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Retailers are working overtime to firmly establish their competitive place in an industry where hyper-competition reigns and macroeconomic challenges such as higher energy and housing costs increasingly impact the consumer’s wallet. Many merchants see the opportunity to create a new shopping experience ó supported by advanced store systems technology - as the best path to improving business performance on all levels, including higher sales, improved profits, and increased customer satisfaction. But the approaches and models used to assess point-of-sale (POS) technology platforms have broadened far beyond just capital investment, and new Global Retail Insights research has shown that retailers across different segments often view their investment priorities differently. Global Retail Insights has identified a number of important criteria for evaluating both the true costs and the key business value of a new store systems strategy.
This white paper provides a detailed view of the considerations required to evaluate advanced store systems platforms and how to ensure that the retailer’s business priorities are fully addressed in the business value analysis. It examines the importance of using a total cost of ownership (TCO) model as a more accurate reflection of investment cost and benefit than mere asset purchase. It analyzes research results that show the different store systems evaluation priorities used by different retail industry segments and provides sample retailer models and financial metrics to use as guides, concluding with a review of the full value proposition that can result from a broad, strategic investment in new retail POS technologies. To say that retail is highly competitive seems a gross understatement.
Not only do global mega-merchants continue to dominate the low-price battle based on their sheer economies of scale, but new market entrants (e.g., Tesco in the United States, Best Buy in China), along with a blurring of traditional market segments, are making a complex industry even rougher to navigate. This ubercompetitive battle will be hard to win on price alone, so retailers that want better brand value and improved performance are aligning technology changes at store level to ensure delivery of a consumer experience that results in bigger transactions, higher trip frequency, and higher shopper satisfaction. To deliver the levels of service, personalization, and efficiency that savvy consumers demand, more retailers are ramping up long-delayed POS replacement projects as they realize that their legacy systems do not have the capabilities to support the required new store-centric strategy. IDC’s 2007 Worldwide Retail IT Spending Guide forecasts that worldwide POS hardware and software spending in 2008 will be $9.58 billion, increasing to $11.8 billion by 2010.
Given the capital requirements necessary to complete a chainwide store systems replacement project, it is understandable why many retailers become transfixed by only equipment acquisition costs. However, a focus on initial POS capital spend leaves out most of the cost and benefit elements realized during the entire operational life of the equipment. Store systems projects that orient their financial assessment around the TCO are more likely to get an accurate reflection of the value proposition of store technology investments. Stated more directly, retailers can expect that only 20-45% of the TCO of a given store systems investment will be initial purchase price (see Figure 1). Therefore, retailers would benefit from expanding their selection criteria to consider factors that optimize the life-cycle costs of their POS solution.
While actual technology purchase is an obvious, early element of any store systems transformation project, four major store systems TCO components (or life-cycle "steps") impact the overall value proposition and the retailer’s ability to reduce TCO (see Figure 2). The four steps are highlighted in the following sections.
Evaluation and Procurement
The most "traditional" step of a POS project involves the direct and indirect costs of solution assessment, vendor management, and capital purchase. Often included in the initial buy are direct infrastructure needs such as store wiring and network platforms.
Staging and Deployment
Almost any major retailer planning a chainwide POS rollout requires a formal process by which delivered technology is centrally and formally configured, tested, and prepared for distribution to a chain’s individual stores. This leaves only physical installation, connectivity, operational testing, and training to be done at each store location.
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