Amazon is coming for the small corner store

The conventional wisdom held that brick-and-mortar retail was ailing. Perhaps all it needed was a tech upgrade.

The future of shopping has been in the headlines recently, as Amazon recently announced plans to open up to 3,000 of its cashierless Amazon Go stores, and Standard Cognition, another cashier-free corner store concept, opened up its first location in San Francisco.

While there’s a world of difference between the trillion-dollar retail behemoth and a well-funded startup testing computer vision and machine learning, both stories suggest the wave of new technology expected to upend retail is already here.

Is Silicon Valley gunning for the small corner store as e-commerce—and rising commercial rents—have already created blocks of shuttered storefronts? The convenience store industry makes for a lucrative target: According to NACS, the industry trade group, the nation’s 155,000 convenience stores sold a record $233 billion worth of goods in 2016.

The Amazon effect has already put pressure on big box stores to become more efficient and experiential. Perhaps the next step in Jeff Bezos’s grand strategy is challenging smaller shops in walkable neighborhoods. Set the backlash against Bodega—the store-in-a-box concept that elicited the Internet’s collective rage—aside for a moment. These investments and expansion plans suggest a significant strategy shift when it comes to small-scale retail.

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Amazon’s IRL retail strategy

The biggest perceived challenge is Amazon’s entrance into the market. While the online seller has already established a large physical footprint, via its bookstore concept, delivery pickup lockers, and Whole Foods acquisition, these stores would dramatically increase the company’s retail touch points.

There’s a much wider strategy at play than simply entering the retail world, according to a CNBC story. Amazon has found that online sales actually go up in areas with physical stores. Brick-and-mortar serves as an awareness driver, which pushes more sales.

Many analysts believe that despite being hyped as a new type of convenience store, Amazon Go isn’t aimed solely at that market. Bezos has said the company was only interested in physical stores if they had something new to offer, not a “me-too” kind of product. The Motley Fool thinks that Amazon will target upscale areas, and, lacking gas as a customer magnet, will need to make up the difference with higher quality, high-margin food. Bloomberg sees the Amazon Go experiment becoming a larger threat to high-end, quick-service eateries, such as Pret A Manger (think of the benefit of combining Whole Foods supply chain and expertise with dozens of distribution centers downtown).

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Meeting (and selling to) consumers where they are

One thread that unites Amazon’s disparate businesses is a desire to be the world’s largest vertically integrated business, according to Cooper Smith, Director of Amazon Research at Gartner L2, a New York-based business intelligence firm. As Smith told Retail Touchpoint magazine, Amazon wants to become the “ultimate purveyor in the marketing, selling and transportation of goods.”

Opening 3,000 stores may not be as important as opening 3,000 last-mile distribution centers. According to Gartner L2 data, 31 percent of the U.S. population lives within 20 miles of an Amazon warehouse (compare that to Walmart, which boasts a store within 20 miles of 98 percent of Americans).

Amazon’s voracious hunger for warehouses, part of a larger bid to expand and expedite its logistics and shipping network, has helped make industrial warehouses in upscale neighborhoods a hot commodity. In this light, Amazon Go stores may be as valuable, or more valuable, as pick-up points and mini-fulfillment centers for wealthy urban consumers; selling goods is just another part of monetizing urban real estate.

Amazon Go stores also help the company gather more of its favorite resource: consumer data. The company already has some of the most actionable data about purchasing behavior. And, selling space on its product pages has made Amazon the third-largest online advertiser. Why not expand what marketers call the product funnel—the path buyers take online to purchase a product—and extend it into the real world? Incorporating the in-store behaviors of consumers can only build Amazon’s considerable understanding of how and why we buy.

Other stores have already made this data-driven design a huge part of the in-store experience. Nike’s new Nike Live concept store in Los Angeles, which opened this past summer, utilizes local shopper data to adjust inventory based on neighborhood preferences. Standard Cognition, the cashier-free startup, brags about being able to understand nearly everything about shoppers, including what they’re looking at from across the store.

“Imagine having a photographic memory and recalling everything that happens in the store,” co-founder Michael Suswal told Curbed.

The flood of new high-tech convenience stores offers a vision for a sort of convenience 2.0: shelves stocked via algorithms and machine-learning—and staff-free shopping that knows what you want before you do. It’s a coldly efficient view of commerce, with the personal touch reduced to quicker, data-driven deliveries of the items you need.