The Hunt for a POS System
To find the point-of-sale system that suits your store, you need to know where to look and what to look for.
By Eliza Gallo -- Gifts & Decorative Accessories, 2/1/2001
According to Gifts & Dec's 2000 Retailer Comparison Survey, 33 percent of your fellow gift and decorative accessory retailers employ a point-of-sale system in their stores. These systems, which consist of a combination of computer terminals, cash drawers, receipt printers, credit/debit card readers, and bar code scanners, accomplish a variety of tasks, including managing inventory and tracking customers. While that 33 percent doesn't represent a majority, it indicates that a lot of retailers are learning to harness technology in order to better run their stores.
Weighing the Numbers
Should you be joining this group? The answer depends on the size of your business. Larry Bird, owner of gift and home accent store Gabriala's in Plymouth, Michigan, has gone through the POS search and installation process twice in the last decade. He recommends that retailers wait until they're making at least $750,000 a year before purchasing a POS system. "You have to be at that threshold. You have to be pushing that $750,000 to $1 million range for it to be really beneficial and to be able to pay for itself," he explained. When Gabriala's hit the $1 million annual sales mark in 1992, Bird decided that it was time to automate more of the store's operations. Most retailers seem to be aware of the correlation between revenue and the need for POS technology: The Retailer Comparison Survey revealed that a full 59 percent of the retailers who don't have a POS system passed because of insufficient sales.
What kind of investment is involved? According to the survey, the median initial cost of a POS system is $7,000. A full 26 percent of the retailers paid between $5,001 and $10,000 for their systems, another 23 percent paid $10,001 to $20,000, 17 percent paid $2,501 to $5,000, and 13 percent paid $1,000 to $2,500. At the extremes of the price scale, 11 percent paid under $1,000 and 10 percent paid $20,001 or more. The median renewal cost for a POS system is roughly $548. Half of the retailers surveyed reported paying $500 or less to renew, with another 31 percent paying in the $501 to $1,000 range.
Larry Bird suggests using your annual sales to determine your initial investment in POS technology. "The guideline is 2 to 4 percent of your sales," he said. Since Gabriala's sales in 1999 were nearly $1.6 million, he invested roughly $60,000 in the store's new POS system.
The Search Process
Once armed with an estimate of what you can afford to pay, your next step should be to get recommendations and referrals from fellow gift retailers. In fact, colleagues are the most valuable resource in the search process. Only they know how (and whether) a system functions once installed, and only they can tell you whether it's suited to the needs of gift stores. Also, when approaching POS system vendors, ask for the names of several of their customers, and arrange to visit those stores to get a firsthand perspective.
Bird recommends taking yet another step. After sifting through the information packets sent out by several different POS system vendors and doing on-site demos, he narrowed his initial list of 20 vendors down to two. "I actually ordered Dun & Bradstreet reports [www.dnb.com or (800) 234-3867] on both of them to see how financially stable they are, and to see whether they were telling me the truth or not," Bird said. "The financial condition of a software company is important, because if they don't have good resources, how are they going to implement new features?" The longevity of the company is also important. You don't want a newcomer that is inexperienced in developing POS technology, or might disappear and leave you without technical support in a year or two. "Find a company that has.in excess of ten years of experience," Bird advised.
Questions, Questions
There are many questions you should be asking both yourself and the potential POS vendors you contact. Perhaps the most important concerns compatibility. Is the system going to work with your existing accounting, customer loyalty, open-to-buy, or other systems? Is it compatible with any computers you use in your store? According to the Reader Comparison Survey, 41 percent of those who use accounting software say that their POS system is compatible with it, 22 percent of those who have customer loyalty software say that their POS system is compatible, and only 16 percent of open-to-buy users find that their POS system is compatible. On the hardware front, 40 percent of those who use PC computers say that their POS system is compatible, while only 2 percent of Mac computer users find that their POS system is compatible.
Many retail POS system vendors offer open-to-buy and other software integrated into the systems, but you should check out that software as thoroughly as you do the rest of the system, particularly if you are already using accounting or open-to-buy programs that work for you. Bird, for example, had a bad experience when he switched from his usual open-to-buy program to one integrated into his first POS system. He reports that the new open-to-buy program didn't work for his store, and Gabriala's sales dropped by $50,000 in one important holiday month. When he purchased a new POS system, he very cautiously tried another switch over to an integrated open-to-buy program, but was again unhappy with the results. Gabriala's now maintains accounting and open-to-buy programs that are separate from its POS system-an arrangement that Bird says works fine. "They want you to believe that they can handle your accounting, they can handle your open-to-buy, and they can handle your receivables, but they can't be proficient in everything," he opined.
Another important issue is the technical support that the vendor offers, both during installation and afterward. Ask what kind of support is available. According to Gifts & Dec's survey, 46 percent of POS-equipped retailers can avail themselves of free phone support, 38 percent can make use of fee-based phone support, 37 percent can obtain on-site support, and 24 percent can turn to online support. The median fee for fee-based phone support is $125, and the median cost of an on-site visit is $80. Since on-site support is the optimal choice, it's a good idea to choose a vendor who is located close to your store. Bird recommends that a vendor be no more than three hours away, so that you can get help with installation and follow-up. He notes that these companies have installed hundreds of POS systems, and so are going to be expert at it. "That's what they specialize in, is setting up point-of-sale systems. When you have someone who's out of state or far away, you're not going to have that opportunity," Bird noted. "If you're growing the business, you do want to be able to have that expertise." Bird personally prefers to have one store staff member who is solely dedicated to handling the POS system. He believes that the store owner should be able to focus instead on the health of the business, on things like sales, marketing, and purchasing. "I've spoken to several other owners who have taken on that task, and what happens is, they lose focus on the rest of the business, and other areas start to fall behind."
There are a number of other questions you should consider. How easy is the system to operate? How difficult will it be to train your employees to use it? (In the Gifts & Dec survey, 37 percent of retailers found the training process difficult or very difficult, while the remaining 63 percent had an easier time.) Is it easy to enter and obtain customer data at the point of sale? Can the system handle a lot of transactions at multiple terminals simultaneously? Can you pause a transaction while a customer goes to find another item, and handle the next customer in the interim? Are the system's reports easy to customize, generate, and understand? How quickly does the system handle things like printing reports, tracking inventory data for multiple stores, and processing customer transactions? Can it handle gift registry purchases, gift certificates, special orders, and layaways? How well does it manage inventory and manufacturer information? Does it allow you to record detailed customer purchase histories and use them in a variety of ways?
The Upshot
If you are a cautious consumer and do thorough research beforehand, you should be able to find the point-of-sale system that suits your store-and you-best. There's no question that integrating a new technology into your retail operation is a difficult process. Bird admits that making the transition to Gabriala's first POS system was "brutal.a nightmare and then some." But the payoffs are numerous and long-term. You will be able to target different groups of customers with promotions and sales geared specifically to them. You'll get the most out of your inventory by managing it more effectively. "It really helps you isolate slow-moving products," Bird said of his new POS system. "It'll say the things that are really selling very well, and the things that we need to get back in stock on." He reports that the system also makes his store's end-of-the-day closes much cleaner, since it eliminates human error in entering prices at the point of sale.
While the task of finding a POS system may seem daunting, you shouldn't feel pressure to choose the ultimate, perfect system. "Be really fundamental first," advised Bird. "Don't go for the biggest package. Plan on having to change packages as the business matures and grows."
