POS will never be the same

At the Sheetz Inc. chain of some 300 c-store/fueling stations, customers have come to expect something different from other chains. The difference is apparent as soon as a shopper walks into a store, where customers use touch-screen self-service kiosks to order freshly prepared salads, submarine sandwiches, hamburgers and gourmet coffees. The unusual collection of service and food has paid off in steady growth. "We try to be unique in prepared foods, and our stores are doing about four times the c-store industry average in sales," says John Moulton, director of store operations.

A key to Sheetz`s success, he adds, is its ability to quickly modify its fresh-food menu over a web connection with new varieties and promotions presented on the kiosk screen. But there`s more to Sheetz`s strategy than customers can plainly view. Behind the scenes is a new web-based system Sheetz is using to monitor POS transaction data and integrate it with inventory management. That integration allows the chain to quickly stock stores with enough ingredients to support its changing menu.

The web-based POS system, provided by Radiant Systems Inc., provides executives at Sheetz headquarters as well as store managers with real-time reports on the amount of materials used in preparing food products as they are ordered and paid for. And that lets managers at headquarters control the replenishment of key ingredients, Moulton says. "I can monitor inventory, so the store manager can spend more time serving customers," he says.

Speeding card payment

Across the country at trendy apparel retailer Pacific Sunwear of California Inc., it`s not uncommon to see long lines of teens and their credit-card-wielding parents waiting to purchase the latest in casual fashions. The chain has nearly doubled its stores over the last few years to close to 1,000.

But success is also bringing the challenge of improving customer service. In an effort to cut those lines to the checkout counter, Pacific Sunwear is implementing a strategy that`s becoming increasingly common among retailers: It is installing a web-based point-of-sale system, which the retailer says will slash the average time a customer has to wait for a credit card transaction to 3 seconds from 40. "That will make a big difference in our checkout lines," says Ron Ehlers, vice president of information services.

By processing web-based credit card authorizations in its highest volume stores, he adds, Pacific Sunwear will take the first step toward using a web-based POS system to take its stores to a faster, more efficient mode of operation.

In recent years, such capabilities in POS systems as experienced by Sheetz and Pacific Sunwear have raised the expectations retailers have in POS systems, says Sunita Gupta, vice president of retail consultants LakeWest Group in Cleveland. "Five years ago, when people talked about POS, they were talking about how to ring up a sale, how to process a return and how to do a lay-away," she says. "Now when they talk about POS, it`s in a much broader sense; it`s about things like managing inventory, labor scheduling and loss prevention. It`s almost a misnomer to just call it POS."

In the Multi-Channel Benchmarking Study conducted by Aberdeen Group earlier this year, web-enabled POS systems that act as a hub of multi-channel and order management systems were listed as among best-in-class technologies by retailers.

Let me count the ways

The web can bring to POS systems several advantages:

n Real-time data flow between POS transaction data and central application servers, providing benefits such as updates of inventory management systems, coordination with CRM systems that support cross-selling, and real-time headquarters visibility into POS data to support central control over efforts such as merchandise management and loss prevention.

n Nearly instant payment processing that can speed up the lines at checkout counters.

n Access at POS terminals to corporate information, such as labor scheduling and corporate HR policies.

"Once the infrastructure is set up, the sky`s the limit," says Rena Granofsky, senior partner with retail consultants J. C. Williams Group. Retailers like Wilsons the Leather Experts Inc., she notes, are integrating their POS systems with shipping portals from logistics providers like DHL Express to provide customers with instant information and faster, more accurate service when a customer wants to special order a product for home delivery.

"POS upgrade is one of the highest initiatives that retailers are looking at to enable more efficiency in checkout and better directional analytics of POS data," says Scott Burdette, managing director of the consumer, industrial and technology practice at consultants BearingPoint Inc., adding that most POS upgrades he sees are to web-based systems that provide real-time flow of data between POS systems and back-end software applications. "Most forward-thinking retailers think it`s a necessity for cost and effectiveness. The store of the future will provide an interactive, bi-directional customer experience."

In & out

Having bi-directional POS data means that while POS data update back-end applications like inventory management and CRM, those back-end applications can send information to the POS terminal in the form of inventory availability and cross-selling recommendations. When a customer`s personal identifier, such as a loyalty card number, is entered into the POS system, for example, it can be combined with current and historical POS transaction data and sent in real time to a data warehouse, where it integrates with a CRM application that produces cross-selling recommendations that appear within seconds on the POS terminal screen.

Before the customer`s purchases are completely rung up, the cashier can recommend a complementary scarf for a jacket, or suggest that the customer visit the shoe department for a special promotion on footwear to match the jacket before leaving the store. "This is all based on the POS system providing real-time data to a back-end OLAP (online analytical processing ) engine with business intelligence behind it," says Tom Litchford, director of marketing for the Retail and Hospitality Solutions Group at Microsoft Corp.

In another scenario, he adds, a retailer could set automated alerts to cashiers based on particular strategies. If a store wants to increase the percentage of product warranties sold with high-priced TVs, for example, it could set automated messages to POS terminals for particular types of customers. Those who have bought warranties might get a reminder of their past interest, while those who have not purchased warranties might get a special incentive to purchase one.

That`s just how Bloomingdale`s, for one, is using web connectivity at its POS system. Bloomingdale`s POS integrates with a CRM application from Blue Martini Software Inc. called Message@POS which provides real-time cross-selling recommendations to clerks at the POS terminal while a customer`s order is being prepared, says Al Falcione, director of product marketing for Blue Martini.

While the benefits of web-based POS systems may be easy for most retailers to recognize, realizing them requires taking several steps of preparation—starting with identifying realistic goals, experts say. At the same time, retailers need to figure how to approach building an infrastructure to support web-based POS, covering the extent of integration between individual stores and a central office and the method that each store will use to connect to the Internet or corporate intranet. "A big challenge is providing data and system integration to capture data in a central place, rationalize it, and integrate it into other applications like merchandising, marketing and inventory replenishment," says BearingPoint`s Burdette. "A big technology barrier retailers face is the ability to organize and use store POS data in a home office and to operationalize this very large set of transactional data and patterns of data into home-office merchandising and marketing systems."

The right processes

And once a web-based POS infrastructure is in place, retailers must supplement it with business processes to assure that the technology doesn`t go to waste due to lack of use by managers and employees, experts say. Not only do managers at headquarters need a plan for leveraging POS data, but they also need a clear plan to train store employees. "Lack of employee training is one of the biggest reasons these types of things fail, because they`re seen as a technology exercise solved with a piece of technology," Burdette says. "Some retailers believe that if they put in some new technology, the employee culture will just magically fall into place. But it doesn`t."

A key aspect of training, experts say, is to let employees build their confidence in using POS data that has been integrated with other applications. Once they reach a level of trust that a system will report accurate inventory status or recommend cross-selling opportunities that customers are likely to appreciate, they become more willing to extend such information to customers, experts say.

One of the advantages of web-based systems, however, is the ability to distribute computer-based training sessions to employees, a tactic that Pacific Sunwear will use, Ehler says.

Employee training can even extend to changing employee behavior at the checkout counter. Grocery stores, for example, may train cashiers to begin bagging a customer`s products while waiting for a credit authorization under traditional dial-up systems, says Cathy Corby Parker, senior vice president of marketing, Vital Processing Services. But with web-based transactions that take only few seconds for authorizations, stores will probably want clerks to finish the payment transaction before turning away from the register to bag items, she says.

New incentives

In addition to employee training in the way a retailer wants to leverage new POS systems, retailers also need to address how to provide incentives for employees who may have to share credit with employees in other departments. "The trick is to find a way to motivate employees based on a retailer`s overall objective," Burdette says.

For instance, he says, real-time integration of POS data with inventory management systems can help inventory managers better meet their goals of not running out of merchandise while not overstocking to the point where stores will have to mark down prices to move inventory. Achieving such a goal may require incentive programs for inventory managers based on margins and sales, Burdette says.

It`s also important for retailers to launch a web-based system at a time that fits their near-term as well as long-term needs, allowing them to build out an integrated infrastructure accordingly, experts say.

Pacific Sunwear, for instance, is turning to web-based POS when its profile as a retailer is changing. For years, its stores operated at steady levels of customer activity that could be handled by the company`s legacy POS system and relatively slow credit card authorizations.

But rapid growth has caused stores to perform at different levels, requiring the company to upgrade the way its highest volume stores serve customers. "We used to have cookie-cutter stores and the volume didn`t range much," Ehlers says. "But now some are doing $3 million a year, while the average store does $1 million."

Daily monitoring

So Pacific Sunwear is doing a pilot in 60 of its highest volume stores of central web-based credit card authorizations. "We want to see how many transactions we can drive in any given day in those stores," Ehlers says.

In time for this year`s holiday shopping season, Pacific Sunwear will be able to monitor daily POS activity in each pilot store and compare those figures to year-ago figures to judge the impact of merchandising and marketing efforts on year-to-year changes in sales.

Eventually, Pacific Sunwear will explore how its web-based POS system could produce additional benefits by integrating POS data with back-end applications like inventory management and customer relationship management, he adds.

Pacific Sunwear can already reap some of the benefits of integration between its POS and other applications on its existing non-web-based system. Software at the store level, for instance, can provide some cross-selling recommendations on a POS screen based on historical transaction data. And stores facing an out-of-stock situation could help a customer find a desired product by dialing up to a central application to check on cross-store inventories.

But a web-based system makes these functions available in a multi-tasking environment while also making them faster and more universally accessible, Ehlers says. "It`s easier with persistent high bandwidth and a connection to work off a central server," he says. Not only does the web-based system make information available in real time, but it can also give field and headquarters managers as well store personnel universal browser access to information.

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Just as important, Ehlers adds, such connectivity won`t interrupt other vital operations. Dialing up to a central server to check cross-store inventory levels, he notes, would interrupt a store`s ability to process credit card transactions. "Once we have persistent bandwidth, we`re capable of multi-tasking," he says.

Pacific Sunwear is developing its POS system on IBM`s iSeries application platform, which supports integration of POS with inventory management, merchandising management, and the e-commerce platform of the retailer`s web site, PacSun.com. It`s working with Park City Group and Vanguard Managed Services on network integration, and with Cicat Networks to line up DSL connections to its stores.

Talking turkey at Sheetz

At Sheetz, the web-based system of tying POS data to inventory management coincides with the chain`s strategy of using self-service kiosks to speed lines and give customers the option to pre-order meals before continuing to shop for other items. With 300 locations in Pennsylvania and four other states, Sheetz has about three kiosks per store, providing customers with an efficient ordering system that frees up store clerks to focus more on preparing sandwiches, Moulton says. For each order, the kiosks print out a receipt with a barcode. The customer can continue to shop throughout the store, then pay for all items including the kiosk order as they`re scanned at the POS counter.

Once the customer completes payment, the POS system records the transaction and forwards information regarding the value and identity of purchased products to a central web server on Sheetz`s corporate intranet, which uses IBM`s Websphere platform. Although Radiant can configure the system to constantly stream POS data, Sheetz chooses to receive it once every hour. The store manager or executives at headquarters uses a web browser from any Internet-connected terminal to access reports on POS activity.

Under Sheetz` older system, which it still uses in many stores, store managers conduct physical counts of inventory levels without the benefit of near-real POS transaction data to determine replenishment needs. "Under the new system, if a customer orders a six-inch turkey sub, I`ll know that we need to replenish a six-inch set of turkey," Moulton says.

The system is also set up with a method of generating purchase orders based on current levels of inventory. Managers review purchase orders that the system automatically generates once POS data indicate that particular materials like sliced sandwich turkey have dwindled to levels set by Sheetz. After reviewing and, if necessary, modifying the purchase orders to reflect special needs such as extra supplies for a coming holiday weekend, managers click a button on a web page to forward the purchase order to a supplier.

Tighter inventory

The integrated inventory management system also monitors POS data for the other products sold throughout the c-store. "The system can be configured so that when cigarettes get below a certain number, it says it`s time to re-order," Moulton says. "This will allow us to operate with tighter inventory levels."

In addition to controlling inventory levels, the web connection to the combined order management and POS system lets managers access a web browser from any location to perk up the menu with promotions and hot items. They can modify the options appearing on the touch-screen menu, including recipes and product images, pricing, and even the appearance of screen icons and the method of navigating the screen, so that it will present more cross-selling opportunities as well as more varieties for customers. "We can change the menu faster," Moulton says. He adds that Sheetz is careful to work out processes with store managers, to assure that they prepare stores with signage and food materials to support menu changes.

Sheetz declines to give the cost of its Radiant POS system, but Radiant notes that a typical configuration for a c-store with two POS terminals, product scanning capability and a web-based administration tool would range from $12,000-$15,000 per store, depending on the number of stores.

Reaching to the customer

As web-based POS continues to evolve, retailers will use such systems to support more interactive merchandising and marketing efforts to better communicate with customers. Some of these new efforts are already underway in early projects, says Mark Indermaur, software marketing manager for the Retail Store Solutions group at IBM Corp.

Grocery chain Stop and Shop is beginning to use IBM`s Personal Shopping Assistants, which are web-based tablets in shopping carts that let shoppers scan items as they shop, and see a running price total on the tablet screen. And because the device connects with applications that store and analyze POS transaction data, including data for particular shoppers identified by loyalty or credit card accounts, it will display special promotions likely to be of interest to the shopper. The web device also lets shoppers place orders to a store`s deli section while shopping in other parts of the store, alerting them with a beep once their deli order is ready.

Another IBM-supported product, Sign and Go, is designed to reduce the likelihood of credit card fraud at POS counters. To use the system, cardholders must record six live samples of their signature, allowing the system to monitor multiple attributes of how the person signs his name, including the speed and pen movement at multiple points. When a customer signs for credit card purchase, the system matches the actual hand movement with the recorded signings through a real-time web connection. Customers don`t even need to show their cards or other identification. "Shoppers can just sign and leave, they don`t even need their wallets," Indermaur says.

At Pacific Sunwear, Ehlers has his eye on more conventional near-term uses of web-based POS, as the retailer rolls it out to more stores as well as integrates POS data with back-end applications like inventory and CRM. "It opens up a lot of possibilities," he says. "We may use it for distributing streaming video marketing messages to stores."

Directed messages

As POS data update marketing and merchandising systems with real-time POS transaction data for each store, for example, Pacific Sunwear may use that data to direct particular marketing messages coordinated with the current interests shown by shoppers. If POS data on a particular day shows unusual demand for jackets, for instance, the integrated marketing system could display jacket promotions on in-store monitors, Ehlers says.

Such timely actions can be key to Pacific Sunwear`s ability to maintain its rapid growth as it competes to serve a thin slice of the apparel market. "When our customers are 10-12, there are only certain items they can wear, then at 14-16 they`re our core customers, but by 18 they move away," Ehlers says. Getting more insight into customer`s interests and improving service while they`re in the store, he adds, will go a long way to assuring Pacific Sunwear`s continued growth.

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How web-based POS puts the little guy into the game

Web-based POS isn`t only for chains with hundreds of stores. It can also help small retailers both improve customer service as well as build their clout with suppliers, says Jerry Sykes, president of The Party Warehouse, a five-store chain based in Albany, N.Y.

Sykes uses information on product sales from his web-based POS system to produce reports on how well particular products sell during certain time periods. Not only does that help him plan stock levels for special periods like Halloween, but it has given him more clout in getting favorable treatment from suppliers—like persuading them to give The Party Warehouse first crack in its market at new, margin-boosting items, he says.

"There is usually little information available to suppliers from small retailers," says Sykes, who is a former executive at Federated Department Stores Inc. "If a supplier calls and asks how well solid color plates have sold in the past, I can give them that information in five minutes, but most small retailers will say they can`t get the information because they don`t have the time to count their stuff."

The Party Warehouse uses a web-based system from CommercialWare Inc. that takes POS data from each store and transfers the information to a central data warehouse and analysis tool. The system enables Sykes to log onto a web page to run instant reports of sales activity—for example, the number and pricing of witches` costumes sold last year in the three weeks before Halloween. "CommercialWare gives us total flexibility, so we can say how many particular Halloween items sold last year in the last two days before Halloween or the last 10 days," he says.

Getting quick access to such information and sharing it with suppliers helps to build stronger supplier relationships, making suppliers more interested in providing a merchant like The Party Warehouse with their best-selling or hottest new products, Sykes says.

But the system also helps the retailer improve its profit margins by using reports of sales activity to set proper pricing and avoid unnecessary markdowns, he adds. "The system has certainly helped our margins, because in the past we would arbitrarily mark down items as we got to the last week before a holiday," he says. "But now I can go in the system and see that I did 80% of selling in the last week in the prior year, so I can be more aggressive with pricing."

With real-time visibility into POS transaction activity, The Party Warehouse can also use the system as a loss prevention tool, Sykes says. If someone attempts to return a product for cash without a receipt, for example, a store manager could ask the customer when the item was purchased, then log onto the web-based system to see if that product was indeed purchased at the stated time, he says. "The system has audit trails for every transaction that takes place," Sykes says.

Although Sykes declines to cite the cost of his CommercialWare system, the vendor`s hosted application starts at about $300 per month, according to CEO Donny Askin. In addition, its application typically runs on IBM POS terminals that can range from $2,000 to $6,000, he adds.

Sykes notes that his CommercialWare system has more capability than he can currently use, but that he`ll test more of these uses as time goes on. For example, the system can run reports of hourly sales activity, matched with information on staffing levels, to facilitate more effective scheduling of store workers.

A new view into sales

Skates on Haight, a tiny but growing retailer with two San Francisco stores and a web site, Skates.com, uses a web-based POS system from Volusion Inc. to provide features more usually associated with larger retailers. The system automatically generates purchase orders to vendors as products are sold, helping Skates keep on top of cutting-edge styles in inline skates and other products, whether they`re sold over the web or in a store, says Michael Schawel, one of the owners.

The Volusion system also enables Schawel and his partners to get real-time reports of POS transactions to see how well particular products are selling at certain price levels. Now, when K2 or RollerBlade suggests that Skates carry particular styles of inline skates, the retailer is in a better position to decide whether to order them. "This year, RollerBlade came out with a new model that was kind of pricey, but we could see that a similar model had sold well before, so we ordered the new model," Schawel says. "Now we can see what sold today, or the last three days, and what`s hot."

The cost of the Volusion hosted system is based on the number of a retailer`s products, ranging from $97 per month for up to 100 products to $197 for more than 1,000 products. There is also a $199 start-up fee.

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