August 12, 2005

Canadian Tire CIO Spends $40 Million for POS Sweep

By Evan Schuman, Ziff Davis Internet

The $8.4 billion conglomerate saw replacing the 15-year-old payment system as essential, CIO Andrew Wnek explains.

Typically, a CIO arguing for a $30 to $40 million IT investment for new payment systems has to answer a lot of questions from a skeptical CEO, chief financial officer and board members. But that wasn't the recent experience of Canadian Tire Corp. CIO Andrew Wnek.

Wnek reports to the CEO and runs IT for the $8.4 billion Canadian megabrand, which includes stores that sell tires and related auto parts, a chain of gas stations, car washes, emergency roadside service, clothing stores and a division that creates credit cards as well as sells insurance and warranties.

An executive who is used to having to create elaborate business case assessments for various technology programs, Wnek said replacing the network of 12- to 15-year-old NCR ECR (electronic cash registers) with Fujitsu POS units "wasn't a hard sell."

"The argument was simple: You keep NCR registers in place running on DOS and you're going to have stores crashing and you won't be able to get people through the stores," Wnek said. "The first driver was that we were running out of life cycles."

The new machines wouldn't merely address various customer-complaint-producing shortcomings of the older ECR units, he argued. They would allow the company to consider a wide range of 21st-century retail options, including CRM, loyalty programs, self-checkout and contactless payment.

With the older ECRs, "the scanning was slow, it was a little cumbersome and [the customer-facing green screen] was difficult to read," Wnek said. "It's a 15-year-old solution that is running out of steam very quickly. It's the customer experience, that's the key thing we're looking for. Intuitively, we know that there will be productivity gains."

The new units will make it "much easier to get through the lane, and deliver better scanning capabilities, better graphical capabilities, Microsoft-based software and CRM capabilities when you want it," he said.

Although Canadian Tire is certainly not on the leading edge of payment systems with its late-to-the-party adoption of POS, neither is it the last one likely to show up.

Canadian Tire "is slightly behind but not tremendously," said Greg Buzek, president of consulting firm IHL Services (of IHL Consulting Group Inc.).

"A lot of retailers are racing in to have their systems in before the holidays, just like Canadian Tire. Circuit City, Pep Boys and J.C. Penney are three retailers in similar situations," Buzek said.

Buzek added that other retailers also have very old POS systems that are ripe for replacing. He cited the May/Federated department store merger as one such example.

"With the May department stores merger, they're in for one of the biggest overhauls in 25 years," Buzek said. "At some of their stores out west, they have POS systems that are older than some of the people who work there."

Buzek said the durability of many of the units makes the replacement decision easy to postpone.

"Retailers don't buy a new system every four years. They milk them for a good 10 years or, in some cases, 10 to 15 years. When it starts breaking down, that's what they have to determine, when to get a new one," Buzek said.

"It is common in the United States for POS systems to be older than 10 years. There's a lot of old stuff out there. That's changing, with the price of the units coming down to where it makes more sense to change them than to keep them. The prices are down and the warranties have increased from one year to three years in some cases. That also keeps the maintenance costs down and is helping to drive replacement."

Canadian Tire's business model includes a large number of dealer franchisees and, as a group, they must be convinced before this kind of a store-impacting rollout takes place. This is why, Wnek said, it has taken his company this long to make the move to POS.

"To convince the dealers that it's the right thing to do takes some prolonged effort," he said. "On balance, we're maybe taking a little longer than we should in making the right decision."

Steve Ramsay, a client director with Fujitsu who has worked with Canadian Tire on POS issues, confirmed that the company's dealer network does slow decision-making down a bit. But he added that Canadian Tire's current dominant position forces them to push that process as much as possible.

"The decision-making process, it does take a while. But once a decision is made, these guys really harness it well," Ramsay said. "To maintain dominance in a marketplace, you have to consistently push yourself. That [market leader] complacency perception is eradicated because of the dealer networks coming together. There is clearly no shortage of competition in the Canadian market."

Wnet said he is looking forward to using the new customer-facing displays to show multimedia commercials for other Canadian Tire products and services.

He said he expects to have the POS units activated by mid-November, in time to handle the holiday rush in Canada. In the United States, the holiday shopping season ramps up a few weeks earlier than in Canada, he said.

No CRM or other new capabilities will be rolled out this year, he said, but the changeover will deliver "a reduction in freezeouts and registers being down," Wnek said.

But the CRM and loyalty programs have to be handled carefully for business reasons, he said. A loyalty card or fob would be the key to the system, and a typical approach would be to encourage its use by offering discounts. The biggest benefit with the loyalty card would be the ability to track the large number of Canadian Tire customers who use cash.

But given that Canadian Tire owns and sell credit cards, it can't discourage their use, Wnek said, forcing the company to consider having multiple discounts.

Canadian Tire also literally prints its own money—using the same business that operates the mint for the Canadian government—and uses those Canadian Tire dollars as legal currency in the stores.

Contactless payment systems via a keyfob are also being evaluated for next year. "With the POS move, we wouldn't even be able to consider it," Wnek said.

Self-checkout is another technology that is being considered. "Personally, I think it makes a lot of sense" for some of the chain's higher-volume stores, he said. "The advantage we have is that we have a lot of low-ticket items. We're not selling iPods or PCs or anything you can walk out the door with."

Asked about the possibility of customers trying to take high-priced large items—such as sets of high-end tires—through the self-checkout machine and claiming them to be much lower-cost items (the weight-verification system can't easily differentiate different tire brands), the CIO said he was not concerned.

"It takes more guts to bluff your way through self-checkout," he said.