exiting the market completely.
As much as I found the Just Walk Out concept fascinating, I did have some suspicion there could be some some manual checks involved. Receipts for Amazon Fresh often took hours or even a day to show up after leaving a store, which felt quite odd for a business with the computational prowess of Amazon. According to The Information, this was not a computing problem; Amazon allegedly had a team of 1,000 people in India manually reviewing Just Walk Out purchases. Instead of this checkout free, cashier less technology replacing human labour, it was merely moving this cost offshore. Given the substantial additional start up costs to install all the sensors and cameras in an Amazon Fresh store, the long term cost efficiencies from this model seem far more challenging to justify at scale than simply fitting out a store normally and hiring employees.
If Amazon really want to succeed in the grocery industry, they need to make urgent changes, focusing on what is actually important to customers. The forthcoming Amazon Fresh “version two” concept in the US, with Dash Carts, no Just Walk Out and a revamped store design really needs to prioritise a strong range, availability, convenience and affordability to compete. I find the current store fascia quite garish, sterile and unpleasant to shop at, so it would be fantastic to see some investment in better store aesthetics too. Amazon’s leadership have shown that they have no idea how to tackle the grocery market, so I struggle to see them turning things around, the future of these stores seem quite bleak. Perhaps a change of leadership will give Fresh a fresh start.
