Payment Innovation Is Not Enough For Retail

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Editor’s note:  Dax Dasilva is founder and CEO of retail management company LightSpeed.

Once a key differentiator, mobile payments are fast becoming a commodity and are widely used by retailers. Yankee Group found that 61 percent of large merchants already use a mobile checkout or plan to in 2014. We are seeing the major payments players recognize this, realizing that they can’t bank on razor-thin profit margins from swiping fees alone.

For instance, Square has introduced other payment-related services to both merchants and consumers like Square Cash and Square Market, but it is a bit behind in the game, and as we saw recently might be gunning for a different kind of cash out.

Commerce is all about bringing the right product to the right shopper at the right time, but the payment only addresses the close. To differentiate, merchants need to focus on innovating everything else that happens long before we reach the register, such as inventory management, a traditionally unsexy but mission-critical element of all store operations. The payment is a huge part of the customer experience, but all of the opportunity for upsell, cross-sell, and better insights into sales trends lies in the SKU.

Inventory Management: Bringing the Sexy Back

In comparison to the checkout, the rest of the in-store shopping experience has remained remarkably outdated, leaving shoppers and retailers alike frustrated with the amount of time and manual work required to get to the finish line — the transaction. In many stores, salespeople are still going to the back room to check for other sizes. Things are reordered when a hole appears on a shelf, or a customer requests something and it cannot be found. Looking for stock in other stores often involves multiple phone calls and scavenger hunts. Processing gift cards, returns and exchanges are still a headache. E-commerce being largely siloed from the rest of the retail operation amplifies these issues.

E-commerce has the advantage of having all of the SKUs digitized, but most traditional retailers are flying blind. We work with more than 18,000 retailers, and they have told us that one of the main things that keep them up at night is competition from huge online retailers like Amazon. Without finding ways to deliver the convenience and selection found online, independent retailers won’t deliver an experience that makes shoppers want to get off the couch. Without an inventory management system that makes it easy to know what is selling well, what you have in your store, and what you need, retailers simply cannot compete in the “I need it now” economy.

We’ve made progress on this front with the availability of inventory-centric point of sale systems, but with many retailers now offering both clicks and bricks, the equation is becoming more complicated. For instance, 42 percent of retailers say a top inhibitor of achieving the omnichannel experience is that inventory and order management are not integrated and accessible across all channels (source: Retail Systems Research).

Drilling Down to the SKU

Thanks to the nature of online shopping, data on the virtual customer is always available, allowing e-tailers to easily personalize recommendations, offers and upsells. The magical 25 percent off email that is sent to you from JCrew.com when you left your shopping cart? Not a coincidence. On this front, brick-and-mortar retailers are lagging dramatically behind. The opportunity to level the playing field, however, lies close to the payment.

Many payment systems give you data around consumer purchase behavior, and some offer a view into the actual items purchased, but without an inventory management system to link this data to, they won’t pinpoint a lot of actionable insights. If brick-and-mortar stores start digitizing and linking more of their inventory to customer interactions, they can personalize the shopping experience much like their online brethren.

This will play out on the shop floor, arming salespeople with data around repeat customer preferences, corresponding stock levels, deep product insight and corresponding items. Finding a way to capture and mine for these insights down to the SKU level can be challenging, especially for smaller retailers with limited manpower and resources. But this data is gold, and can have a huge impact on nearly every aspect of the shopping experience and CRM process.

Back to Square One?

At the end of the day, the payment is the easy part. What retailers really need is all the other stuff — using data to transform the harder aspects of retail management so that it benefits both their business and their customers.

Amazon is likely making a play to offer this with its rumored Kindle-based POS system, giving the giant access to all of a retailer’s SKUs. Whether Amazon will use this data for its own benefit, or use it to offer users of its POS data insights on its own customers remains to be seen. But while it is a powerhouse in clicks, this experience cannot easily be translated to bricks. Challenges faced by brick-and-mortar retailers on a daily basis are unique to the physical world.

Square already has one foot in the door, but has failed to gain a critical mass for any service other than its payment. It led the market with its payments innovation, but inventory and supply chain management is a much tougher nut to crack. What happens before the transaction and behind the curtains of a store is very complex and cannot be easily automated and packaged up as a utility. Throwing the wealth of available customer, product and purchase data into the mix only complicates the equation further. Owning these processes would not be a simple leap for Square or any company to make; as such, recent rumors imply they might be throwing in the towel on that effort.

What is certain is that independent retailers should manage their data with kid gloves and be careful who they let into their stores.

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