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the quality and value of what customers get for their dollar these days has regressed across the board yet it's customer experience that has suffered most as the basic core services like support and checkout have all been ripped up so companies can try to make more money with less when you shop at any retailer or Supermarket these days you'll find yourself generally funnel to self checkout where you're stuck watching people in front of you awkwardly fumble finding barcodes bagging their own groceries and panicking whenever the machine shouts at them or the screen freezes there's usually only one worker who's overseeing everything and when ever a problem occurs everyone has to wait on them for a resolution all of which translates to
a longer wait time higher margin for error and frustration to add insult to injury you had no choice in any of this as a consumer even if you wanted to go back to the normal checkout aisles where a cashier scans and bags for you can't because those aisles are either closed or they're so short staffed that the lines there are even longer than those at self checkout all of this Tech suddenly appeared Nationwide in the mid-2010s since the debut of self- checkout retailers from Kroger and Walmart to Target and Home Depot have all publicly gaslighted that self checkout is faster and that these machines are not there to replace workers but to instead free them to be more productive they stuck to this script year after year despite the
continuous backlash and disapproval and their stocks collectively grew as Wall Street applauded these Investments believing that Tech Innovation would unlock unprecedented efficiencies and profits for these age-old overhead intensive businesses fast forward just 5 years and self checkout has largely been a flop most retailers have backtracked ripping out their machines and going Back To Human cashiers while a few chains have continued to Gaslight that self checkout is still the future the reality is that even they are scaling back restricting the conditions in which consumers can use these machines self checkout has been a flop not just in the US but also overseas and all of these
retailers are hoping to sweep things under the rug while the market obsesses over AI ultimately the retail industry is just as confused as everyone else as there's been no Clarity in the data is getting rid of a few part-time cashiers making $10 to $15 an hour actually even meaning business-wise if you're spending millions of dollars on loss prevention security and self checkout technology did retailers who installed self checkout machines end up saving more money or improving their profits and how did such a conservative disciplined industry get caught up in this hype what does the future hold in business ask nine experts and you'll get 10 answers analysts will say inflation is down one
month and then up the next it's the same constant Whiplash with unemployment jobs reports and the health of the economy could someone please invent a crystal ball until then over 41,000 businesses have future proof their business with netw sweep by Oracle the number one Cloud Erp bring accounting Finance inventory and HR into one fluid platform with one unified business management Suite there's one source of Truth giving you the visibility and control you need to make quick decisions with real-time insights and forecasting you're peering into the future with actionable data when you're closing the books in days not weeks you're spending less time looking backwards and more time on
what's next modern MBA is small at the moment but as soon as we scale we'll need and use netw Suite today we're stitching things manually and it's gotten harder to assess our business Health we need to track production costs to run payroll compliant with multiple States and to evaluate profit and loss by team and project as a corporation we pay tax throughout the year and it's a nightmare jumping from system to system just to get one answer these are capabilities that only netsuite provides and it's a platform that we intend to take every advantage of whether your company is earning millions or even hundreds of millions netw Suite helps you respond to immediate challenges and
sees your biggest opportunities speaking of opportunities download the cfo's guide to Ai and machine learning at netsuite.com sodern MBA the guide is free to you at netsuite.com slod MBA netsuite.com sodern MBA retail is a tough industry it's a capital intensive High overhead business where even the Giants squeeze out 4 to 8% operating margins a year whether it's pedaling fresh produce daily Essentials or cheap toys retail generates incredible cash flow as the industry leaders gross more in a single year than even the big tech companies but gross earnings are not the same as net 60 to 70% of every dollar that a retailer earns goes to buying products even with economies of scale
the product costs for the leaders with the best volume and the greatest wholesale discounts like Walmart and Costco still end up in the 60 to 70% range if anything their product costs are generally higher as these Giants have to spread themselves thin to carry something for everyone on the flip side the more specialized a retailer is like in Home Improvement or an organic produce the lower their product costs will be but once again they're still in that 60 to 70% range with only 20% gross profit left after paying for the goods and getting them delivered to the stores retailers have to clamp down on everything else to squeeze out profit they generally hire low skill workers at minimum wages pay below Market rents as
anchor tenants control hours and rely on part-time seasonal staff to stock shelves handle sales and maintain the space around the clock for every dollar that retailers earn they generally spend another 15 to 30% on labor which leaves an operating margin of just a few single digits there's little profits in this line of work and it's been this way for decades with tiny margins and high overhead retailers by Nature are conservative careful and Frugal there's no such thing as fast growth in this industry they don't have the margins to make moonshot bets every quarter and they have to be financially disciplined with their asset heavy people intensive volume model as a result retailers Excel
as defensive reliable Investments but in the zero interest environment of the 2010s investors wanted upside not security it was in this period when tech company skyrocketed as their stocks consistently outperformed those of any other industry year after year even though most tech startups lost money their fundamentals compared to retailers were incredible with massive 70% plus operating margins Tech was the exact opposite of retail in the early 2010s every retailer focused on the same strategies their goal was to open up more stores to add loyalty programs to expand product variety and to drive more inore traffic consumer confidence was fragile exiting the Great Recession and
retailers were focus on getting them back in the door and spending there were no Grand speeches of innovation or radical ideas about the future but everything changed in 2016 suddenly every retailer overnight began talking about Automation and Technology despite having zero issues with it before the checkout aisle became the industry's Public Enemy Number One this was the Amazon effect it was in 2016 when Amazon launched its futuristic store where customers could walk in take the items they want right off the shelves and walk right out with computer vision deep learning smart sensors and the same autonomous technology that was fueling the self-driving and iot hype at the time Amazon boasted that it had
revolutionized retail by opening the first store in history without checkout customers would never need to wait in line again labor costs would be dramatically lower as this technology would directly replace cashiers and checkout aisles everything was automated and these stores only needed one or two workers on hand to restock shelves as needed in this fast growing era of on demand digital everything like uber and door Dash it wasn't a stretch to imagine that customers would be willing to pay a greater premium and spend even more with such extreme convenience and from the business side what had once been an unavoidable error-prone variable cost could now be eliminated permanently with
this onetime investment in hardware and software given Amazon's track record the media hype and the all-time high positive sentiment towards Tech the public believed every word out of Jeff bezos's mouth even though the first store was really nothing more than a proof of concept retailers overnight got spooked if Amazon opened up more of these stores it would be hard for their C customers to go back to waiting in line at their stores and they would look like dinosaurs in comparison at the same time there was no way that a retailer could ever catch up to Amazon's engineering Talent there was some initial speculation in the industry that Amazon go was just a testing ground and
that Amazon's actual goal was just to eventually license out this Tech to these retailers for a fee but those hopes were dashed when Amazon suddenly acquired Whole Foods a year later Whole Foods provided a huge customer base supply chain perishable expertise and a nationwide presence and Amazon could embed its technology and aggressive Silicon Valley datadriven approach into retail directly with a purchase price of $14 billion the biggest acquisition to date in company history it was clear that Amazon wasn't going to settle for being a back-end software vendor Jeff Bezos had killed off book stores before and he was now taking on supermarkets head-on there was no one else in the
world more qualified and more committed to disrupting the remaining retail Giants 8 years later we know now that the supposed groundbreaking technology behind Amazon go was not actually real all Amazon had done was to replace local human cashiers with a thousand remote workers in India who had to manually review the footage to see what items customers actually picked up and walked out with seven out of every 10 transactions needed to be manually verified by this remote team meaning only 30% of the sales were actually automated beyond the issues of accuracy the technology from the lens of hardware and software was not actually scalable a single Amazon ghost store required thousands of state-of-the-art cameras
and fiber internet Amazon has since quietly retreated back to Convention checkout and local human cashier for Whole Foods and for its own stores and in the past year they've laid off hundreds of employees from its Amazon go teams closed down the vast majority of its stores across the US and Europe and ripped out the cashier list just walkout turn Styles and Whole Foods but back in 2016 no one had any idea at the time that Jeff Bezos was just blowing smoke it wasn't just retailers who were spooked but also Wall Street who began demanding answers for better or worse Amazon had become a forcing function they had established a standard and identif fight a specific area for automation that everyone else in retail
needed to live up to how would the industry leaders like Kroger Costco and Home Depot compete with Amazon's new people light High automation stores could they ever transition to make their checkout self-service just like Amazon go and within a year self checkout became priority number one for the entire industry it was a gold rush without the gold for leaders like Walmart Kroger and Target they were eager to demonstrate that they weren't actually dinosaurs waiting to be disrupted but instead equally capable of adapting to the latest trends and creating their own proprietary technology in return they could maintain their valuations and grow the appeal of their stock in what was a tech dominant
market yet retailers of all sizes were under pressure to show progress towards self-checkout smaller chains like Dollar General and Sprouts didn't have the war chest of a Walmart or a Kroger to throw millions of dollars hiring engineers and building machines they also didn't have the incentive or the urgency to reinvent themselves in the eyes of Wall Street as some Progressive modernized Corporation they only needed to Reach This Bar not exceeded ultimately the Clock Was ticking and the industry as a whole needed to get self checkout up in running ASAP to remain competitive they would never be fully automated and entirely cashier list like Amazon but if they could get customers to scan and bag
their own groceries if they could start removing their existing checkout aisles and start hiring less cashiers then everyone would in theory be closer towards realizing this future the fastest option was to Outsource and there were two companies who were eager to provide the hardware and software shovels for this faux Gold Rush ATMs were the earliest and most successful example of retail automation where customers could self-service themselves on machines and banks in turn could hire less tellers in the US there was NCR and in Europe there was dbol nixdorf both companies made their fortunes building and selling ATMs to Banks but there's only so many banks in the world who need ATMs and so much Innovation to be had
with cash withdrawals and check deposits by the late 90s the ATM Market had been completely saturated as a result growth was slow through the 2000s and both companies desired to introduce self-service to other Industries places like airports car rentals concerts and hospitals were all opportunities where staff could be easily replaced with a machine but NCR and diebold were only vendors and suppliers they could only follow the wind and most retailers were not willing to risk the resources necessary to undertake a project of this scale NCR settled for DVD kiosk believing that they could fill the hole in movie rental with Blockbusters bankruptcy but all of that went up in the air with Netflix and streaming
earnings fluctuated from for both companies through the 2000s as the company struggled to find growth Beyond banking despite grossing billions of dollars a year there still isn't a lot of profit in this line of work after designing the machines Outsourcing the manufacturing writing software and maintaining the hardware at scale after deployment operating margins for both NCR and diebold were as low as the retailers themselves the first real win came in 2012 4 years before Amazon go when NCR won an initial deal with Walmart who had the capital incentive and interest to pursue self checkout Walmart through history has been aggressively anti-un and its Executives were always upfront about exploring ways to cut hours eliminate workers and to
reduce overhead but as mentioned before the rest of the retail industry wasn't convinced that these Investments were worthwhile or repeatable at a smaller scale and all of that changed in 2016 with Amazon go suddenly everyone wanted self checkout and it became NCR and diebold's fastest growing division diebold's retail business doubled in a single year and for NCR that growth was channeled across multiple years as it took longer for the deals and deployments to materialize like any good shovel seller both companies openly fann the Flames to drive urgency they proclaimed that their machines were necessary to winning the next generation of Shoppers that Millennials Lov self checkout and that stores would be radically transformed in their layout
and the best part was that these self checkout machines could be productive 24 hours a day whereas a human could only work 8 hours at most everyone knew that NCR and DBL would never match Amazon go but at the very least they were the cheapest and fastest option but even though demand and sales grew rapidly not even the shovel sellers were profitable it was a fake gold rush and both NCR and diebold actually lost money every year as they burned millions of dollars into R&D and sales believing that this short-term investment would have long-term returns they never imagined that Amazon and the industry would do such a massive U-turn and that retailers would now go so far as to rip out their
deployments with the sunk cost the other issue is that NCR and diebold's machines were always designed as a one- siiz fitall solution they were ultimately chasing a future that had not been proven thus while their machines excelled at replacing simple sequential workflows like checking into a flight or printing a boarding pass at the airport self checkout was a beast of its own every retailer has hundreds if not thousands of different SKS that change regularly along with their own systems programs cataloges and policies these machines needed to be able to follow all of these things and to be updated whenever these items changed but given the rapid speed at which retailers
adopted purchased and rolled out these machines it was all Tri by fire and n CR and diol needed to provide even greater support maintenance and services post sale all of which chewed into their profits Revenue has regressed as their customers have generally churned or opted to maintain their installations instead of expanding and their stocks have fallen as both companies find themselves in the same situation today that they were in 10 years ago and 20 years ago looking for growth Beyond ATMs Walmart was the earliest and the most aggressive having invested in self checkout technology long before Amazon without any unions to slow them down they were the most capable and ruthless
of all retailers in 2017 the same year in which Amazon purchased Whole Foods Walmart had completed rolling out self checkout in every store their goal was to eliminate workers entirely and there was no gaslighting about a better customer experience quote self checkout at the front changes the labor model dramatically inside the store our focus is really on changing the work when you change the work you can create leverage inside the profit and loss versus us just cutting hours because that's a short-term play but when we look at the Hard numbers it's not clear at all that the removal of human cashiers has netted any meaningful benefits to Walmart's fundamentals when we look at the average
number of hourly employees per store there was a brief period after the standardization of self checkout where the company did hire less workers but these days Walmart is actually hiring just as many people per store as it was before self checkout and that's strange because there's actually fewer Walmart stores these days than there were a decade ago if you're only keeping your highest performing most productive stores on paper you should be hiring less people to operate these assets that you know very well when we isolate labor costs and we look at sgna as a percentage of Revenue we actually find that Walmart is spending even more than before on labor and administration even
if they're not hiring more hourly workers than before they're spending more dollars on support services and machines from NCR and greater corporate headcount and since we know that NCR itself as a company is not in a healthy position the idea that the cost of self checkout will simply flatten out over time in the near future seems foolish NCR has to make its own money just like Walmart and if they remain stagnant too long commercially they'll eventually come to demand higher prices profit margins for Walmart have actually decreased after the standardization of self checkout in 2017 while inflation is one potential explanation for the lower profits the numbers don't really suggest
that as the cost of sales as a percentage of Revenue has grown slower than the cost of Labor and administration even if Walmart is not hiring more cashiers specifically the point remains in that the overhead is higher than ever despite running fewer stores and without unions just in the past year Walmart has ripped out s checkout and select stores returned to the conventional aisles and human cashiers divested many of the tech Ventures that had started to better compete with Amazon on the side and cited the need to return to basic human friendly service to grow profits besides Walmart we can also look at other big grocery chains like Kroger and Albertson's the difference is that Kroger and Albertson's workers are unionized and thus enjoy stronger
protections better benefits and higher wages than those working at Walmart while Walmart publicly talked about their desires to cut workers outright Kroger and Robertson could not because they had to maintain a positive relationship with their unions instead they talked up self checkout as a way to improve customer experience and Kroger like Walmart wanted to show to Wall Street that they too were capable of innovation and they pushed the notion of self checkout to even greater Heights as a direct response to Amazon's technology Kroger rolled out scan bag and go where customers could use their phone to scan products put them in their bag right afterwards and then walk right out by 2018 self checkout had been installed in
every Kroger store scan bag and go was available and the company boasted that they had unlocked massive double-digit productivity increases in all of their stores hilariously scan bag and go was quietly killed off in 2022 lasting Just 4 years after its launch like Walmart there's been no change in the number of hourly workers per store before after the implementation of self-checkout there may be less cashiers but not less staff and the lower operating margins have nothing to do with inflation Kroger's product costs as a percentage of Revenue are actually lower than what they were a decade ago labor and administrative costs on the other hand are actually higher than ever and have been for the past 6 years despite
the company forcing self checkout on customers Kroger to this day continues to Gaslight that self checkout is the future and that it provides a better customer experience despite the reality that the company's operating margins remain at their lowest Albertson has also hired on average about the same amount of workers per store before and after their implementation of self checkout labor and administrative costs have certainly improved after but that can also be attributed more to the continuous layoffs at headquarters and Stor closures Sprouts has opened up more stores year after year and the numbers demonstrate that they've hired fewer workers since their implementation of
self checkout in 2020 yet at the same time despite hiring less people labor and administrative costs have actually increased overall operating margins for Sprouts are lower these days than what they were 5 years ago before self checkout and once again it has nothing to do with inflation or product costs it's been the same case for even the discount stores like Dollar General and Dollar Tree Dollar General did not Implement self checkout until 2019 19 and their labor and administrative costs have remained the same in their years after the company spent millions of dollars installing self checkout machines only to discovered that removing human cashiers dramatically increased shoplifting Dollar General had
always run its stores with a skeleton crew to cut on labor cost but now with self checkout they had removed the human at the front and without a staff member at the front to deter stealing opportunistic thieves were walking through self checkout with bags of stolen merchandise without consequences everything came to a head in 2024 when profits plummeted to a 16-year low over the rampant shoplifting and Dollar General responded by killing off self checkout entirely they' ripped out the machines at most stores restored the checkout aisles and invested more into human cashiers and staff with sgna at an all-time high and on a per store basis Dollar General is now hiring more people than ever per store in company history
it's the same situation with Dollar Tree who is now spending more than ever in labor and administration in history to deter the theft at self checkout despite rolling out self checkout in 17 Target these days has more hourly workers per store than it did a decade ago labor costs as a percentage of Revenue has remained virtually unchanged for the past 10 plus years and annual profit margins are any better today than they were back in the early 2010s the only exception to date has been in Home Improvement where Home Depot and Lowe's have both reported a decrease in labor cost since their respective implementation of self checkout their annual operating margins have also materially improved there's a couple factors as to how this could be one is
that theft at self-checkout is generally a crime of opportunity meaning that people either intentionally or accidentally forget to scan something with Home Improvement the high value items are generally so big and so bulky that kind of theft would be impossible to hide and the higher value smaller products are already under lock and key or already under added surveillance meaning the opportunity for theft is just that much lower the product value and Order sizes at Home Improvement stores are also substantially greater than that of supermarkets and chains Like Home Depot and Lowe's have already sunk millions of dollars over the decades into loss prevention whereas the grocery chains are just now starting their own Investments while there are some who
assert that the failures of self checkout are cultural and psychological it seems obvious that technology and machines have a long way to go before they can replace humans even the ones that Corporate America deems to be the most useless and replaceable scanning groceries packing orders and talking to customers for $10 to $15 an hour
