Posted Date: 5/5/2009

Commiting to Self-Checkout

By  Aravindh Vanchesan, Frost & Sullivan
Self-checkout systems in retailing have been around for more than a decade now. A spate of merger and acquisition activity in the early days of the industry resulted in a highly concentrated market space dominated by three major players -- NCR, Fujitsu and IBM. NCR's Fastlane, Fujitsu's U-Scan Genesis, and IBM's scan and bag models all come in various configurations.

Retailers can pick the combination of systems that offer them the best strategic advantage given their customer's shopping habits and preferences.

But robust growth in the self-checkout space has been held back due to lingering concerns over ROI, capital requirements and integration issues.

Benefits of Self-Checkout
The extremely conservative retail industry has displayed a greater willingness to experiment with new technologies in recent years, especially when the economy was strong and IT budgets were expanding. Applications like kiosks, digital signage and self-checkout systems are gaining traction with retailers globally. 

Apart from the direct cost-savings associated with cashier pay, what appeals most to retailers is the enhanced labor productivity that self-checkout systems facilitate. By directing labor resources out of the cashier lanes, retailers can optimize their utility in other departments through sales assistance, replenishing inventory at shelves, bagging purchases and so forth. Also, part of the cost of processing the sale is subsidized by the customers themselves, who obviate the need for store attendants. 

From the consumer's perspective, the shopping experience is enhanced by the speed and convenience self-checkout promises. (Typically, two to five self-checkout units can replace one cashier on a store's scheduling chart.) For small and medium-sized retailers, the enhanced customer service that becomes available can become a branding tool for grocers, for example, and a crucial competitive differentiator over their big-box competitors like Wal-Mart and Target.

The Challenges
Although the expense of self-checkout systems is a one-time investment, the high price tags can be intimidating to risk-averse retailers. Taking the hardware, software and implementation costs into account; the total cost of ownership to deploy in a large number of stores can be daunting to a national chain.

Although the return on investment has been demonstrated as being reasonable across the industry, the possibility of technology or customer failure is a cause of concern to retailers. Adopting self-checkout is not just a capital intensive project, but a transformational investment for retailers because it involves re-engineering store layouts and processes.
Software integration and end-user interface issues can also limit the productivity of self-checkout installations. When all it takes is one bad experience to dissuade customers from using self-checkout, retailers and vendors alike need to focus more closely on ironing out any kinks in the system.

Ultimately, for self-checkout to succeed, retailers need everybody from the top management to the cashiers (who often have misgivings about the implications of self-checkout), to be committed to the cause. The current economic downturn may force retailers to hold back on technology spending and postpone self-checkout roll outs, but the potential for enhanced customer satisfaction should ultimately outweigh any reservations.

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Aravindh Vanchesan is program manager, retail systems unit for Frost & Sullivan, which partners with businesses to accelerate growth. For more information go to www.frost.com