Our Brick & Mortar Predictions for The Next 10 Years

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Now look, in all fairness 10 years could prove to be a total disappointment. The retail environment creates a self-perpetuating culture that distances innovation. Like, really distances innovation. That’s why nobody we know can propose a rationale as to why retail staunchly avoids methods that have been proven elsewhere for literal decades. It’s likely why Warren Buffett dumped his holdings in Walmart, too.

But if we sidestep reality for a minute and become hopeful of activist investor intervention, here’s what could happen, and it’s certainly what customers deserve.

       1. Retailers will spend a billion dollars on operational analytics.

Merchants are going to become aware of the ROI of machine learning and the ease-of-use of prescriptive analytics. These two confluences will be a deadly combination for those “analytics” companies that are not run by engineers or data scientists. I know it sounds contradictory, but a number of analytics solutions in-market today are run by former merchants who have no idea what data science looks like – that’s why the industry still doesn’t use any!

We expect these next-generation solutions to be sold on ROI before a trial is even needed. In other words, data will be analyzed before the merchant spends a dime, revealing the financial benefits a solution can deliver in reality, not theory.

Further, expect merchants to demand solutions that offer concrete actions, not endless charts and tables (I don’t care how pretty they are) to be misinterpreted by time-stretched operators. Merchant ownership will feel comfortable with the outputs knowing that everyone from the COO down to the store manager can clearly understand the recommended action and what it means for the business financially.

We expect these analytics will be provided by point of sale (POS) companies who will automatically access the data as the entire market moves to cloud. While none of today’s POS companies (cloud nor legacy) have the margins to build any competitive bolt-ons (even though some would like you to think otherwise), this will change as the market consolidates. By some measure these decision-algorithms will replace fat swaths of mid-level management, bringing down costs for merchants and their customers.

We might even see merchants comfortable with algorithms running on autopilot and making decisions by default, much how hotels and airlines rely on machines to monitor supply and demand and set the optimal price accordingly. Think of the time saved when machines are automatically pricing items, ordering inventory, creating schedules and running marketing. Merchants that do this will spend more of their human capital on building customer relationships.

        2. POS and payments merge

POS and payments ultimately merge for the most fundamental reason: acquiring merchants is a pain in the ass. Nobody is producing any decent economics (certainly not margin + growth >= 40%). This is further reflected in the ridiculous costs of online ordering and delivery services; if merchants were easy to acquire, they wouldn’t have to pay so much for these services. Ironically these high costs are of the merchants’ own doing.

Joining payments and POS eliminates one set of distribution costs off the bat and payments is very obviously squeezing into POS. Harbortouch started the movement and just about any processor (or even independent sales organization) worth its salt has a POS product. Yes, these products are confined to the micro merchant, and yes, the products are very lightweight. But given 10 years, they’ll eventually crack into the upstream markets with POS acquisitions. Heartland is now two years in on this path and we will see how 2017 bodes for their Xenial efforts.

Which leads to the next trend.

        3. POS dealers Uberize and become unrecognizable from their current embodiment

Cloud is ushering POS technology to a singularity, where its modular construction will allow for flexibility that supports a number of verticals and segments. There are, ultimately, a finite list of features, and these can be acquired.

When this happens any payments rep will feel comfortable referring their system because it will legitimately fill the merchant void. That is, of course, assuming merchants aren’t just ordering their POS systems from Amazon to begin with.

The POS becomes much more stable and needs significantly less attention. Installation, training, support – these become very easy tasks to handle. For the merchant that wants someone to take care of it, there will exist concierge services of the sort.

Boomtown is already showing how this works. True to the gig economy, the rare service that is needed will be available on-demand from local resources should remote support fail. Service also becomes cheaper as gig workers throw off the overhead traditional dealers bear today.

Dealers will significantly slim down in count as merchants self-discover POS solutions and large accounts are sold directly by the payments/POS companies. Dealers will look ever-more like business consultants, helping clients choose and properly implement technology. And since few have this skill, all but the best disappear as their payment residuals dry up.

Still, there is no bigger catalyst for this whole transition than the revenues in data.

        4. Data becomes a billion-dollar revenue stream

Item-level data in grocery is responsible for powering billions of dollars in insights and marketing spend by suppliers, distributors and grocers alike. As POS moves to cloud in the rest of the offline world, this data will become available, further necessitating increased spend to chase more customers.

While many POS companies have had this opportunity under their noses since the mid-80’s, their lack of sophistication has kept them from operating upon it. With larger, well-financed payment processors moving in, these opportunities will be seized upon rather quickly. Companies like Heartland (Global) have started taking the right steps, and over the next decade the market will mature into a billion-dollar payday.

Further, we expect significant advancement in the connection between online searches and offline purchases, all tied to the individual consumer.

Today this requires stitching together three parties: the search engine, the card network, and the POS system. Item-level data is important because the real money in advertising comes from suppliers, not profit-poor retailers.

POS companies, by the way, shouldn’t need payment company involvement because they see payment data (which can be reverse appended to personally identifiable information). However, they’ve been fear-mongered into dumping all of this valuable information by collusion of the payments industry under the guise of “security” by PCI. A further assurance was the joke of EMV, so now POS companies can only see payment tokens, not card data that can be reserve appended to identify customers.

But no matter. As the relatively wealthy processors swallow the relatively poor POS manufacturers they will work directly with the likes of Google to Bing to complete the holy gail of marketing: tying online search behavior to offline conversion, all at the item level. Once this happens the search engines and payments companies will be able to offer measurable, automated marketing tools to retailers, allowing them to assess ROI and conversions like never before.

Distribution of this product will take more than a decade, but there will be no reason for merchants to continue spending on blackbox marketing campaigns as they do today. Connecting the data will consolidate marketing spend away from agencies and other mediums to tools that are instantly insightful and proven, just like Facebook and Google have swallowed the marketing budgets for online spend.

5. POS becomes the hub for everything

The overall ecosystem will wake up and discover that the POS is the hub for everything around a brick and mortar merchant. Delivery. Online ordering. Marketing. Once a few players start proving how successful POS is as a channel, others won’t be able to do anything but follow the money.

Here’s why POS will become the hub.

  • Every merchant will need a POS to survive. Not only does it help with financial records, it’s the only weapon against the encroachment of online competitors who use data to optimize their operations. POS companies will thus have tight relationships with customers.
  • POS is sticky. Just like mobile phone platforms, churn in POS will be substantially lower than churn for other SaaS solutions. As a third party, embedding your solutions with the POS means staying around as long as the merchant uses that POS.
  • POS becomes a toll bridge for data. Newer POS companies are giving the middle finger to the credit card networks and capturing as much PII as possible. If the legacy POS groups don’t disappear entirely, they’ll be forced to catch on too. This information, cobbled with their proprietary SKU data, means everyone will be seeking POS partnerships.

POS companies will start offering a multitude of solutions to merchants they have good relationships with. Ultimately this lowers distribution costs of third party products, meaning the cost of online ordering, for instance, is cheaper for merchants.

POS is going to become sexy again. Too bad ISVs will mostly be owned by payments companies by the time they realize it.

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