Q&A: POS Market Trends

The POS market has maintained a steady growth rate and continues to demand the creative solutions channel partners develop, such as integrated surveillance or payment processing. We asked several distribution executives about the factors influencing the sales and technology growth of POS, as well as some of the pitfalls of this market. The participants in this discussion included Santhosh “Sam” Gopinathan, GM of M-S Cash Drawer; John Soumbasakis, VP and GM of Ingram Micro’s Nimax Division; and Jeff Yelton, VP of merchandising for ScanSource.

A large number of small retailers, restaurants, and other merchants have not adopted the latest POS technologies due to cost and/or scalability issues. Which solutions are being implemented in that market segment?

Gopinathan: Kiosks are a great option for these customers because of the labor saved by self-service transactions and the additional revenue these units can generate for each store. Small retailers are extremely price sensitive, and it takes them longer to grasp the value propositions that the big chain stores understand about POS technology. That is one reason these smaller businesses are slow in adopting new technologies such as kiosks, next-generation operating systems, Web applications, and low-cost commodity hardware. Preconfigured solutions benefit the lower end of the market, but these SMBs still need VAR support and service beyond the implementation.

Soumbasakis: Many ECRs (electronic cash registers) are still in use, and while some of them may remain, a significant number will shift to more effective, PC-based systems. The challenge is for resellers to scale support and training. To get to the one- and two-lane checkout customers, you need to be able to give them training and support on how to use the products properly if they are going to make an investment in a PC-based system. The lower-cost, PC-based solutions (with fewer bells and whistles) will get more traction, and those with Check 21 components and touch screen monitor options will grow in importance.

VARs should be looking at lease options for their customers. It’s easier for customers if they can get PC-based solutions for a low monthly payment instead of shelling out $3,000 to $4,000 up front. When the lease expires in a few years, they can upgrade that solution easily and affordably.

Yelton: Hosted solutions are a good option for VARs selling to the midmarket and smaller customers. This delivery model removes one of the obstacles to selling to this market segment: the cost of support.  A reseller can much more efficiently support these customers remotely versus on-site.

Video surveillance and EAS (electronic article surveillance) added to a POS solution can improve the sale potential of new systems. VARs can capture higher margins by adding complementary technologies to the mix. For small business owners who want to monitor their stores from home, video surveillance can be a valuable option.

What is the VAR potential for self-service terminals and kiosks?

Soumbasakis: There has been significant investment from vendors and distributors in self-service technologies and solutions. The sales of these offerings have been better than most emerging technologies, but customers still want to see results before they move forward with them. Larger home supply and grocery stores are starting to report returns on their investments, but there is a lot of untapped potential, and it’s hard to say exactly how quickly these technologies will be adopted. Some large chains are piloting self-service in a few stores first.

Yelton: Self-service and kiosks are huge opportunities for VARs. Most customer segments are starting to move past the early adopter stage. These applications are driven by software, and VARs need to align themselves with ISVs (independent software vendors) specializing in these technologies or develop the software themselves.

Solution providers should also consider managed services (remote monitoring) where unattended kiosks are prevalent. With remote monitoring, a    service provider can be notified of a terminal      problem automatically. This support can be a key factor in selling the solution to new customers.

Gopinathan: While the lack of a value proposition may limit the self-service POS system opportunities for resellers, kiosks provide a significant opportunity. Smaller customers, such as video store chains or convenience stores, are implementing kiosks to handle simple transactions that can be automated and reduce the required labor. If you can reduce employee costs or improve sales for customers (via shorter checkout lines), it improves the chances of your selling the solution. 

With hardware margins declining, how can VARs maintain respectable profits selling POS systems?

Yelton: The truth is, hardware profitability will probably continue to decline with more online and direct competition. VARs need to operate more efficiently and expand into multiple technology solutions and increased integration offerings. Solution providers must deliver services more efficiently as well, through hosted and managed services. This allows resellers to reduce technician hours for on-site support and become proactive with problem solving. When VARs get more complete data and advance warnings on monitored systems, they can be more efficient at resolving their customers’ IT problems. In turn, VARs can take on additional customers without adding headcount to the help desk. Early adopting solution providers will use managed services to differentiate beyond price, proactively addressing customers’ support requirements.

Gopinathan: We tell our resellers that unbundling solution pricing will help margins. It goes against past advice, but pricing individual solution components makes it easier to illustrate the value of the total solution to end users. Pricing hardware, software, service, and support individually lets your customers choose the components they need and eliminates the costs of unnecessary elements of a solution that VARs may end up absorbing. Solution providers have flexibility when pricing the total package and can show the savings over purchasing the parts individually. This allows for greater control of the margins and allows resellers to regain some advantage in price negotiations.

Soumbasakis: Successful POS VARs are including services as a large part of their business, which allows them to differentiate themselves in a crowded market. Over time, as solutions become simpler, hardware margins come under pressure. We haven’t seen that happen as much in POS. VARs that provide services their customers need will reduce the importance of the hardware price, which is the best way to protect your margins.

What trends are you observing when companies replace obsolete POS solutions?

Gopinathan: I’ve seen a large movement to USB-  connected components with new installations. Small businesses want the flexibility to move equipment around and make subtle changes themselves, and plug and play connections make that possible. Aesthetically, black has become the color of choice for new installations, since it is easier to keep looking new and clean. Another trend is that a few smaller customers are replacing equipment themselves, with more significant updates and new installs being completed by their VARs.

Soumbasakis: Replacement trends are on the increase, but have not reached a peak. Touch screens as a component of POS systems are on the rise. Customers are finding employee training and understanding is higher when keyboards are replaced with touch screens. Check 21 check conversion technology has also generated a lot of end user interest. Whether including these components for a current refresh or investigating them for the next, customers are interested in the benefits. Digital signage is another complementary technology that resellers are looking at when refreshing their customers’ systems.

Yelton: Complementary technologies are being included during the latest rounds of POS refreshes. Not only do these provide differentiation for a reseller’s solution, but they also make the VAR more indispensable to their customers. Line-busting technologies (i.e. handhelds used for speeding up checkout lanes) have expanded from checkout to inventory and management applications in stores. Kiosks, smart cards, and tableside checkout are other complementary POS technologies being considered during refreshes. Video surveillance is another hot technology for POS VARs to offer their retail customers. In addition, the Y2K technology refresh leases are beginning to expire, creating opportunities for solution providers to upgrade those customers to the latest technologies without significantly increasing their monthly payments.