Next battleground: Technology?

Smaller independent retailers may be facing the greatest threat to their existence over the next five years — greater, even, than that generated by the expansion of all types of big-box stores over the past two decades.

The threat is technology. Amazing advances in technology, now being considered for and applied to retailing, will greatly increase retail productivity of all kinds, as well as offer the hope of improved customer service.

The Menards kiosk can be used for a gift registry in one part and a price-checking mechanism on the other side.

The danger is that this technology is going to be so expensive in its early, formative years that only the largest and most profitable retailers will be able to enjoy its benefits. Its costs will be well beyond the pocketbooks of individual retailers or perhaps even the cheque books of small chains.

On the world stage, retailers are now testing the very latest concepts of retailing are giants such as Wal*Mart, Tesco, Marks & Spencer and Metro. Less cutting-edge technologies such as self-checkout are already being employed by Home Depot and a host of supermarkets seeking to improve and speed the checkout process.

RFID (radio frequency identification) is the technology which holds the greatest promise and which is being adapted in a variety of applications, not just retailing. (See last month’s technology column – Ed.)

As a major section in Time magazine recently explained, an RFID tag is a tiny chip with its own built-in antenna, which can be used to track everything — anywhere — all the time. It is currently being used by the military to search supplies; by hospitals to keep tabs on patients and in distribution to track the millions of packages being shipped worldwide annually.

It is far more sophisticated than bar codes, which identify groups of products. An RFID tag identifies individual products. At the moment, costs are so high that they are only being used for more expensive items, but they are sure to come down and their use will ultimately become more widespread. They are being used on highly “pilferable” products such as batteries and Gillette’s new Mach 3 razor — small, fairly expensive and easy to steal.

In retailing, Wal*Mart has already told its 100 most important suppliers to put RFID tags on all cases and pallets by 2005 so it can track products from factory shipping dock to its 103 distribution centres, and on to its thousands of retail stores.

The instructions to vendors were simple: Do it or else. As RFID becomes more widespread and costs come down, smaller vendors to Wal*Mart and other major retailers will need to offer the same technology or be excluded from these retailing giants.

In this case, Wal*Mart, a technology leader in most applications, is actually lagging behind two other worldwide retailers — the UK’s Tesco and Germany’s Metro. However, Wal*Mart is among the leaders in connecting its operation to that of suppliers by moving from a maze of private networks to an Internet-based system which will be used to exchange information such as purchase orders and invoices.

Wal*Mart has set a deadline for its suppliers to be operational with the necessary software by yearend. The company’s mandate is encouraging vendors to make the move, recognising other chains will soon be following it. Wal*Mart has 20,000 suppliers, and those participating allow the company to check sales details item by item, day by day.

Manufacturers and retailers are presently concentrating on using RFID for backroom logistics. It will enable them to minimise inventory at retail and in warehouses while simultaneously minimising stockouts at retail because of better item-replenishment of fast sellers.

Those two goals will put added pressure on small chains, which already carry larger inventories and suffer slower stockturns than do most retail chains, forcing them to allocate more assets to inventory.

And wholesale suppliers to such stores will find it difficult to match the logistical speed and sophistication of retail chains. They and their retail customers will find chains reacting more quickly to best sellers and more quickly disposing of slow sellers. Inventory levels of independents and small chains will almost certainly continue growing, causing added financial burdens to these businesses.

It is estimated that setup costs for a large company can run from $100 to $200 million, currently far beyond the budgets of all but the largest organisations.

European stores lead
So far, Europeans are leading the world in seeking RFID applications. Marks & Spencer, the UK mass retailer, is beginning to track its gourmet take-home foods. According to Time, tags are imbedded in 3.5 million food trays and dollies, allowing the company to track trays and insure that food is always fresh from its hundreds of vendors. Time says the system will cut employee handling costs 80%.

At a recent meeting of the Federation of DIY Manufacturers Associations (FEDIYMA) held in Brussels, speakers outlined a host of emerging technologies which are beginning to transform consumer-employee experiences. They include self-checkout systems which provide faster consumer service. Home Depot claims that it also gives the chain an opportunity to put more sales help on the floor since fewer cashiers are now required.

Personal scanners, which consumers pick up at a store’s entrance, record product pricing by reading bar codes. These scanners also display store specials and keep a running total of the amount being spent on purchases.

Kiosks are in-store information centers which supplement customer-service areas. These can be programmed to provide seasonal information on sales, DIY projects, store locations, etc.

Mobile/personal shopping devices — for both consumer and employee use — locate products, provide pricing, and track stock levels. Dynamic displays are another electronic concept to enrich the consumer’s shopping experience

RFID tags streamline the supply chain and increase in-stock levels, and help reduce pilferage/store theft problems. A variety of cashless payment alternatives are already being tested and implemented in convenience stores, other retailers and even restaurants.

Who’s doing what?
Major retailers are looking for technology to take out costs, transform the consumer experience and enable their people to serve customers better. Among the retailers using kiosks are Boots, the UK drug giant; and Target, Ukrop, Williams & Sonoma and Crate & Barrel in the US. Menards, the third largest privately owned home centre chain in America, has a version of the kiosk concept in some of its stores.

Personal shopping devices and mobile consumer devices are already being used in Tesco, the UK supermarket/hypermarket giant; Sainsbury, a UK food chain, and Metro, the German hypermarket/DIY giant.

Metro, in fact, is operating a store in Rheinberg, Germany, which is testing virtually every kind of new electronic technology. Its “Future Store” initiative is using RFID for picking and labeling; goods receipt; backroom storage and with “smart shelves” which update retail prices electronically.

In-store information systems rely on electronic shelf labeling; use of personal digital assistants, informational kiosks and electronic advertising displays. New technology also is being used to improve in-store communications. The store even offers an internet café for customers.

Smart checkout concepts involve the use of loyalty cards, intelligent scales, RFID checkout as well as self-checkout, customer-counting (for store layout and product-movement research) and vending machines for added sales without employee handling.

In the DIY field, Home Depot is using self-checkout lanes in more than 750 of its 1,617 stores. Twenty-eight per cent of all receipts in those stores are now generated in the self-checkout lanes.

For a store like Home Depot, where customers might buy only half a dozen items per shopping trip, self-checkouts greatly speed up the checkout experience, especially by avoiding peak period checkout lines. These machines accept cash, credit or debit cards, coupons and gift certificates. The latter two items particularly slow down a normal checkout procedure. One Depot store manager said that a 4-unit system can save up to 150 labor hours a week.

First used in supermarkets, self-checkout installations increased 47% in North America last year. Lowe’ says it does not plan to offer self-checkout soon, though it is undergoing evaluation.

But it is clear that in the coming years, technology is going to dramatically change distribution concepts as well as retailing. When will Store-of-the-Future concepts become widespread? Some consultants are convinced that these technologies will gain mainstream acceptance (to some degree) within the next several years and become more popular within 5-7 years.

Bob Vereen, Hardware Journal’s US Correspondent