Making the Connection
The POS terminal takes center stage in linking stores to the web
By Kurt Peters
When Djangos, a Portland, Ore.-based seller of used and new CDs and videos, opened its web site in March 2000, it knew it needed real-time inventory systems. With 20 stores in four states, a web site that sells to consumers in 90 countries, and an inventory in which a particular product may be only one or two items, Djangos really had to know what it had in stock—every second of the day. “Many of our items are one-of-a-kind,” says Steve Furst, president and COO of Djangos. “We can’t be in a position of selling the same item to two customers. We have to know as soon as something is sold.”
Thus Djangos started on an inventory odyssey to find a system that could link its stores, online kiosks and web site all to a single database and do it in real time. Djangos ended up integrating SpectrumRetail’s ProphetLine retail management system’s code into a proprietary technology to create a real-time application. Today, a customer on the web site could literally see a purchase disappear before his eyes if a store sells the item or if someone else on the web site buys it before the first customer checks out. With this system, no Djangos customer thinks he has bought something when he really hasn’t, Furst says. “Now I don’t have two dissatisfied customers, I have one satisfied customer,” Furst says. “I don’t have a customer who says, ‘I bought it, you charged my account and now I don’t have it.’” Djangos attempts to minimize hurt feelings by offering the would-be buyer the chance to sign up for an e-mail notification service when another copy of the same product becomes available.
While the one-of-a-kind nature of Djangos’ merchandise may require it to update its inventory system much more frequently than other retailers—every nanosecond, according to Furst—the need to keep a near real-time view of inventory in today’s competitive, multi-channel retailing environment is not unique to Djangos. “All retailers are trying to get that cross-channel promotion to happen,” says Christine Lowry, senior vice president of marketing for Austin, Texas-based 360Commerce Inc., which sells systems that link retail data. 360Commerce’s customers include Home Depot, Sears and Burlington Coat Factory. “Real-time availability of data makes it possible to better serve the customer across channels.”
Starring the POS terminal
The key to making data communication possible among various retail entities is the point-of-sale terminal. Always a linchpin in a retail operation, the point-of-sale terminal today has been elevated to star status. Retailers more and more are recognizing that the POS terminal is the link from the store to the outside world and many are upgrading its abilities, including adding web access. In fact, 75% of POS terminals today include web technology, says Greg Buzek, president of IHL Consulting Group, of Boynton Beach, Fla., which follows the retailer technology market. That high number, though, does not mean retailers are taking full advantage of the capability. “Retailers are still trying to figure it out,” Buzek says. “In 2000, only about 10% of retailers were using the capabilities of the POS terminal. This year it will grow to 20% to 25%.”
Given the newness of the web notion, it’s surprising that 76% of retailers have or plan to have web-based POS systems within a relatively short time, according to retail-systems consultants LakeWest Group Ltd. of Cleveland (see chart).
All major vendors of POS terminals are capitalizing on the web trend. IBM Corp., Fujitsu Transaction Systems Inc., NCR Corp. and Wincor Nixdorf, which according to IHL control 45% of what used to be thought of as the cash register market, all are making major pushes to place web-enabled technology. And the VeriFone division of the Hewlett-Packard Co. and Hypercom Corp., which between them own 57% of the electronic payment terminal market, are making a similar effort. In addition, companies such as Found Inc., Triversity Inc., Datavantage Corp., 360 Commerce and SpectrumRetail Inc. are all evangelizing the single-data-source message.
Retailers are installing such systems to achieve a variety of objectives. Some, such as Finish Line Inc., based in Indianapolis, want to expand the inventory that stores of limited size can carry. Others, such as Hudson’s Bay Co., Canada’s largest retailer, want to extend the reach of their stores. And still others, such as the restaurants that participate in the Food.com web site, are planning to create new business models. All have one thing in common—they are using these systems to make their e-commerce operations easier to use and more responsive to customers’ wants and needs. “This allows the dot-com and land-based worlds to work together,” says Richard F. Lawson Jr., president and CEO of Found, which provides a retail web-based infrastructure that allows retailers to know their inventory levels and placement throughout the sales day. “We allow the option for the consumer to shop the site or shop the store.”
Whatever the reason retailers are adopting these systems, observers say the Internet opens up new possibilities for retailers—many as yet undreamed of. And so even IBM, which for years sold a proprietary POS system, is opening up. “We enable the Internet,” says Julie Roberson, worldwide software marketing manager for retail store systems for IBM Corp., stressing the word enable. “There’s no way to put some canned function on these devices. Everyone will want to use it in different ways.”
Indeed, many retailers are rebelling against the proprietary systems that vendors had used in the past. “Lots of retailers are interested in moving off proprietary operating systems,” says Don Paschal, director of retail marketing for Fujitsu Transactions Systems. Fujitsu has just introduced a web-based POS system that uses Fujitsu-developed, Linux-based software that operates within the IBM 4690 system. “We wanted to let users of IBM POS applications have an option for hardware platforms,” Paschal says.
Exponential opening
Whatever systems the retailers use, their objective is almost always the same: They want to increase the chances for a customer to buy. “We will be exponentially opening the way a customer can come to us and find a product,” says Kent Zimmerman, director of e-commerce with Finish Line, a retailer of sports shoes and apparel. Finish Line operates 409 stores in 41 states and a web store, FinishLine.com. It started a 50-store pilot in March using the Found inventory system.
If a Finish Line customer is looking for a particular product in a store that does not stock that product or that is simply sold out of it, a sales clerk can input the product information into a point-of-sale terminal, which is linked via a frame relay and the Internet to a central inventory repository maintained by Found. The system then tells the clerk if the product is available in a nearby Finish Line store, other stores or via the web site. The clerk can then place the order for the customer. The customer can pick up the product at another store or have the product shipped to the store for later pick up or shipped to the customer’s home. “There are a lot of restrictions put upon us by floor space and product limitations,” Zimmerman says. “We are trying to get out of that by giving the customer the opportunity to shop the entire company.”
Found spent $50 million creating a system that aggregates data in a master index at a central host and makes it available to a retailer’s operation for search or for transactions. The system also incorporates business rules related to inventory management. For instance, a retailer can tell the system that it wants to report no inventory when the stock reaches a certain number, thus leaving some inventory for sale in certain stores. The Found system integrates with store-level POS systems such as Triversity and Datavantage, which are web-enabled to send the inventory information to the Found database.
Finish Line nightly reports its inventory levels to Found, which then updates the master index for the next day. Finish Line maintains the authoritative company inventory system. “With the Found system, we didn’t have to modify our point-of-sale systems or our web site,” Zimmerman says. “And we didn’t have to re-invent the wheel on how we manage inventory. We created a data feed to Found. At the end of the day, we give them a baseline. As products are sold the next day, they update the master index. The database of record will always be at Finish Line.”
Lawson says retailers can expect to pay several hundred thousand dollars to get such a system up. Zimmerman will not say how much Finish Line paid, other than to note, “We worked with Found to do something that is beneficial to both of us.” With the pilot just under way, Finish Line has no results yet. Says Zimmerman: “It’s a very complex project. We have to think it will pay great dividends for the company.”
Extending the reach
Hudson’s Bay Co. has been tying its store and distribution center inventory into a single system partly to achieve the same goal as Finish Line: extend the inventory of each store. But Hudson’s Bay also wanted to extend the reach of its stores. Hudson’s Bay operates 101 The Bay full-line department stores, 301 Zellers discount stores, 30 Zellers Select stores, 15 Fields department stores as well as the hbc.com web site. An IBM 4694 POS system is Hudson’s Bay’s link into a web-based inventory system that allows store shoppers and personnel as well as Internet customers to know the availability of an item.
Besides the benefit of allowing web customers to buy from Hudson’s Bay’s stores, Hudson’s Bay also gains from this system by making it easier for store sales personnel to close sales. “One of the short-term benefits—particularly at The Bay—is that we want to provide functionality at the store level,” says David Alves, general manager, merchandising and marketing at hbc.com. “With a big-ticket item, store personnel have the ability to dynamically check on inventory and a delivery date.” Previously, checking availability would have taken two or three days and setting up a delivery time, four days.
But longer term, Hudson’s Bay wants to expand the inventory that discount-chain Zellers can carry. “We hope that in markets where there is not a Bay store, we can use web-enabled POS within Zellers to sell products that Bay sells,” Alves says. For instance, tests have shown that customers are willing to buy appliances at a Zellers store by ordering over a web-enabled kiosk. Zellers would stock only four or five samples. “We could create a marketing campaign around the fact that this extends our product offering,” Alves says.
While extending product is important, having the POS system tied to the Internet allows a store to accomplish much more. For instance, a store could use a web-enabled POS device to order a sale product that it is sold out of, rather than issuing a rain check. The store could ship the product directly to the customer, rather than having to deal with the logistics of getting the product, then having the customer pick it up at the store and pay with a rain check.
A retailer could also use a web-enabled POS system to promote items to customers during checkout. In one scenario, a customer would view a split screen. On the left would be the information relating to the transaction taking place; on the right would be promotional content served up by a browser and relating to the transaction or to some other subject. “A department store could be promoting a sale in another department, or a supermarket could be promoting a community activity,” says Tracy Flynn, vice president of product and solution marketing for the retail solutions division of NCR. Elder-Beerman Stores Corp. of Dayton, Ohio, is using NCR’s web-enabled POS devices.
It’s not just the full-functional POS checkout devices that are allowing retailers to perform new and interesting web-based transactions. The payment-only terminal is finding new life as a connection to the web. Food.com, for instance, is promoting a system whereby customers can send carry-out or delivery orders to restaurants or make reservations using the restaurant’s VeriFone credit card terminal.
E-food to go
Food.com expects a pilot test of the system will not happen until later this year. Food.com already has 12,000 restaurants participating in its fax program and about half are candidates to convert to an electronic system once the technology and the process prove themselves says Karen Orton Katz, senior vice president, sales and marketing for Food.com. Here’s how it will work: A customer at the Food.com site sends an order by e-mail to the restaurant, which receives it on its VeriFone terminal. The terminal emits a special tone when an order comes in. The restaurant employee reviews the order and accepts it or rejects it. The restaurant can make the accept/reject decision on each item, so if something is sold out, the restaurant can tell the customer right away.
Once the order has been reviewed and approved, the terminal can send the order to the kitchen over the restaurant’s internal food-ordering computer system. The restaurant then sends a verifying e-mail back to the customer.
Orders coming to restaurants in the fax program are 20% higher than the average ticket and 80% of the customers are incremental business for the restaurant, Orton Katz says. An additional benefit that a restaurant gains is the e-mail address of the customer, which the restaurant can use for future promotions. A chain restaurant would pay $2,000 per restaurant to license the software and $79 per location each month to participate in the program.
The dining-out market is finite and Orton Katz believes that once a few chains move market share, others will come quickly into this program. “There’s a follow-the-leader mentality in this market,” she says. “Once we get some high-visibility testers, the others will follow.”
The hurdles
VeriFone, Hypercom and the other vendors of payment terminals would all like to see the terminals put to additional use, since it would allow them to raise the price on terminals that have greater functionality than terminals today. But there are a couple of barriers to achieving that goal. For one thing, merchants don’t like anyone to mess around with their payment terminals. And for another, the terminals generally don’t contain very fast modems. “If you want to innovate, you’ve got just about every barrier you can think of stacked against you,” says Stuart Taylor, director of emerging markets and business development for VeriFone.
That’s not stopping VeriFone from pushing forward with new uses for its terminals. It is promoting a system with Perks.com whereby sales clerks are rewarded for various activities with points. The POS terminal would use a web connection to send the points a clerk earns with each sale to a central data repository. The program has yet to sign up a retailer.
Like VeriFone, Hypercom is developing advanced uses for the payment terminal, but has yet to find any takers. Among its planned offerings are e-receipts, whereby the customer would receive an electronic receipt via e-mail and the merchant would store the receipt electronically. Hypercom is also looking at ways to enable terminals to print marketing messages on receipts, with graphics and coupons. And it is looking at ways to allow the terminal’s screens to display electronic marketing messages to customers.
Down the road, Hypercom is considering linking a web store to a physical store so that when an order comes in to the web store, the order is sent to the Hypercom terminal so store personnel can fulfill the order. And it’s looking at employee time and attendance functions. “We want to be able to assure every merchant that the terminal has earned its right to be on the countertop,” says Nick Logan, president of epicNetz division of Hypercom.
While everyone enthuses about the marketing possibilities that tying systems together makes possible, the realities of the current economy are playing just as big a role in focusing retailers’ attention on this issue. “In a retreating economy, retailers are returning to the fundamentals and looking to maximize their investment,” says Greg Bandler, vice president of marketing for Triversity, a software and systems developer that ties point-of-sale applications with customer service applications. “They are tying their systems all together in a logical fashion.”
In fact, The Shoe Company, a Canadian retailer with a chain of stores and a web site, is using the Triversity system not only for customer service and marketing applications, such as coordinating marketing campaigns and its loyalty program across channels, but also for integrating transaction processing systems into one platform, which the company says reduces costs.
Reducing the confusion
There also are other behind-the-scenes ways in which retailers can use POS systems integrated to the web. For instance, new sales associates could access a web-enabled POS system for training, says Fujitsu’s Paschal. Although the company has no takers yet on the idea, Paschal foresees sales clerks taking an assessment test on the POS terminal, having a central system analyze the clerk’s strengths and weaknesses, then recommend training and deliver the program to the point of sale. “The average sales associate lasts six months and they spend the first month probably confusing more customers than they help,” he says. “We think this system could reduce that to two weeks.”
By no means are all retailers sold on the benefits of web connection. Some retailers, according to LakeWest Group, “openly wondered why anyone would want to give Internet access to store personnel.” And some fear being the leaders in the web-connection movemenet.
It’s clear that the market is only just developing—as many retailers who are looking at these systems have found. “This isn’t cutting edge, this is bleeding edge,” says Furst of Djangos, which spent just under $2 million developing its POS-accessible inventory system. “We couldn’t find anyone who could give us the level of integration we needed. You can really destroy a customer relationship if you can’t fill what the customer has ordered.”
And that’s what it all boils down to: Keeping the customer satisfied.
kurt@verticalwebmedia.com
