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Retail Technology for Beginners

March 27, 2009

For new store owners, baby steps are required before the latest and greatest retail technology can be explored. At least in the grocery industry, entrepreneurs opening their own store often turn to wholesalers offering services on behalf of their retail partners in the areas of POS, replenishment, and website services, according to Bill Bittner, president, BWH Consulting.

The wholesaler may also provide support for labor scheduling and payroll. To quickly establish a web presence, a start-up may tap into distribution services available from Amazon.

"The point being is that at this stage, most of the technology and applications should be ordered on a subscription basis and the wholesaler used to maintain most of the item and inventory data so that the retailer can focus on operations," observed Mr. Bittner. "If there are direct-delivery vendors, then the retailer would only have to maintain data for those items."

Tapping into technology that controls operating costs such as power usage and shrink is also crucial early on.

"Basically, make sure everything is controlled so that in-store displays and signage use the minimum amount of electricity and heat and A/C are adjusted," said Mr. Bittner. "Security is critical, both for safety and control of shrink. Cameras are important, but some items may need greater control such as locked display cases. Cash and credit card transactions must be properly recorded and accounting software will be needed. The technology hardware at this stage would be mostly determined by the wholesaler and what they can support."

Once past the initial stage, the retailer can start looking for "best of breed" service providers, including turning to outside services for payroll and labor scheduling.

"The goal now is to reduce the connection between their merchandise and technology provider so they can negotiate the best service independently," said Mr. Bittner.

When the owner starts feeling empowered to open multiple stores, outside software services for pricing and assortment planning become more worthwhile. Instead of using their wholesaler to provide a web presence, a professional website provider can offer something unique to further separate merchandise and technology needs.

Mr. Bittner notes that the adoption of technology may change dramatically as the internet enables smaller retailers to explore new ways to reach consumers and even play a different role in promoting brands for manufacturers. For now, the technology decisions are largely driven by price.

"Whereas the small retailer will most often use a 'service model' and contract for many technology capabilities with outsiders, the larger retailer may find it cheaper to do it themselves," said Mr. Bittner. "This does not necessarily mean writing programs as much as it means buying programs and installing them on their own equipment instead of paying for the on-going service."

Discussion Questions: If you were opening up a single-unit store, which retail technologies would be highest on your priority list? How have you seen start-up retailers learning about and tapping into the available retail technology?

Discussion Questions

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Comments:

The technology options are indeed numerous for beginners. My recommendation is to ensure that the start-up retailer has surrounded itself with a best-in-breed support team of outside service providers that can fill the technology gap while the store operator focuses on retailing. Too often beginners will surround themselves with technology that winds up consuming them and their valuable time is spent being an information technology expert rather than a retail operations steward.

Firms that provide planogramming, shelf strategy, retail pricing and shelf-level promotional support can be valuable allies. As well, the various services and programs offered by wholesalers can certainly fulfill the technology needs of a start-up. It is not until the retailer establishes itself and can justifiably make an investment in hardware/software (space management systems, in-store kiosks, etc.) should these even be considered.

If I had to suggest several key technology stepping stones, I would look to point-of-sale scanning and website presence. These two technology aids support a good retail operation--regardless of size.

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Dave Wendland, Vice President, Hamacher Resource Group

It is vital that any retailer know what's trending, know what's out of stock and when, and how to promptly get back into what's hot. I have far too many clients who started out by relying on their catalogs, sales reps, and suppliers recommendations and not on real data-driven conclusions.

The costs associated with a POS and replenishment system, while high, are recoverable--reduced markdowns, faster inventory productivity, greater revenue, and smarter client-facing employees.

An experienced retail consultant can bridge all the unknowns and help a new business get up to speed with the application of the proper technology.

John Hyman, President, Celerant Consulting LLC

Sure many of today's wholesalers can provide all kinds of data for better fact-based decision making. The question is, does everyone know what it means?

Along with the challenges of execution at store level the mind set that experience trumps all data needs to evolve, especially today, when every rock needs to be over-turned for new opportunities.

For the young entrepreneurial start ups, step one is learning the terminology and what data is available, its cost, what it relates to, and then diving in and sifting through it to find what is currently relevant to their business and matching it up to what they are seeing from their customers. Rationalize that and stay current with it. Business is not done with blinders on, there is now and has always has been a need to see what is happening all around you not just between your doors.

For the well established retailers the purpose and mind set need to evolve from "I know" to "I'd better check" so they STAY current and relevant to their customers.

Gone should be the days of I have no time to review all that stuff. These should be the days of intense scrutiny and the desire to KNOW what is right and what is best. Then "of course," where it belongs and how much/many I need.

Mark Plona, Space Management Specialist; Health & Wellness Chairperson, Bozzuto's, Inc.

Technology that allows the retailer to capture consumer purchases and link to other company databases (e.g., marketing research, revenue per household or consumer, inventory, real time sales, customer service) is an essential central ingredient.

Recruiting employees who can provide great customer service and who can understand the implications of data are another essential ingredient.

After that, technologies that allow for efficient store operations including location of items within the store would be necessary.

Someone needs to have the vision to make the store inviting, entertaining, and interesting to the customers.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

Hire your relatives and do everything except POS by hand for a few months. I've seen it hundreds of times with independent operators opening their first stores while I worked for Fleming, 7-Eleven, and SuperValu. Relatives in key positions will control shrink and ensure cash security. Doing as much as possible by hand will quickly identify the areas that most require electronic systems, and will help the store owner better articulate their needs when working with their wholesaler or other systems suppliers.

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M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

The most critical issue for any small retail start-up is cash flow. Inventory will likely chew up as much as 80% of the invested capital, so generating a return on that inventory is paramount. Any system that a small start-up brings in obviously must be able to handle the front-end, but also must provide the owner/manager with the tools that are necessary to effectively manage and replenish the inventory.

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Ted Hurlbut, Principal, Hurlbut & Associates

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