BrainTrust Query: What Does Mobile POS Mean for FDM?
Through a special arrangement, presented here for discussion is a summary of a current article from the Mark Heckman Consulting blog.
Point of sale systems (POS) are the largest single technology investment for the vast majority of retailers. The capital investment required for these systems, even in modest sized retail chains, easily reaches high six figures, more often millions. In the past, these investments were made with the mindset that they were required investments, despite their complexity and expense. POS leaders like NCR, IBM, and Fujitshu controlled the lion’s share of the market and enjoyed healthy margins.
Today, mobile technology is emerging and an increasing number of consumers are adapting to PayPal, Google Wallet, and other mobile payment solutions. Shoppers like the flexibility of payment without a credit card or check.
Not surprisingly, IBM and NCR are amping up their internal capabilities to adapt to mobile payment systems while also gobbling up targeting and loyalty solutions to position themselves as providers of holistic retail solutions. The NCR/Retalix acquisition is a perfect example of two solid past performers understanding they need to combine forces to effectively compete going forward.
Despite these efforts, the entrance barriers into the POS marketplace are melting away. Google, Microsoft, Datalogic, Motorola, Intermec, and countless other smaller application providers are pitching their solutions to retailers and gaining market share.
Enter the consumer.
Mobile POS is on the move because shoppers’ adoption rates are increasing. Estimates of growth in mobile POS is conservatively placed at around 12 percent annually.
In a recent study, the IHL Group touted estimates of spending on mobile POS systems in North America will surpass $2 billion this year, with 28 percent of North American retailers planning to adopt mobile POS by the end of the year. Further, the research found that specialty retailers are deploying about 45 percent of all tablets shipped to retail for POS.
In sum, the IHL Group study predicts that retail mobile POS devices will replace 12.4 percent of traditional POS shipments in North America by 2016, led by department stores and specialty retailers.
It is just a matter of time and consumer demand for online shopping, home delivery, and in-store pick up, before supermarkets and mass merchants follow the specialty and department stores into this new age of payment.
Unfortunately, many retailers in the FDM (food, drug, and mass) channel are still dealing with the monumental task of herding the cats when it comes to establishing communication and unity between their customer transactions, their accounting, and merchandise billing and inventory databases. Changing or layering a new POS system to accommodate mobile is just one more project they have little time or resources to tackle.
Accordingly, I do not anticipate a mass exodus from the incumbent POS systems overnight … but I do see those retailers that innovate and deliver mobile POS solutions to their shoppers as winners. Those that do not will pay the price.
Discussion Questions
Is the mobile POS payback much smaller for FDM retailers versus specialty stores and department stores? Do you likewise expect a much slower adoption rate for stores in the FDM channel? Is there a big first-mover advantage for FDM around mobile payments?
Ticket size has a lot to do with the adoption of mobile POS. It makes sense for Nordstrom to use an iPad to ring up a customer purchasing a shirt; it makes less sense to use one for a mom with a $160 basket of groceries.
That said, retailers are eager to avoid being saddled (again) with POS system that is obsolete as soon as it’s installed. They’re open to any and all innovations. And at a dinner last week in Nashville, a bunch of highly-placed retail IT leaders say they anticipate big changes in payments on the horizon, and the technology company that gets it right will win BIG.
Like anything new, the smaller players usually can afford to be the early adopters. As the article states, legacy POS systems are expensive, complex and tough/expensive to replace. Trust me, I spent 3 years researching this very topic meeting with top grocers.
As the technology evolves/improves and is basically proven by the smaller players, major retailers will certainly start planning for the move. I do believe there will be a first mover advantage. Some thoughts on who might be early movers: Walgreens, Target and Kroger. All of these retailers understand the importance of technology, consumer experience and making investments for the long term.
There are a number of reasons that MPOS will be a challenge for FDM. First of all, the number of items per transaction is larger. Handling produce continues to be another challenge. Bagging is yet another. No, not MPOS, but there are new technologies to move the lines in FDM. Mobile phones and mobile computers for self-checkout and the use of line busting solutions to speed up the lines seem to be the better solution to full MPOS, and payment with no worries for EBT, coupons, and WIC shoppers.
Mobile payments and its execution is the big incoming wave that is building for a big break. Those retailers and technology partners that get it right as well as get accepted by shoppers will have a tremendous payout. Over the summer, I’ve seen quite a few small vendors in art fairs and farmer’s markets use Square with tremendous success.
If I were a retailer in a specialty shop or a retailer where my sales associates are working with my clients, I would certainly be considering mobile payment options to maintain the personal interaction while saving on expensive POS technologies. A significant variable in this equation is the acceptance from the shoppers. I would be interested in reading any recent insights as to what shoppers are doing and/or saying with regard to what they’re looking for in mobile payments.
Mobile needs to augment traditional stationary POS, not replace it…at least for the foreseeable future. No retailer needs to take the write off on good POS systems if they are currently managing the store formats effectively. Mobile POS is currently a “nice to have” versus a “need to have,” however, that situation is evolving quickly. Large stores can benefit from mobile POS by intercepting customers in their vast aisles and performing the transaction for those who wish to exit the large store quickly.
Mobile POS is a huge draw for shoppers, so retail formats like DIY, Mass Discount, etc. could create competitive differentiation today with an investment in mobile POS that will have tangible, quick ROI.
The markets that are most in jeopardy as mobile technologies move forward include Automated Teller Machines and cashier checkout stations. As a standalone industry, banks need to reassess the future of their core industry practices. Their falling numbers is how the NCRs and IBMs are monitoring the growth of mobile POS.
The companies that stand to feel the effects of delaying the necessary investments in this technology are limitless. The security, convenience and consumer acceptance in this method of transaction remittance will drive the consumer to any and all types of end-user business types, including but not limited to retail, transportation, entertainment and medical. This technology will expand into all types of business to business transactions where the fastest growth will seen in international distribution and the import and export businesses. Nothing is going to stop this momentum which our new generations are learning ahead of the three “R”s.
Mobile POS has great present application where the basket consists of one or very few items. Square, for example, is very popular with taxi and limo drivers. It fits neatly into highly serviced retail environments, like fashion boutiques.
It enables, for example, the AT&T flagship store on Chicago’s Miracle Mile to operate with no cash-wrap desks at all. This frees extra floor space for merchandising and showcases the wireless technology it sells.
It’s a tougher transition in the food, drug and mass environments, where POS sunk costs are hard to recoup and habits are hard to break. Bigger baskets, many with coupons and frequent shopper card accounts, make the routine a lot more varied and complicated.
We’ve seen self-scanning handsets deployed in a few places like Stop & Shop, and now there is great interest in Walmart’s Scan & Go beta test that uses shoppers’ own mobile devices. These solutions have partial penetration and so must coexist with conventional POS systems. This makes deployment more complex, not simpler.
I forecast a tougher transition in the fast-moving consumer goods channels.
The nature of checkout with large basket size, small dollar per item, perishables, non-scannable items, makes mobile POS less attractive of a value proposition except in specialty departments like Deli or Express lane. In terms of mobile payment I don’t see a big first mover advantage because of the cost of scaling the technology and readers for grocers is more complex.
I think the points regarding ticket price and number of items per baskets are very relevant. I would say that mobile POS makes most sense for shoppers and retailers when the average ticket price of the sale is higher and the shoppers has fewer items. Personally, I wouldn’t want to have to go searching on the sales floor for someone to check out my entire shopping cart of groceries. As such, yes, I think the mobile POS adoption rate is going to be lower for FDM retailers.