December 22, 2004

Retail Tech Predictions For 2005

By Evan Schuman, eWEEK

When you think of retail IT operations in 2005, envision an eccentric, wealthy hermit who lives in a comfortable mansion in the middle of the woods.

The hermit certainly knows about the big city and all of the glorious things he could buy there, but he is content. He has what he needs and a sufficient number of things that he wants. His home is sound and he doesn't have a heck of a lot of motivation to go out and make it fancy and state-of-the-art. Maybe someday, he thinks.

One day, he hears on his ham radio that a huge hurricane is coming and that his comfortable old house won't be able to protect him as it has. He needs to make massive repairs.

"Well," he said, "as long as I have to get out of the house and make some repairs, I might as well go into town and get a lot of those nice things I couldn't justify before." The eccentric hermit knows himself well enough to predict that once he makes his house warm, safe and cozy again, he won't likely feel like venturing into the city again so he's going to this trip worth it.

Think of the hermit as your favorite retail IT operation, replace the hurricane with mandatory RFID (radio frequency identification), and you have a pretty good feel for what retail IT will be like in 2005.

Clearly, many of the key retail technology trends of 2004 will continue to play themselves out in 2005. This includes RFID (which is actually an early American Indian name standing for "Thing of Much Smoke and No Fire"), CRM ("state of the art technology to tell you lots of things about your customers, which you'll never end up using") and Self-Checkout (although 2005 may see the next logical step, which involves asking customers to drive a forklift to populate their favorite aisles. "Have your aisle your way at Pathmark!").

There are, however, several serious trends that likely will take shape in 2005.

Secure Supply Chains
As federal authorities try to consolidate intelligence resources, there is reason to expect severe slowdowns in the supply chain, particularly at ports of entry, with a frightening ripple effect in retail.

Outgoing U.S. Health and Human Services Secretary Tommy Thompson has warned that the food supplies are exposed to terrorist assaults. As a practical matter, they are so exposed and will likely continue to be almost as exposed no matter the U.S. government tries to do. But there is a good chance that highly visible efforts will be made to show that we're tightening security on food shipments. The likely result: minimal inconvenience to murderous terrorists, but huge headaches for retailers.

John Fontanella, vice president of supply chain services at analyst firm The Yankee Group, has expressed strong concern about such attempts. Many retailers today "have just-in-time assumptions" and they calculate down to the hour product deliveries. "We're already seeing backups in ports like Hong Kong," he said. "If the government does slow down the flow of goods, retailers will feel it."

"The government's caught in a tough spot if they do slow down the movement of goods coming from offshore. It's going to have a significant and detrimental effect to the U.S. economy," Fontanella said. "Most retailers are now set up to manage their inventory in the most efficient way possible. They're minimizing inventory in their distribution centers, trying to get just the right inventory on their store shelves. A disruption like this, where a third party steps in and artificially slows down the flow of goods, it's going to set the industry back 10 or 20 years."

Contactless POS
The industry has already made major advances in minimizing paper money (greenbacks out, magstripes in). The ability to move to the next step and do away with the card swipe entirely is one of several factors pushing retailers to replace their aging POS systems.

Expect to see a lot of trials and early implementation of everything from fobs (think Mobil SpeedPass), limited RFID (think EZPass) and even cellphones/PDAs (think George Orwell).

"In 2005, large retailers are going to be shifting away from just looking at cash, credit cards and pre-paid cards as the only way to pay," said Erik Michielsen, an RFID research director at ABI Research. "They are going to look at contactless payment technologies—particularly those based on handsets—as opportunities. That represents a dramatic shift in the industry. Retailers are going to be paying much more attention to contactless than they have in the past" and will try and use contactless tender efforts at the POS to compliment wireless and RFID efforts in the supply chain.

This goes hand in hand with the new POS approaches. Biometrics, which has been used very sparingly in retail, is likely going to have to be taken much more seriously. Some retailers have been experimenting with checkout fingerprint scans, and other biometric efforts (retina, voice, facial recognition) might make an appearance if government/law enforcement starts buying those devices (thereby funding the research and coaxing prices down.)

Digital Signage
This is one technology that has resided almost exclusively in marketing environments, but some retailers are considering pushing the envelope and bringing IT in.

Envision a digital sign with revolving advertisements. Small screens at checkout see a customer's loyalty card and show them specially selected ads, while they stand there hostage. That's mini-CRM. What if the system integrates with an inventory database and knows to halt certain commercials when inventory drops below a set threshold? Let's take it even further. What if a customer is pushing a smartcart and an infrared chip tells the display the history of the approaching customer and allows for an instant customized ad display, based not only on that customer's shopping but based on what the self-checkout systems knows is already in their cart?

It's not likely that we'll see those applications deployed in a widespread way in 2005, but a couple of major retailers are already testing such efforts.

Yes, 2005 is looking to be a very interesting year for retail technology. We could reveal the rest of what will happen in 2005, but then you'd have no reason to read this column throughout the year.