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Industry News - February 26, 2008



Doubling Expectations, POS Investment is Up 5 Percent
PCI compliance, labor scheduling, inventory visibility and CRM loyalty drive retailers’ POS investments.

Total point-of-sale product (POS) shipments to U.S. retailers during 2006 are up five percent. This is twice what the industry had expected during an anticipated cyclical downturn in technology spending. The surprise growth was driven by PCI compliance concerns and retailers’ needs to be more efficient and better target specific customers, says IHL Consulting Group.

Hardgoods and softgoods specialty chains, along with Wal-Mart, were the most active POS purchasers, says Greg Buzek, president of Franklin, Tenn.-based IHL. Department and grocery stores were the least active. According to IHL, total U.S. POS investment during 2007 (including hardware, software, peripherals and maintenance), was $5.65 billion.

Specialty retailers accounted for 32.7 percent of the companies that upgraded equipment. In addition to PCI issues, decisions were driven by a need for better inventory visibility (particularly in apparel), strong bricks/clicks integration and a general requirement to be cool and hip via the latest services and customer benefits. The launch and improvement to loyalty programs was another impetus.

“Every segment of the category killer channel is doing things for different reasons,” says Buzek. “Borders or Barnes & Noble do it to integrate their Web sites with their stores as well as for CRM loyalty. Best Buy needs to do it because they are in electronics and must have the latest and greatest. At Home Depot, equipment gets beat up a lot. The printer may fall apart because a 2-by-4 hit it. The apparel chains just have to look hip or kids won’t shop there.”

Wal-Mart’s POS investments were part of its ongoing move to replace older discount stores with its larger, fresh food-oriented Supercenters wherever the format makes sense. Wal-Mart’s, Sam’s Clubs, along with Target Stores, also upgraded. While these retailers use POS data for many purposes, decisions were driven largely by a desire to expedite the checkout process. The equipment that was replaced was “seven or eight years old,” says Buzek. Replacements were made in 2006 and 2007.

Wal-Mart, Target and the specialty chains are taking advantage of many of the improved POS systems that have hit the market over the past five years. Today’s multi-purpose POS products are faster, can integrate with other technologies and are a major part of the customer experience. Hence, they become key drivers behind major strategies and decisions. Data garnered from a POS system, for example, can be used to determine everything from allocation of inventory to new store locations, services and employee staffing levels.

“POS technologies are evolving into a suite of multi-purpose POS applications,” said Accenture in a study titled, “Maximizing the Potential of POS Systems.” “The right kind of POS system can reduce cost of ownership and significantly enhance the customer’s in-store experience.” A grocery chain that operates five hundred 50,000 square foot stores, for example, can save $5,197,500 annually by adopting new POS software, notes AMR Research in the Accenture report.

Low Growth Sectors
Grocery chains made some key POS investments in areas like deli and bakery. At chains like Stop and Shop, customers can place orders electronically. But a store count decline of 8.5 percent among the top 25 grocers led to a sector wide falloff in POS spending, says Buzek.

Department stores did not invest in POS in 2007. This flat year followed one in which several key retailers upgraded long outdated systems. Buzek says department store upgrades are generally made at 10 or 11 year intervals. The typical department store, he adds, houses 75 to 150 terminals. Most are only used during peak holiday periods.

“Most of the time, they sit idle,” he adds. “There is a lot of old equipment. Up until the time that Macy’s bought May Department Stores almost two years ago and rolled out new products in 2006, POS terminals had not been upgraded since 1982. JCPenney, Kohls and Sears also made major upgrades in 2006. This made 2007 a tough comparison year. Talking about department store investment is not just a store count issue. It involves looking at when people were last installing.” While grocery stores upgrade more frequently than department stores, they also tend to keep equipment for a long time.

Declining Prices
In recent years, total POS dollar investments have fallen. Declines in spending by certain retail sectors and lower equipment prices contributed. Price erosion has been caused by manufacturing efficiencies and a growing roster of competing suppliers. Historically, products were made primarily by IBM, NCR, Wincor-Nixdorf and Fujitsu. Five years ago, HP and Dell entered the category.

Looking ahead, Buzek does not foresee greater POS growth in 2008. Spending should decline in the U.S. due to a cyclical downturn that follows several years of heavy investment. According to RIS’ Store Systems Study, 61 percent of retailers surveyed say they want to purchase EFT/debit/signature capture and 54 percent want CRM/loyalty software over the next 18 months. Over the next 12 months, 32 percent want EFT. But, the study notes, only half of retailers that say they will make a POS investment follow through.

For the most part, cyclical declines are not driven by economic factors.

“The economy was booming in 2006,” says Buzek. “But if it was booming today, we’d still be in a cyclical downturn. Y2K caused massive POS upgrades. Then, 2000, 2001 and 2002 were negative years for shipments. 2004 to 2007 were strong years as retailers that last bought products in 1997 and 1999 replaced them.”

Most of the growth in 2008 will come from retailers in South America and Asia (IHL plans to issue data on this). Buzek says growth in the Asia/Pacific region will be in the double digits. Growth will be driven largely by Wal-Mart’s ongoing global expansion. In addition to new Wal-Mart stores in these regions, additional POS investments will come from companies that operate in these countries and compete with Wal-Mart. Big spenders will include some endemic retailers as well as other foreign companies.

Buzek says China alone is home to 12 million retail locations. The U.S. and Canada, in comparison, have two million. “We have 8.5 and 9 million cash points,” says Buzek. “China has 40 million. Much of this growth is driven by Wal-Mart [International]. Retailers are also moving in from elsewhere.”

-Debby Garbato



Morrisons Deploys Oracle Platform to Achieve Growth Initiatives
Morrisons, a U.K.-based supermarket group, selects Oracle to create a core retail platform to support growth and performance. Morrisons uses a prototype Oracle footprint that includes a complete Oracle Retail suite of merchandising, planning and store applications. Morrisons recognized that it could not develop its systems in-house and that its existing systems could not effectively support the company’s plans for growth. The grocery retailer plans to implement the Oracle products over the next five years to help enable its business transformation program and provide a better shopping experience for customers in its 375 stores across the U.K.

Hobby Lobby Deploys SAP Enterprise Retail Planning Software
Hobby Lobby chooses SAP to provide a software platform to help the company manage operations and support growth. The private retailer selects SAP’s enterprise resource planning (ERP) software to replace its existing JD Edwards software. Hobby Lobby uses the application’s model of incremental upgrades via enhancement packages that provide the retailer with a stable core system and the ability to add new functionality. The company also uses SAP applications for financials, human capital management and payroll.

Grand Union Family Markets Add Price Optimization
Grand Union Family Markets utilize price optimization services from Revionics. Grand Union will use Revionics complete portfolio, which includes price optimization, promotional planning and optimization, category analytics and competitive price auditing. The grocery retailer uses the Revionics solution, which is offered via a Software-as-a-Service (SaaS) in a pay-as-you-go approach. Grand Union deploys the strategic pricing solution across all of its stores.

Pacific Sunwear Leverages Dynamic Site Accelerator Services
Pacific Sunwear powers its website with enhanced services and dynamic content from Akamai Technologies. The apparel retailer uses Akamai Dynamic Site Accelerator services to improve the performance of its PacSun.com retail site. By leveraging Akamai’s Dynamic Site Accelerator services, Akamai offloads the PacSun.com servers by up to 80 percent. This allows the retailer to deliver its brand and have the flexibility to release content as needed. Pacific Sunwear also relies on Akamai to add richer, dynamic content to drive traffic to its PacSun.com online store.

More Technology News


Torex, Symphony Expand Global Product Development
Torex Retail partners with Symphony Services to expand global product development capabilities in its retail software. In a multi-year agreement, the companies will team up to drive product development and quality assurance initiatives. The companies will focus on development and quality assurance initiatives associated with the company’s product line Torex Retail-J-POS, an integrated and web-enabled suite of in-store and central applications for medium and large retailers. Symphony also will support select Torex end-customer service initiatives.

Loyalty Lab Offers Email Package with CRM Capabilities
Loyalty Lab releases an integrated marketing platform, which features a stand-alone email product that includes integrated targeting, segmentation and customer relationship marketing capabilities. The new stand-alone email marketing product features a range of data integration options. Retailers have the ability to draw from customer and transaction data for more personalized and precise messaging. Loyalty Lab’s Ready-Aim-Engage platform, included in the email package, also gives retailers the ability to link email to non-transactional behaviors so that messages can be relevant to social networks and branded environments.

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