How Disruptive Will Amazon Go Become?

On Dec. 5,

The idea of Amazon physical stores seems to run counter to its successful online operations, which offer tremendous scale advantages. That said, we see a few reasons that this endeavor could succeed. First, by eliminating checkout and automating inventory replenishment--both of which could drive higher inventory turns versus traditional grocers--Amazon could effectively offset its lease costs. Second, we believe Amazon views physical stores as an extension of its logistics capabilities. While an 1,800-square-foot format would be too small to handle a high volume of order pickup/returns, we could see larger formats offering these capabilities. Third, by tying the service to a mobile app, it bolsters the network effect behind our wide moat rating while unlocking order frequency and targeted marketing opportunities. Finally, and perhaps most importantly, Amazon's well-earned reputation for convenience--a component of our brand intangible asset moat source--could be enhanced by checkout-free shopping.

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