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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
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