Will Amazon’s new shopping concept kill the impulse buy?

Can the world of big data and surveillance be any better than an old fashioned cashier?

The new Amazon Go grocery store in Seattle. Photograph: David Ryder/Bloomberg

The new Amazon Go grocery store in Seattle. Photograph: David Ryder/Bloomberg

 

It is at this time of year that office postrooms begin to experience what is known in the plumbing trade as a “total system back-up”, as employees have the fruits of their online Christmas shopping sprees shipped to work rather than home.

Since online shopping feels efficient and frictionless, we assume that it is. But speak to postal workers and they will tell you it is not. The responsibility for storage, security and full-time staffing for 24-hour mail delivery has been shifted to the nation’s private post rooms, many of which are unequipped to deal with the burden. Concierge desks are now deemed essential in modern property developments but the soaring service charges that go with them reflect the real cost.

For some businesses, the processing of personal packages can consume as much as 80 per cent of a building’s postal resources. In the Christmas period, additional personnel must be recruited to deal with the increased workload. While some employers will view a properly staffed post room as a mutually beneficial company perk – it keeps employees from straying too often in the working day – not all are as accommodating.

This is why the new trend in online retail is for physical pick-up points. Consumers can collect their goods at leisure, safe in the knowledge that the items are secure in the interim. If consumers are smart, they can even plan their orders to reduce the number of journeys they have to make.

There is one overarching problem with this set-up, however. The organisation it requires on the part of the consumer radically reduces opportunities for retailers to profit from impulse purchases, which is where the real money is to be made in the retail trade.

Risk

As Adam Smith, the father of political economy, observed as far back as 1776, if it was not for shopkeepers taking the risk of holding stock that suits the occasional demands of those who want them, “every man would be obliged to purchase a greater quantity of the goods he wanted than his immediate occasions required”. That is to say, consumers would be forced to order everything they may need in advance, and to excess, so limiting their capacity to benefit from unexpected surpluses.

How long, then, until the depots – where customers pick up their ordered, paid-for bundles – see the economic sense in parading non-essential items to woo customers into buying the high-margin goods that really make these ventures worthwhile?

As it happens, Amazon, the online retailer, announced this week that it would be opening its first physical grocery store. What makes this retail experience more than the simple reinvention of the shop is that Amazon plans to do away with the “friction point” of the checkout. Instead, sensors, big data and artificial intelligence will track you and your purchases through the shop, allowing you to walk out with any impulse buys.

Contract

But if you consider the checkout experience as a way for retailers both to control against unexpected stock depletion (theft) and gauge the scale of the margin they can charge for servicing consumers’ unexpected needs, you can see why this could be problematic.

It unhinges the unspoken contract of the retail trade: the retailer, in exchange for the risk and cost of catering to consumers’ unexpected whims, gets to profit from a margin. Yet, if consumers have to open themselves up to surveillance in order to make impulse purchases, then the retailer – who now sees you coming – is not really fulfilling that role any more.

This invites the question of what is more cost effective: a retail system that replaces the expense of a cashier with that of CCTV surveillance, coding, big data processing, security guards and enforcement – or the system we have already?

- Copyright The Financial Times Ltd 2016