OPENING MOVE

MARC MILLSTEIN

DALLAS -- The migration to open systems architecture couldn't be more crucial.

Yet converting to new-generation hardware and software systems and building a computing platform for the future are proving more difficult than many retailers would have imagined.

"The issue facing retailers today is building flexibility into their systems for the future. The difficulty is how to get from where many retailers are today, with huge investments in front-end systems, to where they need to be," said Rod Powell, president of ICL Retail Systems here.

"A few years ago, when people talked about open systems they fell into the trap of thinking open systems were going to provide tremendous flexibility and be a lot cheaper to use. Open systems do provide greater flexibility, but cheap and easy they're not," Powell told SN in an interview.

Despite the complexity of moving toward an open systems architecture, the benefits of expanded front-end applications and enhanced end-user capabilities hold enormous opportunities for retailers to compete more effectively.

"The next three years are going to be explosive. Most of the systems in place today are old if you look across the industry. I know there's a money issue for retailers, but I think there's going to be a lot of change taking place in the next few years," said Tom Juliano, vice president of the food business unit at ICL Retail Systems.

For supermarket retailers, two factors in particular are driving the pace and scope of change today.

One is the power of the Internet and electronic commerce to transform how shoppers view buying groceries and the role supermarkets will play in the future. The second is the critical need for retailers to understand much more precisely who their customers are and develop programs to target preferred shoppers effectively.

In terms of the Internet, retailers could end up with the short end of the stick if a large number of consumers embrace electronic commerce technology that allows them to shop directly from manufacturers and bypass the store.

"The Internet wasn't talked about until just recently in retail and now everyone's talking about it. There's a definite change taking place. We see an explosion in retail kiosk applications as the first step. Shopping on the Internet is like shopping on a kiosk, but at home," Powell said.

"Retailers are going to have to be quite careful about how they fit in to this world. With the Internet, manufacturers can communicate directly with consumers. It could become a world with consumers at home and manufacturers displaying products [on the screen]. The retailer's role could change dramatically," he said.

Indeed, the key for retailers in maintaining their competitive edge and succeeding in driving sales in the future will be tapping into the potential of technology to understand and target core customers much more effectively.

Doing that successfully over the long term will also require the ability to make use of the latest software applications to drive all aspects of retail systems and operations.

"The most important issue today is what we call the customer intimacy end of the business, which includes both the collection of data from the customer, such as sales, and how to use that data to help retailers understand their customer better," Powell said.

"We have a long history of core competency in point-of-sale systems, but we're now adding to that by developing application services retailers can use to do merchandising or learn what to do with that data. We see an explosion of interest in those systems," he said.

It's in that area especially that retailers may need considerable help in devising the best computer architecture for their companies and in managing rapid changes in the future.

For that reason, ICL views its role in working with retailers as a long-term partnership, not simply as a supplier of hardware or software systems, Powell said.

"Installing an open system is more of an integration issue. You have to integrate existing peripherals and local applications into a basic platform or architecture, and that isn't something that can be delivered overnight," he said. For many smaller companies, embracing necessary changes may be somewhat easier because of less extensive investment in older systems. For large companies, switching to a new platform is an enormous task.

"It is not as easy as many thought it was going to be. I would categorize many of the large chains as just now beginning to use open systems," said Juliano. "Albertson's, for instance, is rolling out what we consider to be their first real open systems platform, as are Stop & Shop Cos. and Hannaford Bros."

When those open systems are installed, though, retailers must be confident that specific applications can be changed as new strategic goals and requirements emerge. That is a critical area in which systems suppliers will have to excel for all segments of the industry to be successful in the future.