6 min read

Ringing up reseller opportunity at the cash register

There is a market for VARs to bring point of sale systems to smaller retailers. The challenge is getting your foot in the door

Most consumers probably still remember the days when a bell really rung when a store clerk “rang up a sale.”Most consumers probably still remember the days when a bell really rung when a store clerk “rang up a sale.”

That a retail sale today is more likely to be marked by the beep of a bar-code reader or a soothing new-age major-seventh chord played over computer speakers is an indication of how suddenly the point-of-sale (POS) experience has changed. But the market is still young and characterized above all by a chaotic cast of players and technologies.

“The POS market is a nightmare,” says Info-Tech Research analyst George Goodall. “There is never a clear technology direction. Now Microsoft is going into a vertical strategy so we’re hearing more about it, because a few years ago there were a multiplicity of regional and small vendors.”

According to Goodall, that means that one of the principal roles for the channel today is to make sense of it all as retailers rush headlong into the fray.

Make no mistake; the cash register is still out there. And Greg Smith, president of Multipost Systems, a Markham, Ont.-based system integrator specializing in retail systems, adds registers are likely to stick around for a while if only because they’re cheap and easy to use. But interest in software-based POS solutions has been growing steadily. According to IHL Consulting Group, a market research firm that tracks retail industry trends, shipments of PC-based POS software grew eight per cent in 2006, led by specialty retail and restaurants. This represents a recovery of sorts from the lukewarm market of 2005, when retailers tended to put technology investments on hold in the face of a stagnant consumer market.

However, as Smith points out, interest in POS technologies and market growth are intimately related to the growth of retailers themselves. As retailers expand, so do their need for systems to manage the till. That means that, as long as there are shops, there will be a demand for the kind of services VARs and SIs provide.

“The rule of thumb is really that if a retailer is under $200,000 in sales then they probably don’t need a POS,” Smith says. “They can get by with a cash register that they bought at Price Club. Once they pass that level, though, the benefits of a POS become obvious.”

It’s easy for even a small retailer to break the $200,000 barrier, and more complex inventories and a growing customer base motivate many retailers to look for tools that can streamline their operations. But market demand is being driven by some rock-hard realities. Competition from always-open, always fully-stocked online retailers has raised the bar for the Mom-and-Pop at the corner. It’s not enough to be a familiar face when Amazon.com can promise next-day delivery and cut-rate prices.
Moreover, the reseller opportunity in the retail industry is something of an unexpected payoff from a kind of technological domino effect. After a decade of consolidating and automating their supply chains, consumer product vendors and distributors are demanding compliance from the storefront. “There’s a natural momentum,” says Brad Tracy, director of product marketing at POS vendor NCR. “Retailers are being forced on the backside to integrate with the supply chain.”

The good news for resellers is that, despite what retail market analysis firm IHL Consulting Group found to be a dip in POS adoption in 2005, there are indications that Canadian retailers are taking a hard look at the technology. The problem is that retail can be a tough market, particularly for smaller retailers that are just beginning to follow in the footsteps of the Wal-Marts and Future Shops of the world.

Indeed, according to Info-Tech’s Goodall, it is just this segment of the market where Canadian VARs and system integrators are most likely to be playing. Part of that is the peculiarity of the Canadian retail business which is dominated by medium and small operations, but it’s also because the bigger a retailer is, the less likely it is to seek out a reseller for a solution.

“The big guys tend to avoid the channel and go directly to the vendor,” he says. “It’s really at the 10 store mark that the channel is absolutely crucial.”

The irony is that the market segment where the channel is the most important is also the one with the strongest reputation for technological and fiscal conservatism. NCR’s Tracy, however, says that this is not a major hurdle.

“The small business owner, by his very nature, is entrepreneurial,” he says. “So it’s not entirely true that he’s risk averse. But he also doesn’t want to lose the personal touch. That’s what makes him special and he doesn’t want to trust a machine.”

More to the point, it’s often personal money and life savings at stake rather than corporate shares. Small business owners are not likely to take the cost of technology investments lightly, and they aren’t inclined to re-tool any more often than absolutely necessary.

“Retail people can be very conservative in spending,” Goodall says. “The technology refresh cycle is typically seven-to-eight years and often as much as 10 years. There’s not a lot of churn.”

That situation is further complicated by recent events that cast POS technology in an unfavourable light. Consumers brought a lawsuit against a string of large international retailers earlier this year, including Ikea, Disney, Regal Cinemas and AMC Theaters, for revealing private financial information on printed receipts. The retailers, in turn, have sued their respective POS software vendors, blaming the software.

Trust is a particularly important issue for smaller retailers, who don’t typically have strong vendor preferences, according to Goodall, but invariably prefer to entrust mission-critical systems to familiar faces. Part of that is because small operations rarely have dedicated IT departments. Consequently, they are looking for IT expertise as much as – or more than – software bells and whistles.
According to Smith, that’s what gives Multipost Systems its edge. With 26 years in business and a retail heritage, Multipost can immediately strike a rapport with its customers.“We speak their language,” Smith says. “They’re not concerned about the box; they want to know about the problem they’re facing. A techie can do all the tech stuff, but knowing retail is a different thing.”

Indeed, VARs and integrators that serve the lower segment of the market typically leverage their retail acumen and soft skills more often than flexing their technological muscle. For Ottawa-based VAR Iron Gate SMC, that meant focusing on its Macintosh-based constituency in media and creative retail verticals. Iron Gate’s flagship POS offering is the Mac-based Lightspeed POS, developed by Montreal-based XSilva Systems Inc. It was a natural evolution for the company to move into POS as its customers moved into retail.

“Now we have photo studios that run one side of their business as a retail boutique,” Iron Gate founder Sean Costello says. “It makes sense for them to use Macs on that side as well, and it makes sense for them to come to a company that they’ve worked with before to implement it.”

The Mac might be a harder sell for retailers that were not already invested in the platform to start with, but Costello says Macs often sit well in the comfort zone of retailers that have no platform preference one way or another.

“A lot of retailers have been exposed to the Macintosh, but they’ve never had the reason to act on a Mac,” he says. “Lightspeed provides that.”

Above all, the system has to work, however, whatever the platform.

“Up to the 10 store mark, retailers are looking for reliability more than anything else,” Goodall says. “Inventory control and business intelligence are important, but the big concern is that the POS could go out on the Saturday afternoon before Christmas. It’s also about cost on the buy side. Resellers really have to keep those things in mind when they’re dealing with smaller operations.”

Given those considerations it’s not surprising that, despite recent product launches from Microsoft, increasing interest from enterprise software vendors like Oracle and SAP, and the multiplicity of small regional vendors and custom software developers, the old cashbox still has considerable appeal. According to Goodall, NCR, which has been building cash registers since 1884, commands “70 per cent of the POS market” in Canada. A big part of its allure is the traditional preference for hardwired terminals. That’s waning now, but NCR has been able to leverage its reputation.

With in-house IT departments and already substantial investments in inventory and logistics technology, the typical large retailer requires less convincing than its smaller counterparts, and have been more receptive to software-based solutions for several years. For one thing, says Donald Fong, manager of business development at AM/PM Service in Ottawa, many more of them will already be in their second POS adoption cycle.

“The technology side is extremely important to large retailers,” Fong says. “They need to consolidate and interoperate. Most have their own IT departments. They have a tendency to go in and develop their own reporting and analysis tools.”

In either segment, however, the market differentiator for VARs and integrators alike is a track record of successful implementations.

“Implementation is the key that will make or break the success of a tool like a POS system,” Costello says. “If it isn’t implemented properly it can be a disaster. When implementing, you really have to focus on how a tool will actually be used, not its feature set.”

Unlike many verticals, however, retailers typically have less of a pressing need for training. Managers certainly need to be up to speed on back-end administration and inventory management and, in certain verticals like the restaurant industry, the variability of product offerings can make training for floor staff essential.

“With bar codes and SKUs, there’s a standardized inventory and the sales staff doesn’t actually have to have much direct interaction with the systems,” Goodall says. “Where you have highly configurable items, like in a restaurant, or things like service orders, it’s something else because everyone is working with a changing variety of possible orders.”