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Is Amazon's Cashierless Store a Tough Competitor of Walmart?

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Amazon.com, Inc. (AMZN - Free Report) made a strong push into the American grocery industry earlier this week as it launched its first cashierless supermarket in Seattle. This grocery store concept has been up Amazon’s sleeve since 2015 but the retail giant is finally equipped to face challenges that come with such a shopping outlet.

In addition, unlike the company’s other ventures in the grocery industry, such as its Go Stores and Whole Foods stores, this new grocery shopping vision stands to revolutionize the way its customers shop and at what scale.

Cashierless Store Fortifies Amazon’s Physical Retail Footprint

Amazon’s biggest advantage with regard to its new cashierless store is its massive online presence. This is evident in the way the retail giant incorporated branding at Whole Foods stores and offered exclusive discounts to more than 150 million Prime subscribers. The company acquired Whole Foods Market for $13.7 billion in 2017.

Apart from the discounts, Amazon is offering a range of Whole Foods products for delivery via AmazonFresh, the company’s grocery delivery service.

Although Amazon started its first cashier-free convenience store in 2018, the newly-opened Amazon Go Grocery store spreads across a sprawling 10,400 square feet and stocks about 5000 products, which make it considerably larger than the former.

This means that Amazon handled a cashierless model before albeit on a smaller scale. Therefore a larger-scale operation wouldn’t be difficult for this retailer with the right technical expertise at its disposal, which it already possesses from its extensive online business.

Walmart is Yet to Match Amazon’s Expertise

Walmart Inc. (WMT - Free Report) , Amazon’s largest competitor, also unveiled its very own cashierless neighborhood market last month. The company may have started its new venture to meet ever-growing consumer demand, it still needs to address certain issues before turning its new project into a profit-making business.

Walmart to a large extent is a brick-and-mortar business that is on its way to become online. The company is trying to boost customer experience by shortening the checkout time with its cashierless store, which needs to overcome problems, such as unrecognized items in the bagging area, glitches with payment and traffic at the checkout kiosks.

In such a scenario, a cashierless, self-checkout-only market is expected to fight more challenges than a traditional grocery shopping model that has two options for checkout, one for lesser number of products and another with more items in the shopping cart.

Further, the company plans to lower its brick-and-mortar expansion, a decision evident in its confirmation to close seven of its Neighborhood Markets in 2019. These markets are small supermarkets that typically sell groceries. The closure of these stores raises doubts whether Walmart can handle small stores effectively.

Of course, operating a cashierless store would mean reducing labor costs and possibly boosting margins but unless the retail giant can address the aforementioned woes, the new venture wouldn’t aid customer experience.

Both Amazon and Walmart carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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