Gearing Up for Change

For retailers, the “moment of truth” comes at that exact second when the customer gives the clerk money in exchange for merchandise. And it is for that reason that the most over-built component of most retailers’ store technology footprint has to do with accepting cash or cash equivalents. Retailers know that tendering the transaction is the last impression that the customer has of the shopping experience, and a poorly handled ring-out can undo all the good will created with beautiful displays and friendly staff.

Ironically, it’s the over-built nature of legacy payment-handling capabilities at the point of sale that now stands in the way of introducing innovative payment types. Over the years, as new payment types, beyond cash, were introduced, retailers bolted new subsystems onto the POS as best they could. The result was often a spaghetti bowl of devices and code that is really difficult to untangle without undoing the whole works.

But the challenge of how to support new payment types also points to far bigger issues of a strategic nature.

The Multichannel Effect 

It’s very difficult to leverage any technology that is physically centered in the store across other channels. In-store POS has traditionally been “ground zero” for retailers’ payment-processing capabilities, but as Miami-based Retail Systems Research noted in its February ’09 benchmark report, “Cross-channel Retailing for the Anytime, Anywhere Consumer,” retailers recognize that one of their most critical challenges is in “creating a consistent brand identity, and infusing that brand with a sense of clarity, convenience and value.”

Aware that customer-payment options need to be available in all channels, many retailers have simply created functionally identical capabilities in each of their selling channels, even if the channels can’t share the same systems. The problem obviously is that along with that kind of duplication comes all the costs that go with it, such as having no economies of scale.

Why Not Fix the Fundamental Problem?

Many “Retail Winners” recognized the technology architecture issues associated with payment systems challenges years ago, and centralized credit-card “switch” processing, customer loyalty “points” systems, and digital receipts and returns handling.  They are now best enabled to support consumers’ cross-channel shopping behaviors as far as they relate to payments.

But for all retailers, the challenges and opportunities to leverage payment-processing capabilities across all channels and potentially introduce new payment types are just the beginning. They are merely the latest in a string of issues that undeniably point to the need to re-think how in-store POS systems should be positioned vis-a-vis the corporate information architecture. RSR research shows that a consistent top inhibitor to many retailers’ efforts to address their business-intelligence, multichannel-retailing, merchandising and inventory management, and even supply chain capabilities, is that legacy store systems cannot produce the quality of information needed.  

The rub is that one would be hard-pressed to find a more expensive, time-consuming or important system decision for retailers than an “in-store” one. But choosing to wait could be nearly fatal, especially for those who have chosen in the past to get “just one more year” out of their in-store architectures. 

Consumer demand for new “cash equivalents” and payment options could be the tipping point for a re-think of the in-store technology infrastructure, although there is a preponderance of weighty issues associated with legacy systems that can’t be ignored any longer. Whatever the cause, the timetable seems clear — this needs to be addressed within the next few years. 

Why? Because consumer adoption of new ways of shopping are emerging as the next generation of mobile devices reaches critical mass. Cell-phone network providers are looking forward to adoption of mobile technologies for digital payments, mobile shopping, beyond-store product references, in-store product references, contextual advertising, loyalty, social shopping and mobile-enhanced e-commerce. Manufacturers are looking at the capabilities of mobile devices for coupons and vouchers.

Most of these new ideas are expected to gain mass acceptance in four or five years. Retailers will have to gear up, or lose the business.

Brian Kilcourse is managing partner, Retail Systems Research, Miami.