Evan Schuman's StorefrontBacktalk

In many ways, 2004 will be seen as a technological turning point for retail: the year that many technologies that have been hyped for years started to become real.

Traditionally, retail has always been a mixed barcode for being technologically advanced. The largest retail giants?such as Wal-Mart?are among the most advanced companies in the world and are widely viewed as being on the cutting edge: companies that deploy technologies while other industries sit back and watch.

At the same time, the overwhelming majority?98.8 percent, according to Microsoft?of all retailers are tiny, even by small business standards of fewer than 100 employees. That 98.8 percent figure refers to single-store retailers.

Those small, independent retailers tend to be technology-averse and often use very old low-end POS (point-of-sale) systems and minimal state-of-the-art technology of any kind. In other words, while the largest retailers (Best Buy, Home Depot, Costco, Target, etc.) get most of the ink and do indeed aggressively try to leverage technology, there are a far larger number of retailers who are barely beyond typewriters.

Here at eWEEK.com’s Retail Center, we’ve chosen the six most significant retail technologies in 2004. The reasons they all came into the spotlight this year is quite diverse, but they do share one common thread: Technology investments are now growing, not so much as an attempt to better rivals as much as a requirement for staying in business.

RFID

Talk about your hype. RFID has been talked about for many years, but it took the strong-arm tactics of Wal-Mart to push suppliers to take it seriously. January 2005 was never intended to be a true deadline, but it served its purpose: to get people to truly start working on getting RFID up and running. If nothing else, it’s provided plenty of jobs for people who make tools to help retailers co-exist with barcode and RFID during what the retailer expected to be a very lengthy transition.

RFID was beset with plenty of well-vocalized concerns about privacy, but the system’s inability to function consistently under ideal conditions made such fears seem overblown.

CRM

CRM has also existed for many years in various forms. But what made 2004 an important CRM year is that CRM played a critical behind-the-scenes role in several of the year’s other key technologies. Many of the more state-of-the-art POS approaches?including contactless?were based on gathering more data for CRM. As consumers continue abandoning greenbacks and checks for electronic payment options, the ability to gather, analyze and use tons of new data points puts CRM front and center. But it’s not definite that CRM is being used in the way intended, especially in the retail space. Do retailers want to merely better understand what people buy, or do they want to identify what specific customers buy, so they can be individually marketed, through e-mail, snail-mail or even custom messages zapped to their cell phones or PDAs?

E-COMMERCE

During the first several years of e-commerce?say, from about 1994 through 2001? we experienced a technology in its infancy. After that, the initial rivalries (physical store executives protecting their turf from the online invaders) started to shrink as the economy bottomed out and the United States was attacked and went to war. The economy didn’t truly show evidence of a strong recovery until early 2004, so that’s when e-commerce started to get real again. This time, though, the technology and the business models had matured, and consumers and corporate buyers had gotten entirely comfortable with Web purchases. So 2004 was the first full year when we met the grownup (OK, older adolescent) e-commerce. The ability to cleanly perform e-commerce tricks?such as buying online and then picking up in-store?had been well-rehearsed, and few major retailers today can’t do it in some form. But even online leader Best Buy stumbled, succeeding with the terribly difficult integration and programming challenges but dropping the ball with the elementary communication tasks.

POS/PAYMENT SYSTEMS

Although the specific numbers run the gamut from eight to 20 or more years, many of today’s largest retailers started the year with very old POS systems, or at least very old operating systems behind those POS systems. For much of that time, though, the old legacy systems were not in critical need of replacement. They did their job and did it admirably. It wasn’t until this year and the imminence of RFID, contactless payment systems and sophisticated CRM applications that retailers saw the profitable things they would miss out on if they didn’t upgrade. In 2004, retail IT execs suddenly had no choice but to at least seriously evaluate replacing their reliable legacy systems. This was a trend that certainly didn’t go unnoticed in Redmond, with Microsoft making a serious play for the small retailer. Microsoft was still pushing to have POS mean point of service rather than point of sale. I put this right up there with the people at Digital who, after many decades of the industry calling them DEC, decided they didn’t want to be called DEC anymore. They wanted to be called Digital Equipment or even Digital. A watch can be digital. They were just DEC. If Microsoft wants to change what the POS acronym stands for, they’re a couple of decades too late.

SELF-CHECKOUT

As 2004 opened, many retailers had to fight several battles. First, there’s Wal-Mart. Wal-Mart, by the way, is not a brutal competitor solely because of its size. Wal-Mart started out by opening stores in places that no respectable national retail chain ever would. Those are the same people running Wal-Mart today. The problem with Wal-Mart is not that it’s huge. The problem with fighting Wal-Mart is that it’s remarkably smart and that it’s huge. As Sears/Kmart are about to discover, being huge is a very short-lived advantage if you don’t have the infrastructure and the brainpower to leverage the advantages. But the reasons for Wal-Mart’s dominance aside, it’s there and it’s a problem for every other large retailer.

Arguably the second-largest problem is staffing. The razor-thin margins that are the lifeblood of today’s retailers pretty much mandate low wages for rank-and-file employees. Recruiting enough workers is difficult enough, but retaining them for months beyond their training period is darn near impossible. The self-checkout rage that reached its peak in 2004 was a retail industry attempt to simultaneously deal with both of these problems. The industry line is that self-checkout is not intended to result in layoffs, as those employees are incredibly rare and valuable. Instead, the theory holds that one-time cashiers can be put to work delivering services for customers. That might include carrying customers’ bags to their cars, helping to make more sandwiches during lunchtime or helping customers find their way and taste more samples. If this works, the theory holds, retailers could actually compete with Wal-Mart in a crucial way: better service and more services. If Wal-Mart rivals can’t compete on price, then they can dominate on experience and value. That’s the theory, at any rate.

INDUSTRY CONSOLIDATION

Look to 2005 for the heavy-duty industry consolidation, but late 2004 gave us a good taste of what’s coming when Kmart and Sears were mooshed together. Industry skeptics dismissed the move as the merger of the mediocre, pointing to marketing as well as technology problems suffered by both sides. There were even cynical suggestions that the merger was more about real-estate than inventory or technology. OK, we were among the cynical people saying those things. But it’s hard to see anything that initially suggests that this combination is going to be able to move faster or make better decisions than the pair did before. Yes, they’ll have more revenue initially, but it’s hard to see how that will help. First, Wal-Mart will still be larger and, therefore, will have the advantage in being able to negotiate better rates. But more importantly, Wal-Mart’s strategic efforts are what fuels it, and Sears/Kmart has shown no sign of improving there. But I’m confident that by the time I write this column late in 2005, I’ll have more definitive answers.