November 6, 2004

Microsoft Has Its Eye on Small Retailers

By Evan Schuman, eWEEK

In one corner of Microsoft Corp., the smaller the better is the order of the day for new customers. Microsoft's latest retail push is focusing on the smallest of retailers, those with perhaps a single checkout lane and no more than nine stores.

Microsoft's pitch is a fully bundled $3,000 package with software and just about all necessary hardware, either for brand-new retailers or for those contemplating major upgrades but wanting to avoid the piecemeal integration headaches.

"The most important thing we're doing is taking a lot of the cost and complexity out," said Brendan O'Meara, Microsoft's general manager of its Retail Management System. "The retailers will know that these pieces are all going to work together."

O'Meara also argues that the $3,000 integrated price is attractive. At the typical volumes a small retailer can justify, "a single register install can be $4,500 to $6,500," he said.

The software included—Microsoft Business Solutions Retail Management System 1.2—can automate inventory management, accelerate card transactions, create productivity reports and track customer purchase trends.

Hardware included is a POS computer, 15-inch LCD monitor, keyboard, receipt printer, cash drawer, bar-code scanner, magnetic stripe reader, mouse plus various cables and accessories.

From the perspective of the world's largest software company, the strategy makes sense for three reasons.

• It's positioned for the fastest-growing segment of retail, with the most profit because of small retailers' inability to purchase in volume. Retail is the largest category within all small businesses, and single-store retailers account for the overwhelming majority (98.8 percent) of all retailers, according to Microsoft.
• It sidesteps the more difficult sales to the huge chains, with 15-year-old to 20-year-old installed base OSes that are costly to upgrade given the equipment that will need to migrate. (Someone else at Microsoft gets to worry about those.)
• By making it relatively easy for the small retailers to migrate to an all-Microsoft environment, the Redmond, Wash., company is hoping it will lock in many sales for many years, especially as some of those small retailers grow into big retailers.

Microsoft is eyeing fast-growing businesses with the most anticipation because that's where the growth strategy lies. The larger a retailer gets, the more difficult it is for a new vendor to get inside because of support and compatibility issues.

"Many of these [smaller retailers] have run into a situation where they've outgrown the system," O'Meara said. "What you see in small-business POS is a lot of homegrown and a lot of very local types of applications," with a custom application that a small number of local businesses use. "They're often either dated or not that well-thought through in the first place."

When a new operating system is brought into such systems, it's no longer compatible with the device drivers of the new hardware, O'Meara said. Instead of using that as a reason to stay with the older OS, Microsoft argued, this package replaces everything including the hardware and delivers compatibility that way.

Microsoft has also included functionality to make it easier for retailers to do e-commerce. Although the Web site creation is the retailer's headache, the Microsoft package tackles the challenging data import/export issues. "This helps get the retailer a Web store that complements their retail store. [Right away] they will be able to process orders," O'Meara said.

The rollout this month focuses even more narrowly, specifically trying to bring in customers from five vertical segments: beer-wine-liquor; apparel; sporting goods; gifts; and hobbies.

O'Meara said Microsoft selected those segments because of their complicated inventory and CRM (customer relationship management) needs. In a clothing store, for example, a customer will purchase a shirt not only because it is red and long-sleeved, but it also has to be in the right size. Regardless of the talent of a salesperson, a very short customer can't be sold a shirt designed for a very tall customer. That places a significant stocking decision burden.