Coronavirus fears give cashierless retail an opening in Shanghai

It’s hard to imagine a city of 24 million on virtual lockdown, but that’s what the coronavirus has done to major Chinese cities like Shanghai. For now, the massive crowds are gone, replaced by restricted movements, empty metros, and a rush on face masks and hand sanitizer.

But grocery stores are open. They have to be.

It’s an odd, and unwelcome, test of new retail technology that allows consumers to shop with minimal interaction with others. China’s a bit ahead of the U.S. in opening checkout-free retail stores, but it’s still an uncommon experience, and nobody knows quite what to expect given the emergency that has hundreds of millions of Chinese citizens at home most of the time, but still in need of supplies.

“We didn’t anticipate the outbreak, and we were very saddened. It’s been devastating to many people,” said Steve Gu, co-founder and CEO of AiFI, a San Francisco-based company that builds checkout-free technology. “But we observed that it could be a new opportunity as well. The reason the virus is so dangerous is it’s spread person-to-person.”

AiFi opened its first store in Asia about a month ago, an 800 square foot store in Shanghai that’s typical of many early checkout-free stores.

It’s an always-open convenience store with minimal staff, accidently positioned well for the virus. The compact store carries basic day-to-day items, such as food, medicine and face masks.

As AiFi collects data, it’s forming its product and user experience strategy for future stores, with the next Shanghai location scheduled to open in a few months. Shoppers enter the store one at a time, with no clerks present. Restocking and cleaning are done when the store is empty. It's not the most efficient way to run a store, but it does mitigate the virus risk.

“With this fully checkout-free store, people can shop in an environment in which they don’t have to interact with anyone,” Gu said. “They don’t have to talk to anyone while they’re shopping.”

The store has more than 30 cameras that track shoppers and identify items. It has been customized to link to WeChat Pay accounts, which is what about 90% of 3,000 residents in the store’s immediate vicinity use as their primary payment method. “They’re able to use this store without downloading any special app,” Gu said.

The store has suffered a loss of business, but there are still about 50 people coming to the store each day.

“There’s also been some challenges in keeping the store stocked because a lot of the suppliers are shut down,” Gu said. “But that’s starting to change as businesses are slowly opening, so we should be back to normal operations shortly.”

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Unattended retail eliminates the human contact involved in completing a transaction but it doesn’t protect an individual from getting the disease from another person who happens to be in the store, said Thad Peterson, a senior analyst at Aite.

“In terms of the technologies that the virus might accelerate, digital commerce could be the greatest beneficiary, since there is no limitation on products that can be purchased and the transaction can be initiated and completed with no face-to-face contact if the goods are delivered and left on a doorstep,” Peterson said.

The coronavirus is a new risk for merchant acquirers and payment processors because mobile apps and contactless checkout play a larger role than in the past, making comparisons to earlier outbreaks such as the SARS virus difficult.

The unknown scale of the virus has caused Visa and Mastercard to suggest future performance may suffer, though both networks have affirmed their outlooks for now, and are still pursuing China as a market. Starbucks, which relies on China for market expansion and as a testing ground for new store concepts, has taken a harder hit than the card brands.

And like contactless cards, cryptocurrency was not a factor during the SARS outbreak, but is gaining investor attention as a potential currency hedge if the coronavirus spreads internationally.

Digital payment flows have also helped the Chinese government track transactions as part of the recovery effort, though it’s easy to see that becoming controversial if applied elsewhere.

“Tracking medicine deliveries to identify potential victims of the disease is probably a good way to find people but without an opt-in by the consumer, it’s unlikely to be an acceptable alternative in nations with more liberal democratic principles than China,” Peterson said.