The Morning Journal (Lorain, OH)
Can this startup protect retail stores from Amazon?
For retail stores watching helplessly as Amazon wolfs down the contents of America’s wallet, news that the company’s first move after its $14 billion Whole Foods acquisition would be cutting prices struck like a gong of doom.
When a voracious online giant that already threatens virtually anybody selling anything takes its technological wizardry and leaps into brick and mortar, what is a competitor to do?
Fight fire with fire, says a company that’s just started selling a system for checkout-free shopping that strongly resembles the “Just Walk Out” concept of Amazon’s prototype “Go” store that it launched for testing in December.
Standard Cognition’s camera-based, artificial intelligence-powered system aims to save retailers money on labor and shoplifting prevention, while giving them a powerful selling point for customers: no checkout lines. Ceilingmounted cameras track shoppers and the items they pick up, with computer vision software identifying each item so the customer can be charged electronically via an app on their way out.
The system’s beta launch — at a pop-up demonstration store in Santa Clara, California — comes at a time when retail companies of all types and sizes are losing business to Amazon. The Seattle giant is transforming American shopping habits and drawing consumers away from brick-and-mortar stores into an e-commerce realm where Amazon is approaching a 50 percent share of all online U.S. sales.
But while experts agree that Amazon’s e-commerce domination and its moves into brick-and-mortar retail could be fatal for many smaller competitors, opinion is divided on whether Standard Cognition can save them.
Although online commerce is eating away at sales, brick-and-mortar remains American retail’s biggest battleground, with more than 85 percent of transactions taking place in actual stores, said Gene Munster, a managing partner at venture capital firm Loup Ventures and a former Piper Jaffray analyst. The way Munster sees it, shops, stores and chains facing annihilation by Amazon have only one hope: embrace the machines.
“If retailers are going to want to survive they’re going to need to automate the brick-and-mortar experience,” Munster said. “Consumers hate waiting in line.”
Standard Cognition’s system, Munster said, would confer an additional benefit: with minimum wages going up in many areas, stores are under increasing financial pressure from the labor-intensive inventory tracking that Standard Cognition would automate.
But for Wedbush Securities analyst Michael Pachter, the many digital eyes that make Standard Cognition’s system work would be a big turnoff for customers.
“It sounds idiotic to me,” Pachter said. “People don’t want to be on camera. If I have a choice between a store that has a camera view of every square inch of whatever I do, and a store that doesn’t, I’ll go to the other store,” Pachter said.
Personnel costs for cashiers are considerably lower than for the managers and specialty staff such as butchers who would still be necessary at many stores, Pachter added.
“Do you get rid of the box boys, too?” Pachter said. “How do the groceries get put in your bags? Oh, you have to do that yourself? I’ll go to the store that has a box boy.”
The convenience of checkout-free shopping appealed to Melissa Morris, 28, of San Jose. A newly graduated speech pathologist shopping at Whole Foods a few blocks from Standard Cognition’s demonstration shop, Morris said customer-tracking cameras in a store wouldn’t deter her.
“I’d be OK with that,” Morris said.
Experts may debate the future of Standard Cognition, but for now, the startup is seeing considerable interest from retail companies, said chief operating officer Michael Suswal.
“Mostly what brings people to our table is the autonomous checkout,” Suswal said, declining to identify potential customers. “That really excites them.”
Suswal is one of five tech experts who had been working together last year at the Securities and Exchange Commission and developed the concept for Standard Cognition in their off hours, he said. In December, after they’d spent months working on the budding startup, Amazon opened up its “Go” cashier-free store, and the group thought their grand plan was dead.
“That kind of threw a wrench into things for a few days,” Suswal said. “We were depressed for like a week. Then we realized this is a good thing for us, it shows that the market is ripe, and we should go harder.”
Also, Amazon’s purchase of Whole Foods struck fear into the hearts of grocery companies and other retailers, making them receptive to Standard Cognition’s pitch for a platform that could help them even the playing field with Amazon, Suswal said.
Amazon has been cagey about how its system works, stating publicly that it’s based on detecting when goods are removed from a shelf by a customer wielding a smartphone and app.
While Amazon owns the store where its Go system is deployed, Standard Cognition aims to provide its platform to retailers to use in their own stores. They would buy or rent the system, or obtain it on a feefor-service basis. Retailers would also get anonymized data on shoppers’ habits.
By eliminating cashiers, the system’s users would save on labor, a particularly important area of cost for smaller companies and chains confronted with today’s rising minimum wages, Suswal said. And with every item in a store tracked, expensive auditing of shelf inventory is automated, he added.
Because the system essentially keeps a constant eye on everything and everyone in a store, shoplifting — which costs the average retailer more than $300 per incident, according to the American Retail Federation — can be severely curtailed, Suswal said.
Getting rid of cashiers offers two additional potential benefits, he said. Shops with no cashier stations can provide the same volume of goods in a smaller space, and for all stores, “they’re also able to reclaim the most valuable spot in the whole store which is the front … and use it for selling things rather than doing transactions,” Suswal said.
The company expects to announce partners for pilot operations in four to six months.
Wedbush’s Pachter maintains that a noncamera-based system such as the one in Amazon’s Go store has all the effectiveness of Standard Cognition’s system without the off-putting cameras. And for all retailers but the largest — think Costco and Walmart — and those selling mattresses and other large goods people want to try before buying, efforts to strengthen their position are futile, Pachter said.
Amazon, Pachter said, is “destroying brick and mortar,” and even its purchase of Whole Foods was designed to push consumers toward online buying, with Amazon Prime members ordering grocery deliveries via Amazon Fresh and the 350-plus Whole Foods stores becoming refrigerated distribution centers.
“If retailers are going to want to survive they’re going to need to automate the brickand-mortar experience. … Consumers hate waiting in line.”
— Gene Munster, analyst