pos/ customer engagement survey - Boston Retail Partners

POS/ CUSTOMER ENGAGEMENT SURVEY

16TH ANNUAL SURVEY Gold Sponsors:

2015

2015 POS/Customer Engagement Survey

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Table of Contents Table of Contents .................................................................................................................................2 Introduction ..........................................................................................................................................3 Priorities ................................................................................................................................................4 Payment Security – The New #1 Priority ...................................................................................................... 4 650% Increase in Support of EMV by October 2015 .................................................................................... 5 151% Increase in Encryption by End of 2016 ............................................................................................... 5 Tokenization Use will Increase by 145% ...................................................................................................... 5 Mobile Payment Technology ........................................................................................................................ 6 Real-time Retail – Priority #2 ......................................................................................................................... 7 Centralization of Systems ............................................................................................................................. 7 Real-time Features ....................................................................................................................................... 8 Unified Commerce Platform – Priority #3 ..................................................................................................... 8 663% Increase in Single Commerce Platforms ............................................................................................ 9

Challenges ..........................................................................................................................................11 Customer Service Improvement – 23% Increase in Customer Identification ......................................... 11 Associate Empowerment – 1060% Increase in Personalization by Understanding Online Browsing . 12

Systems And Infrastructure ..............................................................................................................15 Software – The Key to Improving the Customer Experience ................................................................... 15 Hardware – A Continued Decline in Traditional POS ................................................................................ 15 Network – The Foundation for Store Infrastructure .................................................................................. 18

Future Considerations .......................................................................................................................19 Virtual Inventory – 109% Increase in Three Years ..................................................................................... 19 Personalized Receipt – Usage will Increase 700% over Next Three Years ............................................. 19 Virtual Closets – 1600% Increase by 2017 ................................................................................................. 20

Conclusion ..........................................................................................................................................21 Survey Methodology ..........................................................................................................................22 About Boston Retail Partners ...........................................................................................................23 Gold Sponsor – Epicor ......................................................................................................................24 Gold Sponsor – Fujitsu ......................................................................................................................25 Gold Sponsor – Hughes ....................................................................................................................26


Introduction Consumers expect their shopping experience to transcend channels – begin in the digital realm and end in the physical store or begin in the store and complete on a mobile device. This is the new reality and retailers must continue to work towards achieving this reality or they will be at a severe disadvantage. Some of the highlights from this year’s POS/Customer Engagement Benchmarking Survey include:

650% more retailers will support EMV by October 2015

510% more retailers will know what’s in their customer’s closet in 3 years

663% more retailers will have a single commerce platform in 4 years

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“For the first time in 16 years, more than 63% of the retail respondents in the BRP 2015 POS/Customer Engagement Benchmarking Survey indicated that payment security is among their top three priorities for 2015.” Ken Morris - Principal, Boston Retail Partners

Payment security is the top priority for retailers in 2015 with encryption and tokenization the big topics of discussion • End-to-end encryption use by retailers will increase by 151% by the end of 2016 • Tokenization use will increase by 145% by the end of 2016 • One of the drivers of the payment security focus is EMV-based transaction support with a planned 650% increase of acceptance by October 2015

Real-time retail is key to delivering a seamless tailored and personalized customer experience that transcends channels • Personalizing the shopping experience by understanding the customer’s online browsing history will increase by 1060% over the next three years • More retailers are offering associates the ability for suggestive selling based on the customer’s closet – a 510% increase in the next three years

Unified commerce is a high priority with a 663% increase over the next four years in the number of single commerce platform implementations as retailers move towards the delivery of a holistic shopping experience across the brand • Order management solutions are a crucial ingredient in unified commerce with a 250% increase in implementations over the next three years


Priorities In this year’s survey, the top three focus areas for retailers were payment security, real-time retail and implementing a unified commerce platform (Exhibit 1). 63% of the retailers indicated payment security was their top priority for 2015 while 44% indicated either real-time retail or unified commerce was one of their top three priorities. While real-time retail and unified commerce were priorities last year, payment security has jumped to the forefront. After last year’s data breaches at top retailers, and the October 2015 deadline associated with EMV (Europay, MasterCard and Visa), we expected a renewed focus on payment security in this year’s survey. Statistics show that most retailers have been breached at some point or another; the issue now is whether sensitive customer or company data was accessed in the breach. The industry seems to have moved from thinking that “it better never happen and if it does someone will be fired,” to “it’s going to happen so how can we make sure that we mitigate the damage, and protect and secure our data.”

Payment Security – The New #1 Priority A recent Gallup survey (published October 27, 2014) found that 69% of U.S. residents worry “frequently” or “occasionally” about computer hackers stealing their credit card information from stores. In fact, 27% said that they, or a member of their household, had their credit card information stolen from a store. Conversely, when we asked retailers how more retailers confident they are that will support EMV their organization’s by October 2015 payment data is secure, all of those surveyed felt “somewhat” or “completely” confident that payment data is secure. While we admire our respondents’ confidence, this number probably does not truly reflect the reality of our industry as a whole.

650%

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Exhibit 1 Top Priorities 63%

Payment security Unified commerce platform

44%

Real-time retail

44%

Customer-facing technology in the store Mobile point of sale

34% 24%

The threat posed by data security breaches has never been more imminent. As the threat looms and negative publicity affects consumer perception and loyalty, it has become even more critical for retailers to defend themselves and their customers against potential security breaches. Simply meeting PCI compliance standards is no longer sufficient to protect customer data. Hackers have become increasingly sophisticated, requiring retailers to reanalyze and revamp their current security protocols to adequately protect their customers and their brand. While eliminating credit card data in retailers’ environment through the use of tokens will remain the number one security protocol, EMV will also have a significant impact on retailers’ efforts in 2015 to reduce fraud and avoid increased bank fees. Other countries have mitigated the value of stolen credit card data and fraud by adopting EMV standards but the U.S. lags in this area. In October 2015, responsibility for fraudulent activity will shift from the credit card issuer to the retailer in certain cases. For example, retailers that have not upgraded their payment terminals and supporting systems to be EMV-capable will be responsible for the cost of fraud-related chargebacks if a lost or stolen card is used in their stores. With the banks pushing the risk back on retailers, payment security quickly becomes the number one priority for 2015. We asked retailers about their payment security technology plans for the next few years.


physical card (and its security chip) be present at the transaction. A second line of defense – encrypting credit card data at the swipe – is also highly recommended. Our survey respondents are moving towards this with 35% having already implemented end-to-end encryption and another 45% planning to implement it by October 2015 (Exhibit 2). The best practice within encryption is to eliminate encrypted data at rest and to have the encryption key reside with the bank or switch provider to ensure that the message cannot be decrypted within the retailer’s environment.

650% Increase in Support of EMV by October 2015 Retailers are embracing EMV technology with a 650% increase in the number of retailers supporting EMV-based transactions within the next year. EMV technology is one of the steps that retailers can take to reduce the fraud associated with secure card-present transactions. By using a built-in security chip containing customer-and issuerspecific information, an EMV-compliant terminal authenticates the physical card used in the transaction and defeats card skimming and counterfeit reproduction. 10% of the retailers currently support EMV-based transactions and another 65% plan to support this by the October 2015 deadline (Exhibit 2). Due to the backlog of retailers upgrading their payment terminals and the effort and timing involved in the bank certification testing, we expect there will be more than a few retailers who do not get EMV implemented within the designated timeframe.

Tokenization Use will Increase by 145% The next protective layer involves a process called tokenization, with a 145% increase in its use by the end of 2016. Tokenization enables retailers to remove sensitive information from the network. Once a unique card/transaction data is converted into a token, the original credit card number cannot be re-converted, making the data worthless if it becomes compromised. One-third of the respondents have implemented tokenization for payment processing and another 40% plan to implement it before October 2015 (Exhibit 2).

151% Increase in Encryption by End of 2016 End-to-end encryption is the next line of defense in the fight for data security with a reported 151% increase in its use by the end of 2016. EMV adoption does not actually reduce the risk of a breach; rather it weakens the incentive for thieves to steal credit card information by requiring that the

Payment security will remain a concern for retailers for the foreseeable future. Most of the retailers involved in our survey reported moving towards a security plan with multiple layers to protect sensitive customer and organization data.

Exhibit 2 Payment Security Technology Plans Already implemented

Planning to implement by October 2015

Implement end-to-end encryption

Single tokenization across all channels

Planning to implement after October 2015

35%

Implement tokenization by channel for payment

45%

33% 18%

Support EMV-based transactions

10%

Support NFC (Near Field Communications)

10%

5

40% 29%

8%

21% 65%

35%

8%

16% 28%


Exhibit 3 Payment Types PayPal ApplePay Mobile payment in app Google Wallet Softcard CurrentC Bitcoin

13%

18%

8% 5%

31%

30% 13%

35%

3% 15% 3% 13% 8%

18%

28% 13%

Already accept

13%

Plan to accept within 12 months

8% 5%

Plan to accept within 1-3 years

Mobile Payment Technology Mobile payments and Near Field Communication (NFC) technology bring another layer of payment

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security risk. Mobile payment technology was big news last year with Apple’s adoption of NFC technology into their proprietary Apple Pay app. With this addition to the iPhone 6 and iPhone 6 Plus, Apple transformed the mobile payment arena. Apple Pay is designed to utilize tokenization during mobile payment transactions. Apple worked with the credit card issuers to provide merchants with device-specific tokens, which are decrypted only when they reach the payment network. The good news is that this introduction has moved the industry forward by leaps and bounds. However, the mobile payment field is still quite muddy and there are more questions with fewer answers when it comes to which mobile payment solutions will be the frontrunners in this growing area. A recent study by Strategy Analytics’ predicts that NFCenabled mobile handsets will account for $130B in worldwide payments by 2020. Apple Pay has the iconic name behind it with many faithful followers, but the number of retailers able to accept Apple Pay has been limited by a scarcity of payment terminals that can accept contactless payment. Of our survey respondents, 10% support

Exhibit 4 Centralization of Store Systems 83% 88%

Pricing 71%

Business intelligence/ enterprise reporting

83% 81%

Inventory Workforce Management (Time & Attendance/ Labor Scheduling)

75% 72% 68% 67%

CRM Loss prevention

65%

73%

56% 54%

Special orders 40%

Task Management Returns processing Point of sale

88%

54% 47%

28%

43%

73%

2015 2014


NFC payments today and 35% plan to support them by October 2015. This indicates a trend towards the implementation of payment terminals capable of accepting NFC payments (Exhibit 2).

competitors and the closest store that has it in stock – in real-time. Consumers expect a seamless experience in the store, on the Web or anywhere she chooses to shop. This is why more retailers will “real-time retail” know what’s in their is the new customer’s closet imperative. in 3 years

Our survey respondents accept PayPal more than any other alternative payment type, with 13% already accepting it and more than 50% planning to accept it within three years (Exhibit 3). What is interesting to see is that currently only 8% of the retailers accept Apple Pay for payment but another 48% plan to accept it within three years. CurrentC, from the consortium of retailers known as MCX, does not seem to have the same support, as 21% plan to accept this payment type within three years. While the pros and cons of each of these payment types can be debated, most retailers are adopting a wait and see approach.

510%

Real-time retail is the ability to deliver a seamless experience to a consumer whenever, wherever or however she chooses to shop by gathering, analyzing and disseminating customer, product, pricing and inventory data across all channels – instantly. Realtime retail is becoming a mantra in the retail industry and is a key focus area for most survey respondents.

Real-time Retail – Priority #2

Centralization of Systems

Consumers are becoming more demanding – driven by new technology and the real-time capabilities it enables. A customer can be shopping at a store for a specific model of computer, take a photo and get instant access to prices from multiple

Centralization within the context of the store environment provides real-time access to the data needed to customize the shopping experience. Centralized processing of point of sale systems

Exhibit 5 Real-time Features at POS Transactions

75%

Returns management

18%

65%

Pricing/promotions

25%

54%

21%

Inventory

44%

47%

Customer transaction look-up (from any channel)

44%

46%

Loss prevention Analytics/reporting Loyalty program enrollment/ change/ status Monitoring and execution Workforce management

37%

29%

34%

40%

31%

44%

28% 23%

7

31% 26%

Implemented Implement within 3 years


offers a lean and flexible store-level environment by consolidating servers, operating system and applications at the central data center or within the cloud. Centralization requires fewer devices and licenses to deploy and maintain, which improves efficiency. This also supports a more agile environment that offers a richer customer experience and enables real-time integration across customer touch points. Retailers continue to advance the centralization of systems and processes indicating that retailers are becoming more comfortable with allowing their systems to reside outside of the four walls of the store. Last year 28% of the respondents offered a centralized POS environment while this year that number has increased to 43% offering some type of centralized POS functionality, including Web, mobile and POS, either within the home office/ private cloud, or as a service (Exhibit 4). These retailers are able to realize benefits such as faster access to Web and mobile-based solutions, customer self-service capabilities, as well as crossselling and up-selling capabilities.

Real-time Features While most of the retailers surveyed support realtime transactions (75%), it was reported most often

at store-level (Exhibit 5). Although more retailers are moving to a centralized model, many are still utilizing a distributed POS solution. To support the next-generation of retailing, retailers are migrating to a centralized real-time solution for transactions across the enterprise. Real-time retail is the key to being able to offer unified commerce, which offers customers rich detailed content and customer reviews, coupled with the ability to examine merchandise and immediately have that merchandise in the customer’s hands.

Unified Commerce Platform – Priority #3 Consumers and their ubiquitous mobile devices have completely changed the face of the retail. Customers have become very comfortable with mobile shopping and the power and more retailers will have a convenience of online single commerce integrated commerce with social media. platform in 4 Today’s customer is years always connected,

663%

Exhibit 6 Point of Sale Plans Implemented

Implement in < 2 years

Middleware Layer/SOA

Implement in > 2 years 26%

Store-level BI

21%

Mobile solutions for associates

18%

Advanced CRM/loyalty

18%

Omni-channel integration A single commerce platform for store, mobile, and web

10%

19%

13%

18% 56% 41%

13%

49% 28%

18% 25%

16% 24%

8% 18%

43%

13% 8%

5%

26%

15%

Cloud-based POS platform 5% 13% Customer-owned mobile device as POS

26%

23%

Thin client solution

Mobile POS

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and interacts with her family, friends and colleagues in real-time. Always wired customers, armed with real-time communication, have come to expect the same interactive experience with the brands they shop.

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looking at online. Unified commerce transcends channels and enables the opportunity for a store associate to sell to a customer based on her digital footprint.

663% Increase in Single Commerce Platforms

Retailers are responding, and understand that mobility is the convergence of the online and instore experience. Retailers are shifting their focus from channel integration to a holistic customer experience. This shift goes beyond omni-channel and a channel integration focus, and is what we term unified commerce. Retailers can’t afford to operate from within channel silos, and must transform their organization, business processes and technology to align with their customers.

Based on our survey responses, single commerce platform implementations will increase by 663% over the next four years. We asked retailers how they were planning to expand point of sale and enhance their infrastructure to offer customers a holistic shopping experience. Only 8% indicated they had already implemented a single commerce platform. However more than a third of retailers will have a single commerce platform implemented within two years, and more than half will have a single commerce platform implemented within the next four years (Exhibit 6). Implementing a Middleware Layer/SOA remains about the same as last year with 26% having implemented this architecture and another 26% planning to implement in less than two years.

For example, let’s say a customer is shopping online, puts items in her online shopping cart and then abandons the cart, choosing to visit that retailer’s local store. Unified commerce means that when the customer walks into the store and identifies herself (opts-in), the associate can look up her shopping history, including that abandoned cart, in real-time and know what the customer was

Exhibit 7 Unified Commerce Services Buy in-store, ship from DC, other store, or vendor

30%

Returns accepted across channels

29%

23% 37%

Buy online, pick up in-store

24%

Buy online, ship from store

24%

12%

Special order from any channel

23%

18%

Inventory visibility across channels

22%

Order visibility across channels

17%

Buy anywhere, ship anywhere

17%

30% 25%

17%

37% 47% 28%

27%

41%

20%

52%

15%

Reserve online, pick up in store

12%

15%

Reserve inventory in another store

12%

15%

47% 46% 44%

Implemented and working well Implemented but needs improvement Implement within 3 years


Many retailers have started down the unified commerce path by offering services that provide the seamless holistic shopping experience that the customer expects. The ability to “buy anywhere, ship anywhere” has been implemented by 32% of the retailers but half of these retailers don’t think it is working well (Exhibit 7). Unfortunately, many customers agree. In most cases the process to offer customers the seamless shopping experience is manual, pieced together from multiple systems and processes, and often doesn’t work very well in real-time. Mobile remains a big part of the unified commerce shopping experience as customers – and retailers – look for information at their fingertips to advance the sale. Retailers are making progress in these unified commerce services, but the challenge remains to get these processes working well. The solution for many retailers is the implementation of a unified commerce approach and platform. Order management solutions (OMS) are another key component of a unified commerce platform, and retailers realize this with a reported 250% increase in the implementation of single order management platforms in three years. Retailers seem to be realizing that a POS transaction is really just an order placed in real-time. Order

management solutions have evolved over the years and now can support unified commerce order fulfillment scenarios including some of those listed above, such as buy online, pick up in-store or buy online, ship from store. Some retailers have started utilizing their OMS as an enterprise wide order capture hub or “single cart,” which allows retailers to view and access their customers’ order history, wish lists and purchase behavior. This approach has the added benefit of the same business rules and features available at every touch point. Currently, 22% of the respondents are utilizing a proprietary/homegrown order management software solution and 14% are each using IBM and JDA. There is not a clear leader in the order management arena and we expect to see this area evolve as retailers move towards a single order management platform in the next few years. 20% of the retailers have already implemented a single order management platform to engage customers wherever and whenever they want to shop (Exhibit 8). The key point is that more than half plan to implement this within three years, a 250% increase in the implementation of single order management platforms. Order management solutions will play a key role as retailers continue to evolve in this area.

Exhibit 8 Single Order Management Platform No plans 23%

More than 3 years 8%

10

Already implemented 20%

Within 12 months 15%

Within 1-3 years 35%


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challenge along with enabling mobile solutions is a challenge for 2015. We believe this is evidence that retailers are focused on customer service through improving customer engagement with mobile solutions for associates.

Challenges We asked retailers about the biggest challenges they faced this past year and will be facing in 2015. Improving customer service was consistently reported as the greatest challenge over the past two years. Also high on retailers’ minds are two priorities identified above - securing customer data (biggest change from 2014 to 2015) and implementing a single commerce solution. These will both have an impact on resources and planning for retailers in the year ahead. In BRP’s 2014 CRM/ Unified Commerce Benchmark Survey, retailers indicated that 3% could identify customers when they walked in the store and another 72% planned to implement this ability within five years.

Overall, retailer challenges are focused on improving customer service and empowering associates. For 2014, 55% of retailers indicated improving customer service was one of their biggest challenges (Exhibit 9). This continues into 2015 where 46% indicate this is one of their top three challenges. For 2014, 38% of the retailers indicated that empowering associates was a top

Customer Service Improvement – 23% Increase in Customer Identification Today’s informed consumer researches the products she shops anywhere and anytime. Unfortunately, in many cases retailers are playing “catch-up,” by aiming to arm their associates with at least the same information and technology that the customer possesses. Identifying and understanding the best in-store technology to improve customer service and empower associates will be an area of focus for retailers in 2015. A consistently important challenge has been to identify the customer in the store to tailor and personalize her shopping experience. In past surveys, we highlighted the fact that many retailers (73% last year) were able to identify the customer in the store at some point. This year we saw a continued improvement with 90% reporting they can identify a customer in the store, a 23% improvement (Exhibit 10). However, in many cases, customer identification is happening at the point of checkout, which is too late to influence purchase decisions.

Exhibit 9 Top Challenges 46%

Improving customer service

55%

Implementing single commerce solution Empowering associates Securing customer data Enabling mobile solutions

36% 38% 26% 38% 44% 33% 33% 30%

2015 2014


Associate Empowerment – 1060% Increase in Personalization by Understanding Online Browsing

Exhibit 10 Identify Customers in Store 63%

Telephone number Loyalty/Club number

46%

Email address

46%

Customer/ identification number

37%

Credit card/Private label charge card

37% 22%

Driver's license Do not identify customers at POS Social media listening

Identifying the customer is the first step, but key to empowering associates is the extent of customer information made available and at what point. Retailers that can provide associates with customer data before checkout are able to provide a more personalized experience and can offer purchasing suggestions to a customer before she makes her purchase decisions. According to our survey respondents, personalizing the shopping experience by understanding the customer’s online browsing history will increase by 1060% over the next three years. Some retailers have embraced this concept, as shown by 33% of the respondents offering associates customer contact information before the transaction, which is up from 24% last year (Exhibit 11). Across the board, the percentages are up from last year as more retailers are making customer information accessible to their associates pre-checkout. This is a major step towards empowering the associate with customer information in time to influence the shopping experience.

41%

Name and address

10% 2%

Near field communication (NFC)

0%

Mobile device - opt-in to Wi-Fi

0%

MAC address

0%

iBeacon (or other indoor proximity system)

0%

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We asked about utilizing newer technology, such as beacons or NFC, but our respondents are mostly using conventional methods. It will be interesting to see how this transitions over the next few years as newer alternative methods are adopted to identify customers.

Exhibit 11 Customer Information Availability Contact information

33%

43%

Shopping history

31%

21%

Purchase summary

30%

23%

28%

Transaction lookup Customer attributes Product recommendations Customer-specific messaging Customer-specific offers and discounts Social media profile

13%

Information about friends and family 3% 5%

5%

10%

5%

8%

31%

5% 5% 3%

15% 28%

33%

23%

10%

10%

23%

23% 18%

8%

5% 10%

Pre-checkout During checkout After checkout


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Exhibit 12 Tailoring the Customer Experience Personalized rewards based on customer loyalty

25%

Personalized promotions

51%

23%

Suggested selling based on previous purchases

40%

20%

Suggested selling based on customer closet

56%

10%

Suggested selling based on online browsing history

51%

5%

53%

Suggested selling based on social media activity/posts

Already offer

41%

Offer within 3 years

interest include suggested selling based on previous purchases with 20% currently offering, and more than half planning to implement within three years.

This year we delved a little deeper into what the associate was able to do to tailor the customer’s shopping experience based on the information available to them. Today, the most prevalent capability is offering personalized rewards based on customer loyalty, which 25% can currently offer and more than half plan to offer within three years, an increase of 204% (Exhibit 12). Other areas of

The challenge to retailers is understanding and providing the tools to free up associates from traditional cash wrap stations, enabling them to transact with customers on the sales floor where

Exhibit 13 Customer-facing Mobile Services Implemented and working well

Implemented but needs improvement

26%

Digital catalog Mobile coupons, specials, promotions

19%

Shopping list/wish list

19%

Prior purchase visibility

16%

Smartphone app

16%

Mobile loyalty identification Personalized recommendations

32%

24%

Product information (price, location, availability, research)

8%

37%

38%

32%

22%

41%

30%

46%

22%

46%

13%

5%

3%

18%

29%

47%

24%

48%

Geolocating 3% 14% Mobile wallet

Implement within 3 years

38% 54%


suggested selling can be used to influence purchasing decisions. Customer-facing technology helps to improve customer service. One type of customer-facing mobile services offered is a digital catalog for customers, which 58% of the retailers offer (Exhibit 13). This is up significantly (from 40% last year) but many retailers (32%) feel that their process needs improvement. Digital catalogs utilize mobile technology to offer customers the ability to browse through products on their smartphone or tablet. The implementation of a digital catalog can increase traffic and sales since customers can easily find what they are looking for or be directed to cross-sale items that are appealing, all in a visually engaging environment.

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More than half the respondents offer mobile coupons, specials or promotions through the customer’s smartphone or tablet. This is up significantly from the 32% who offered this last year however, a significant number of retailers indicated their processes need improvement. One of the biggest growth areas over the next three years will be to offer personalized recommendations based on individual shopping history. 29% offer this capability today, up 11% from last year. Nearly half plan to implement this feature within three years (up 166%). Offering personalized recommendations will be a key capability in the convergence of the digital and instore experience.


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Exhibit 14 Technology Adoption

Systems And Infrastructure

Innovator

Retail paradigms are changing, forcing retailers to become more innovative to captivate and engage their customers. The new leaders will be the ones who innovate to form a deeper connection with their customer and distinguish their brand. The trend is easily demonstrated by the increase in retailers indicating they are innovators this year. Last year 5% indicated they were innovators and this year that number has risen to 12% (Exhibit 14).

Software – The Key to Improving the Customer Experience

0%

5%

12%

17% 23% 16%

Early adopter Mainstream adopter

30% 24%

Slow adopter

23%

57%

36%

2015 2014 2013

2% 7% 5%

Late adopter

44%

Hardware – A Continued Decline in Traditional POS

As retailers focus on the in-store customer experience, choosing and utilizing the right software is important. In this year’s survey, 18% of the respondents indicated that they utilize Epicor for their point of sale software. 14% of the retailers are using Oracle or a proprietary/homegrown system (Exhibit15).

Changes in consumer shopping behavior and the advent of digital technology have radically changed the very nature of the point of sale (POS). Instead of a simple transaction device, the POS now needs to serve as the link to customer information, shopping history and purchasing behavior across all channels. Unfortunately, many retailers still try to utilize the same POS system from ten or even fifteen years ago. This often leads to associate and

Exhibit 15 Point of Sale Software 18%

Epicor (CRS, NSB) Proprietary/Homegrown

14%

Oracle (MICROS Retail, Datavantage, Torex, 360 Commerce)

14% 12%

SAP (Triversity)

10%

NCR (Radiant Systems, Retalix, Cornell-Mayo) Other

8%

JDA (Red Prairie, GERS, Escalate)

8% 6%

Fujitsu Toshiba (IBM)

4%

Demandware

4%

Manhattan Associates (Global Bay)

2%


customer frustration because of slow transactions, lack of information available to associates and potentially increased theft and fraud. The challenge is to identify and implement POS solutions that address these issues and avoid being obsolete within a year or two.

goes along with the trends we are seeing in the industry. The plans for use of customer-owned mobile devices remains very low with only 17% utilization. Last year 43% of the retailers surveyed were utilizing traditional POS terminals as their only point of sale offering. This year 29% of the retailers are utilizing only POS terminals.

The majority of retailers continue to use traditional POS hardware as their basic POS, adding mobile options and additional PCs or tablets. When asked what hardware was installed, Toshiba/IBM maintained the largest market share with 30%. While non-traditional hardware vendors like Apple and Motorola also make an appearance, the majority of implementations remain traditional POS hardware, at least for now.

Looking ahead to 2016, survey respondents reported there will be an increase in customerowned mobile devices with nearly half planning to increase the utilization of these devices. Mobile devices overall are increasing as 63% of the respondents expect to increase the use of handheld devices and 57% expect to increase their use of tablets.

The transition from retail-hardened POS to a nontraditional offering is underway but it is a slow process. Retailers are looking at other options for POS, moving to PCs/desktop computers and mobile devices and kiosks.

As POS software is beginning to evolve more quickly, retailers are looking to refresh their hardware with the latest offerings to take advantage of the faster processor chips and larger storage needed to efficiently run more advanced software.

Overall, in the next two years, the use of mobile devices and customer-owned mobile devices will increase tremendously along with a decrease in the use of traditional POS terminals (Exhibit 16). This

Exhibit 16 POS Hardware Plans by 2016 Mobile devices

63%

Tablets

57%

Customer-owned mobile devices (Apple iOS, Android, Windows Mobile)

47%

Kiosks

PCs/desktop computers Traditional POS terminals

3%

44%

Customer stations (flat panel display, AppleTV, touchscreen, etc.) Notebook/laptop computers

16

32%

Increase 3%

14% 10% 5%

16% 50%

Decrease


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Exhibit 17 Current Age 35%

Store network

28%

28%

Mobile devices - back-office

15%

25%

Mobile devices - POS

18%

POS software

< 2 years 2 to 4 years 5 to 8 years > 8 years

8% 5%

14% 3% 20%

15%

POS terminals

25%

30% 43%

Of interest is the fact that 58% of retailers have refreshed their stationary POS terminals in the last four years (Exhibit 17). Mobile device usage continues to grow, but at a slower rate than was projected in prior surveys. It appears to be tied to the trend of retailers replacing a portion of their current devices with mobile devices when they perform a hardware refresh. It is also partially driven by retailers realizing the shorter life cycle for mobile devices when compared to traditional stationary POS terminals. Another contributing factor may be retailers putting mobile strategies on the back burner as they focus their attention on improving payment security.

8% 28%

13%

Retailers generally realize that POS software should be replaced regularly to take advantage of better, faster and more reliable technology. However, budgetary constraints and the complexity of a POS replacement project drives the age up, with many retailers reporting POS software that averages five to eight years in age as is indicated above (Exhibit 17). The POS is a critical piece of a retailer’s technology infrastructure and an important part of the customer shopping experience. With continuous changes in new technology, a POS system that is only a few years old may already be obsolete. There is a shift forming within the POS industry as retailers modify their thinking from the implementation of a traditional POS system lasting ten to twelve years, to other options such as mobile POS where less costly technology is not expected to last as long, allowing more flexibility within the retailer’s environment.

More than 20% of retailers are planning to keep their mobile devices as a POS in use for more than five years. This seems a little unrealistic considering the speed of technology change and the wear and tear on mobile devices is much greater than on stationary devices (Exhibit 18).

Exhibit 18 Years of Continued Use 53%

Store network POS terminals

10%

POS software

10%

Mobile devices - POS Mobile devices - back-office 3%

8%

38%

18%

33%

18% 26%

11%

21% 21%

8%

18%

34% 30%

< 12 months

31%

1 to 3 years 4 to 5 years > 5 years


Network – The Foundation for Store Infrastructure Today’s customer is always connected which puts additional pressure on retailers to ensure they can provide a reliable high-speed network to support the shopping environment. Existing networks do not always have the capability to support traditional and mobile POS, especially with the convergence of voice, data and video. To support this environment next-generation wireless networks have become the foundation of new store infrastructures. Retailers are realizing their dependency on their store networks, with over 60% of having already implemented a cellular or broadband backup, and 11% of them looking to make these additions to their network in the next 12 months (Exhibit 19). This is also a requirement of retailers moving to a more centralized POS platform and expanded centralized omni-channel and real-time retail functions.

associated with an omni-channel shopping experience. Other than the expanded capacity there does not appear to be available budget money or resources for significant changes planned next year in retailers’ networks. Looking a bit farther into the future, almost a quarter of retailers plan to shift to a cloud-based network structure. As more and more retailers look to outsource Hardware-as-a-Service (HaaS) (both POS and payment) and POS Software-as-a-Service (SaaS), where does the network fit? Is there a shift coming for retailers to outsource the network? Currently 37% of retailers outsource management of the network while the other 63% do not outsource.

The good news for network providers is that 55% of the retailers plan on expanding their network capacity within the next three years to meet the growing demands of the consumer and data

Exhibit 19 In-store Network Services Cellular or broadband backup

61%

11%

55%

In-store WiFi

18%

46%

VoIP Migrate from IPSEC to private network (such as MPLS)

15%

38%

Expand network bandwidth to support current and future store operations

35%

Centralized management of voice services

35%

Automatic call routing

32%

11% 55% 12% 8%

Implemented Leverage converged networks for voice or video

18

28%

Move some or all of networking/voice services into the cloud (VPN, PBX, video content storage, etc.)

21%

Migrate from private network (such as MPLS) to IPSEC

12% 8%

19% 24%

Planning to implement within 3 years


33% of retailers have already implemented this inventory model compared to last year’s 20% (Exhibit 20). An additional 36% plan to implement virtual inventory within the next three years, further supporting omni-channel and unified commerce initiatives.

Future Considerations

Personalized Receipt – Usage will Increase 700% over Next Three Years

With the rapid emergence of omni-channel and unified commerce, retailers are looking for ways to drive loyalty and provide a better shopping experience for their customers.

A service that the majority of retailers plan on implementing is providing electronic receipts with personalized suggestions to their customers. The use of personalized receipts will increase 700% in use over the next three years. 70% of retailers have placed this on the roadmap for implementation within the next three years. Offering customers an electronic receipt after a purchase in a brick-andmortar store gives them the peace of mind that they’ll have a copy that won’t be lost from the time they leave the store to when they get home. In addition, customers can receive suggestions for potential purchases based on what they have already purchased, elevating the customer’s current and future shopping experience.

Virtual Inventory – 109% Increase in Three Years Retailers are now enabling their brick-and-mortar locations to sell product without actually carrying the inventory within their stores. Rather than sourcing and warehousing large levels of inventory, they are providing stores access to virtual inventory, which is keeping customers in their stores and away from shopping with competitors. Retailers plan a 109% increase in the use of virtual inventory within the next three years. Currently,

Exhibit 20 Future Opportunities Implemented

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Implement within 12 months

Virtual inventory - the ability for a store to sell items without actually carrying the inventory within the store Scan and deliver - the customer purchases an item by scanning the barcode with the actual item delivered to their home (or other desired location) Electronic receipt with personalized suggestions

Personalized promotions based on real-time location, weather or other analytics

Persona-based user interface for point of sale

Implement in 1-3 years

33%

10% 3%

10%

8%

13%

15%

13%

26%

35%

5% 10%

Virtual closet/room/garage, etc. (ability to suggestive sell based on customer-owned merchandise) 3%

23%

35%

26%

23%

33%


Virtual Closets – 1600% Increase by 2017 Retailers are still planning to personalize the customer’s experience with virtual closets (or room, garage or whatever is appropriate for the consumer and the retailer). This allows sales associates to easily suggest products that coordinate with these items, and can show customers how well things work together. Only 3% of the retailers surveyed said they offer virtual closets to their customers, which is not much of a difference from last year. However, 48% plan to implement this ability compared to 27% last year – an increase of 1600% in three years!

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Although retailers have not yet implemented many of these ideas, when we look at the plans for the next few years, we see a dramatic shift in the services that retailers will be offering to their customers.


Conclusion Customers are forcing a fundamental reshaping of retail by demanding a seamless convergence of the in-store and digital experiences. Retailers realize that they can no longer divide that experience among separate channels and they are working to make it a holistic shopping experience by transcending channels. The customer experience itself is being reengineered from beginning to end. Associates are no longer behind counters; they are greeting and engaging customers at the front door and are enabled through information and tools to suggestive sell to their customers based on prior purchases or even browsing history. Customers are no longer constrained by the actual inventory in the store or by whether their car is large enough to carry their item home – they can shop a digital catalog and ship anywhere. While delivering a seamless customer experience is the driver, technology allows the customer to tailor her own experience. Leveraging technology, unified commerce provides the platform and realtime retail is the key to delivering the experience. The rules of retail are being thrown out the window yet again as we move into this real-time retail world. Some of the key areas where we see tremendous growth and change include: • Single commerce platform implementations • Personalization of the shopping experience by understanding online browsing history • Personalized suggestions via electronic receipt

663% increase in the number of single commerce platform implementations in the next four years

1060% increase by 2018 in ability to personalize shopping experience by understanding customer’s online browsing history

1600% increase in providing an electronic receipt with personalized suggestions by end of 2017

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Survey Methodology Boston Retail Partners conducted the 16th Annual POS/Customer Engagement Benchmarking Survey in November and December of 2014 by contacting more than 500 top North American retailers. Through an online survey system we gained insight into retailers’ planned initiatives, priorities and future trends.

Exhibit 21 Company Category Other 15% Specialty Soft Goods 34%

Specialty Hard Goods 24%

General Merchandise 20%

Convenience and Fuel 2%

Less than $100M 5% $100M to $500M 25% $1B to $5B 29%

Of the retailers surveyed, the breakdown in size based on gross annual revenue included a broad selection of Tier 1, 2 and 3 retailers with nearly 60% of the retailers having more than $1B in sales. (Exhibit 22) Overall the retailers that responded this year were larger retailers, 58% over $1B this year versus 48% last year.

Exhibit 23 Current Channel Integration

Multichannel 59%

Exhibit 22 Company Revenue

$5B to $10B 7%

The primary focus of this survey is the specialty retail segment with 34% of the respondents within the specialty soft goods category and 24% in the specialty hard goods category (Exhibit 21). The remainder fell into various other categories such as general merchandise and grocery, food and beverage. This mirrors last year’s results, which also focused on the specialty retail segment.

Grocery, Food, and Beverage 5%

This paper summarizes the results and key findings of the survey, offers insight based on our client engagements and overall retail experience and identifies current and future trends in the industry to offer retailers opportunities to continue to evolve and prosper.

$10B or more 22%

22

$500M to $1B 12%

Omnichannel 24%

Single channel 17%

Unified commerce 0%

This year’s survey recognizes the shift of retailers towards an omni-channel environment as the number of retailers with a multi-channel environment decreasing (59% this year vs. 64% last year) and the number of retailers operating an omni-channel environment increasing (24% this year vs. 14% last year). (Exhibit 23) The specific respondents for each company primarily were vice presidents and directors of IT or C-level executives.


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About Boston Retail Partners Boston Retail Partners (BRP) is an innovative and independent retail management consulting firm dedicated to providing superior service and enduring value to our clients. BRP combines its consultants' deep retail business knowledge and cross-functional capabilities to deliver superior design and implementation of strategy, technology, and process solutions. The firm's unique combination of industry focus, knowledge-based approach, and rapid, end-to-end solution deployment helps clients to achieve their business potential. BRP’s consulting services include: Strategy Point of Sale (POS) CRM Order Management Supply Chain

Business Intelligence Mobile POS Unified Commerce eCommerce Information Technology

Business Process Optimization Store Systems and Operations Customer Experience & Engagement Merchandise Management Private Equity

For more information or assistance on any of the topics covered in this white paper, please contact: Brian Brunk, Principal (405) 590-0542 [email protected]

Perry Kramer, Vice President and Practice Lead (617) 899-7543 [email protected]

Ken Morris, Principal (617) 880-9355 [email protected]

Kathleen Fischer, Marketing Manager (330) 289-3342 [email protected]

Walter Deacon, Principal (781) 337-2060 [email protected]

David Naumann, Director of Marketing (916) 673-7757 [email protected]

Boston Retail Partners Headquarters Independence Wharf, 470 Atlantic Ave., 4th Floor, Boston, MA 02210 www.bostonretailpartners.com

©2015 Boston Retail Partners. All rights reserved No part of this publication may be reproduced or transmitted in any form or for any purpose without the expressed permission of Boston Retail Partners. The information contained herein may be changed without prior notice.


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Gold Sponsor – Epicor About Epicor Epicor Retail advanced end-to-end cloud and on-premises solutions meet the business needs of forwardthinking retailers, and the evolving expectations of their technology-enabled customers. Our solutions, which include Store/Mobile Store, Digital Commerce, CRM/ Clienteling, Enterprise Order Management, Planning, Merchandising, Sourcing/PLM, Audit and Operations Management, and QuantiSense Retail Analytics, optimize all aspects of customer engagement and enterprise and data management. Together, they represent retail’s first extended omni-channel offering with a converged commerce platform that supports one clear enterprisewide view of products, customers, and transactions. Epicor Retail solutions are trusted by more than 500 leading brands—from Aeropostale, Boot Barn, and Carters to Michael Kors, Plow & Hearth, and Urban Outfitters—to drive efficiency, profitability and growth.


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Gold Sponsor – Fujitsu Fujitsu Commitment to Retailers Fujitsu America, Inc., is a leading solutions provider for retailers. Delivering integrated technology and service offering ranging from managed services and systems integration to enterprise applications and data center technologies, Fujitsu helps retailers improve sales with POS solutions including hardware, software, and selfcheckout systems. •

Fujitsu customers include over half the Fortune Global 500

•

POS software from Fujitsu is deployed on every continent except Antarctica

•

The Fujitsu self-checkout system has one of the largest market shares in the U.S. grocery segment

•

The largest U.S. retail chains (in Footwear, Electronics, Chocolatier, and Office Supplies) are Fujitsu customers

Fujitsu Fujitsu Limited, the parent company of Fujitsu America, Inc. is one of the most successful engineering and electronics organizations in the world. Founded in 1935 in Kawasaki, Japan, Fujitsu is the leading Japanese information and communication technology (ICT) company offering a full range of technology products, solutions and services. Approximately 162,000 Fujitsu employees support customers in more than 100 countries.

Human Centric Innovation We want to be an innovation partner for our customers, complementing their business knowledge with our technology expertise to realize the full potential of a hyper connected world. Human centric ICT gives businesses an unprecedented opportunity. They can unlock new competitive advantages as well as drive positive outcomes for society. Fujitsu has developed a portfolio of technologies and services to support the three dimensions of people, information and infrastructure.

Fujitsu Global ICT Portfolio At Fujitsu, our vision is to create a better world and to improve everyone’s quality of life through ICT. We call this Human Centric Intelligent Society. Addressing society’s issues, needs, and aspirations through innovation underpins the continuous development of our comprehensive portfolio of globally standardized ICT services, products, and solutions. This enables us to successfully support any organization and its people, wherever it operates.


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Gold Sponsor – Hughes About Hughes Network Systems Hughes Network Systems, LLC (Hughes) is a leading provider of managed network solutions in North America, sold under its HughesON™ brand, to both the enterprise and government markets through innovative wireline and wireless network technologies. HughesON is a comprehensive suite of managed network and digital media solutions designed for the unique needs of multi-branch organizations—ranging from high-capacity access, managed security, WiFi and VoIP to digital signage and video-on-demand training. Hughes has over 25 years of experience in servicing the retail, restaurant and hospitality industries, both for corporate and franchise locations. To date, Hughes has won numerous awards for its HughesON solutions and Branch Gateway platform using innovative WAN optimization technology developed exclusively by Hughes. Headquartered outside Washington, D.C., in Germantown, Maryland, USA, Hughes operates sales and support offices worldwide, and is a wholly owned subsidiary of EchoStar Corporation (NASDAQ: SATS), a premier global provider of satellite operations and digital TV solutions. For additional information about Hughes, please visit hughes.com. To learn more about HughesON, visit hugheson.com/agility.