Reimagining: Ready, Set, Amazon Go!
With so much talk about the overall dominance of Amazon to the retail industry, it’s easy to paint a picture of an imbalance of power and creeping influence. Yet, it would also be foolish to overlook the company’s ability to help retailers instead of monopolizing them.
Before we start, let’s align some facts. Though Amazon is substantially growing, it still pales in comparison to its arch-nemesis — Walmart. You can argue what the landscape will look like in the future, but as of this current moment, Walmart has more than 4x the employees and revenue compared to the internet giant.
With that said, stories of Amazon’s overarching reach should be put into perspective and assessed on relative factors.
Fear, Love and Hate
Let’s be honest, for the most part…we love Amazon, your neighbor loves Amazon, and investors love Amazon.
And earlier this year, we were given more of a reason to love the company. In January 2018, the company finally allowed consumers to experience its Amazon Go store. You know the hype — the store where you can walk in, walk out and never have to deal with a checkout line.
Needless to say, that’s a pretty big game changer and causes us to exude even more love for the company… while creating the same magnitude of fear from retail competitors and antitrust evangelists.
Let’s not imagine the end of retail just yet
But fear not, retailers! The future may not be as bleak and grim as your CEO may perceive it to be.
Executives may misconstrue the environment, thinking they’re going to “have” to play the pricing game, spend more money investing in R&D, and persuade investors that annual forecasts can be met.
Or worse…they THINK they’re going to have to build a store that competes in exactly the same way as their internet counterpart.
However, though clearly relishing in the uneasiness of their competitors, Amazon’s strategy for their high-tech store may not even involve blanketing the nation with new storefronts. In fact, the retail industry should breathe a sigh of relief and see Amazon’s disruption as one that will uplift the entire industry instead of paralyzing it.
The Wild Card
If Amazon does anything well, it’s their ability to throw a wild card and surprise. And with Amazon Go, the company has the opportunity to pleasantly surprise the retail industry and leave a positive lasting impact.
To do so will require thinking outside the norm. Most believe that with this new store concept, Amazon will start building brick-and-mortar stores across the country and crush everyone and anyone in their way.
Though the company may choose to strategically build in certain cities, the timeline and cost of this scenario would be astronomically long and capital intensive— taking decades and billions to reach full effect. To reach a quicker and more scalable presence, Amazon may opt to license the technology of their cashier-less store.
This strategy will then allow Amazon to revolutionize brick-and-mortar retailers — truly changing the experience of the industry.
It’s a no brainier
Look — Amazon is dominant, but it isn’t invincible. Both from a financial and social perspective, it faces many constraints. On that viewpoint, it is in the company’s best interest to create a future state that will not only enhance itself as a retailer, but the entire industry as a whole. Spreading the functionality of its new technology to all will allow it to do so.
From a strategic perspective, these are the points of consideration:
Amazon has cash, but doesn’t have enough to blanket the nation in one sweep
Licensing allows the company to expand reoccurring revenue streams
Strategic partnerships will further improve distribution networks and help crack the direct-to-consumer food industry
The Cash Balancing Act
Most of us tend to forget that a core part of Amazon’s business is with low-margin consumer products. We hear of volume upon volume of products being ordered from the site, which is essentially what should be happening — if you’re in a low margin business, you better be driving high volume.
With that said, compared to other companies (e.g, Apple, Microsoft, Alphabet), Amazon’s cash reserves are lower. But with some financial wizardry, the company has planned its cash flow to keep operations running smoothly.
This means Amazon doesn’t have the luxury of constructing countless brick and mortar stores and refurbishing all WholeFoods locations without any consequences to its balance sheet. Just like other layman companies, it must make strategic decisions on how it would like to allocate its capital. It does not live in a world of infinite reserves and cannot do whatever it pleases (though it feels the company can seemingly do so).
Expanding Revenue Stream
If it were to take the traditional retail route, and continue to open up physical stores, it limits itself to mainly profiting from goods sold in stores. But of course, Amazon is anything but traditional. By licensing the technology, it leaves the company to expand on multiple revenue streams.
These could include:
Technology licensing fees
Percent of product sales
Sales of data sets gathered through Amazon Go technology
And that’s the beauty of being a technology company — it can scale by not only selling more physical products, but also through creating a platform of users (e.g. other retail stores) for its products. By leveraging their proprietary technology, Amazon will gain more sustainable revenue streams, while expending minimal amounts of capital.
Strategic Partnerships
Instead of just having partners to license the technology to, Amazon can also use it as a backbone to leverage strategic partnerships to improve their distribution networks.
Think about it, Amazon can strategically pick partners who fall into their most pertinent industries or have locations that are most beneficial for them. For those lucky to be considered “strategic” the partnership could include a reduction on licensing fee or data fees, branding opportunities with the giant, and broadening consumer reach.
And of course, these strategic partnerships would create a further flywheel effect for the company:
Creating strategic partnerships would benefit not only Amazon, but would lead to a healthy retail environment for consumers — cheaper prices, and a better experience.
Overall, by licensing the Amazon Go store technology to others, the company will be able to garner the most reach, in the shortest amount of time, while continuing to grow itself with the least amount of risk.
Amazon.love
Let’s not forget, Amazon and Jeff Bezos have chosen to be loved rather than feared. In his Amazon.love memo written in 2013, Bezos details attributes to ensure that Amazon is loved by its own customers — keeping the core of its ethos and culture that the customer always comes first.
A few of his points include:
Defeating tiny guys is not cool.
Risk taking is cool.
Inventing is cool.
Explorers are cool.
Obsessing over competitors is not cool.
Empowering others is cool.
Capturing all the value only for the company is not cool.
Thinking big is cool.
The unexpected is cool.
Missionaries are cool.
Harping on this memo, bet on Amazon to build a story about serving the economy and retail community through this new store technology. Bet on retail. And without a doubt, bet on a better experience for the customer.
Note: Though other financing options will be available to the company, the article holds the assumption that it will expand without taking on additional debt or structured obligations.
Disclaimer: Partners in Company is not affiliated with Amazon or any of its partners. This serves as an op-ed on the company.