Amazon is now focusing on selling cashierless technology to retailers after removing it from most U.S. stores.

In 2012, Jeff Bezos, the founder of Amazon, was questioned by TV host Charlie Rose about the possibility of Amazon launching brick-and-mortar stores. Bezos stated that existing physical retailers were sufficient for meeting shoppers' needs, and Amazon had no intention of introducing a "me-too" product.

"Bezos stated that they want to do something unique to Amazon and if they can find that idea, they would love to open physical stores."

In 2016, Amazon introduced a new retail concept with its first Amazon Go convenience store, which utilized "Just Walk Out" technology to revolutionize shopping in brick-and-mortar stores.

Amazon's Fresh supermarkets and Whole Foods locations now offer cashierless checkout, allowing customers to load up their cart and exit the store without standing in a checkout line. In 2020, the company began licensing its Just Walk Out technology to third parties, signing on retailers in stadiums, airports, and hospitals.

But the company has since taken a sideways turn.

In April, Amazon discontinued cashierless checkout in its U.S. Fresh stores and Whole Foods locations, which aligned with CEO Andy Jassy's efforts to control expenses in response to evolving macroeconomic conditions.

Amazon has recently launched a few new Fresh stores, while also reevaluating its retail plans. The company has discontinued some of its retail chains, closed eight Amazon Go stores, and put a hold on new Fresh store openings.

Amazon Fresh stores and Whole Foods supermarkets will feature Dash Carts, which track and tally up items as shoppers place them in bags, allowing people to skip the checkout line. In contrast, Just Walk Out is used in Amazon's grab-and-go marts and UK Fresh stores, which require ceiling-mounted cameras, shelf sensors, and gated entry points.

The challenge for Amazon and other startups developing autonomous checkout is to expand it to numerous locations and retail categories, making it a seamless part of in-store shopping, according to Jordan Berke, CEO of retail consulting firm Tomorrow.

"Berke stated that it is an uphill battle for technology providers, including Amazon, to subsidize and continue investing in training retailers, consumers, and markets to trust and rely on technology as a mainstream experience in stores."

'The hardest problem to solve'

In 2018, Amazon planned to open up to 3,000 Amazon Go stores within a few years, according to Bloomberg, who cited sources familiar with the plans. At that time, the company saw Just Walk Out as a key component of the shopping experience in its physical stores.

Amazon's pursuit of dominance in the $1.6 trillion U.S. grocery market was aided by Bezos assigning top talent from across the company, including a longtime Amazon executive who created the original Kindle e-reader, to work on cashierless checkout technology.

The launch of Amazon's Just Walk Out in January 2018 was a "quake moment" for the industry, prompting "almost every other retailer" to follow suit and develop their own vision-based checkout systems, according to Berke, who previously led Walmart's e-commerce business in China.

Berke stated that automating the checkout process is "the hardest problem to solve." Despite this, Amazon and other retailers have learned that cashierless checkout systems require a significant upfront investment to cover the cost of overhead cameras and hiring staff to label and review shopping data.

Berke stated that in order to repay the investment, the store had to significantly boost its sales.

Berke stated that a retailer would require between $10 million and $15 million to implement a computer vision-based checkout system in a 40,000 square foot supermarket, as determined by Walmart teams during a cost analysis conducted in early 2019.

The development of Just Walk Out technology cost Amazon around $1 billion annually in 2019 and 2020, according to Berke. This includes research and development expenses and capital expenditures. A former Just Walk Out executive who left Amazon to join Walmart provided these figures. Amazon did not provide a comment on the figures.

Berke stated that many retailers have shifted from computer vision to simpler methods, such as mobile checkout through an app.

Self-checkout is being reconsidered by retailers such as Walmart and Kroger due to theft concerns, and they are adding more traditional checkout lanes.

Amazon has inked deals with over 200 third-party stores to install its cashierless system, Just Walk Out. The company expects to double the number of third-party Just Walk Out stores this year, according to Jon Jenkins, who previously served as vice president of Amazon's Just Walk Out technology. Jenkins departed Amazon in late September to become technology chief of electric bike and scooter startup Lime.

Jenkins refuted claims that Amazon's decision to phase out Just Walk Out from its own supermarkets indicates a decline in the technology's effectiveness. He emphasized that Amazon demonstrated the technology's capabilities through tests in its own grocery stores, where it was deployed in large supermarkets with 600 people simultaneously.

Autonomous systems for supermarkets and convenience stores have been developed by other startups like AiFi and Grabango, but their adoption has been slow due to the high cost and complexity of operating the technology in large store formats.

Inside the lab

Amazon is still fine-tuning its Just Walk Out technology.

In August, CNBC obtained the first on-camera glimpse of a prototype convenience store where Amazon tests its system prior to implementing it in third-party retailers and its own establishments.

The "beverage base camp" testing lab, located in Amazon's Seattle headquarters, has faux gates that simulate scanning your smartphone or credit card to enter a Just Walk Out store. The walls are filled with typical grab-and-go products such as Milky Way bars, pita chips, and gum, and there are coolers stocked with cans and other beverages.

Amazon utilizes LiDAR machines or iPads to create a 3D scan, which aids in determining the optimal camera placement for clear vision in its Just Walk Out stores.

Jenkins stated that the objective is to minimize the number of cameras, so we strategically position cameras to ensure comprehensive coverage of each fixture in the store.

The AI system of Amazon's Just Walk Out technology was updated in July to handle multiple inputs, including 3D scans, product images, video footage, and weight sensors on the shelves.

The new "multi-modal" system can generate receipts more quickly and accurately by predicting which items shoppers have picked up and put back on shelves. This should make it easier, faster, and more efficient for retailers to deploy the system in their stores.

Amazon's main objective is to sell technology to third-party businesses and use it in small to medium-sized stores, where the system typically generates a better return on investment, according to Jenkins. Additionally, Amazon started selling its connected grocery carts to third parties earlier this year.

In a Just Walk Out store located within Seattle's Lumen Field, the company reported a 112% increase in sales last season, with a 85% increase in transactions occurring during games.

"Jenkins stated, "Our own stores served as our laboratory to develop and launch this project. However, the success of this project and product will ultimately depend on third parties adopting the technology. There will always be more third-party stores than first-party stores in the world.""

In the past, Amazon has utilized a similar strategy to launch its successful cloud-computing unit, Amazon Web Services, to support its growing online retail business's IT infrastructure needs. Recently, the company has utilized its logistics and fulfillment network to provide services for third parties.

Amazon must convince retailers to trust them with valuable shopper data through the use of Just Walk Out technology.

In 2022, Amazon shifted the team responsible for Just Walk Out from its retail division to AWS, indicating its commitment to selling the technology to other retailers and potentially alleviating concerns among competitors.

In an interview, Sucharita Kodali, retail analyst at Forrester Research, stated, "It's evident they're in sales mode."

Amazon still has a "long way to go" before technology is ubiquitous, according to Kodali. To achieve this, Amazon investors must exercise patience and demonstrate that both retailers and shoppers are adopting the technology.

"It will take a long time for the viral effect to occur because you need to cycle through everyone in America experiencing this, and for the most part, it's Amazon fighting this battle alone."

Amazon is investing heavily in cashierless technology and plans to sell it to other businesses.