January

2013

14th Annual POS Benchmarking Survey

Customer Point-of-Sale (cPOS)
Social'Media' Adver>sing' Website'

Signage'

Email'

Kiosk'

Apps'

Checkout'

Mobile' Website'

Employees' Catalog' Direct'Mail'

SMS'

Sponsored by:

Boston Retail Partners 14 Annual POS Benchmarking Survey Page 2 of 29

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14th Annual POS Benchmarking Survey

Customer Point-of-Sale (cPOS)

http://www.bostonretailpartners.com

Boston Retail Partners

EXECUTIVE SUMMARY
Welcome to our 14th Annual POS Benchmarking Survey! The retail industry continues to evolve. We've heard many times over the years about the demise of Department Stores, the glut of retail storefronts, and how the retail mall will become irrelevant. Fact is, people like to shop and for many different reasons. Shopping is theater for the savvy retailer. Not all can be satisfied on a screen the size of a business card or alone in front of a computer. Some products still require a look and feel and customers enjoy the social aspect of shopping. But more and more customers expect to be able to interact within the retail environment with their mobile device. Many times associates have less information than their customers. So while the game continues to change, the challenge for retailers is to figure out how to best serve their customers across all channels. Todays customer is unlike any the retail industry has ever seen. She has in her hands more information and more capabilities than we could have imagined even twenty years ago. While the customer has always been the center of the universe, she now defines the point-of-sale. BRP, along with our sponsors, is pleased to present this survey of the transformation of the retail point- of-sale and store system technology trends. In the next few pages, we examine a number of areas critical to retailer success customers, associates, and technology. We sincerely hope you enjoy reading it.

Boston Retail Partners surveyed more than 500 North American Retailers for the 14 Annual POS Benchmarking Survey. Online responses were solicited in October - December 2012. Respondents were generally C-level executives or VP/Directors of Store Systems or Information Technology. Boston Retail Partners is an innovative and independent retail management consulting firm dedicated to providing superior service and enduring value to our clients. Boston Retail Partners combines its consultants' deep retail business knowledge and cross-functional capabilities to deliver superior design and implementation of strategy, technology, and process solutions. The firm's unique combination of industry focus, knowledge- based approach, and rapid, end-to-end solution deployment helps clients to achieve their business potential.
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2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

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TABLE OF CONTENTS
EXECUTIVE SUMMARY TABLE OF CONTENTS INTRODUCTION MOBILE TRENDS OPPORTUNITIES OMNI-CHANNEL TRENDS OPPORTUNITIES STORE TRENDS OPPORTUNITIES POINT-OF-SALE TRENDS OPPORTUNITIES INFRASTRUCTURE HARDWARE SOFTWARE NETWORK TRENDS OPPORTUNITIES PAYMENT TECHNOLOGY TRENDS OPPORTUNITIES MARKETING TRENDS OPPORTUNITIES ECONOMIC OUTLOOK CONCLUSION SURVEY METHODOLOGY ABOUT BOSTON RETAIL PARTNERS ABOUT OUR SPONSOR - EPICOR ABOUT OUR SPONSOR - MICROS-RETAIL ABOUT OUR SPONSORS - RETALIX

2 2 4 5 6 6 8 8 10 11 12 12 14 15 16 17 18 19 19 20 20 21 22 22 22 22 23 23 24 25 26 27 28 29

2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

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INTRODUCTION
The lines have blurred among online, mobile, and brick-and-mortar, and new avenues for shopping continue to appear hello T-commerce (Twitter commerce)! Rather than the idea that stores will soon become obsolete, there is an acknowledgement that synergies need to exist between the channels. Not solely an online, mobile, catalog or store presence but "Omni-channel". Todays consumers have the power and capability to shop when, how, and where they want, and to move seamlessly across all channels. In the "old days", consumers would use their high-speed Internet connection with their desktop or laptop computer at home to search for products and information. Now, consumers have the same bandwidth in their pockets and can "Showroom", scanning barcodes in the store and shopping electronically for the best deal. The balance of power has always been in favor of the consumer, but it is even more so today with the broad availability of shopping and product information. Even store employees are finding themselves utilizing customer-facing tools such as apps or the retailer's website to meet customer demand. Unfortunately, this is generally because customers have access to more information and tools than the associates themselves since retailers are not providing the information needed. If a particular size, color, model or style is not available in the store, the associate can purchase the item on behalf of the customer and have it shipped directly to their home. Endless aisle - the concept of selling inventory that is not in the store - is a game-changer for retailers, who can carry less merchandise in the store or even build smaller stores, and for customers, who benefit from an enhanced shopping experience with more merchandise offerings. Retail is generally thought to be a zero-sum game. More and more sellers competing for a very large, but fairly stable pool of discretionary spending. Perceptive retailers understand this and will continue to compete hard by using all their channels synergistically. Consumers expect this.

5.##How#important#are#the#following#to#your#organiza6on?#
Customer$service$ Ecient$processing$at$the$register/speed$of$service$ Employee$product$knowledge$ InGstock$posiHon$ Product$pricing$ Product$assortment$ OmniGchannel$integraHon$ Product$reviews/product$educaHon$ Personalized$promoHons$ 21%$ 16%$ 9%$ 25%$ 36%$ 45%$ 30%$ 36%$ 34%$ 51%$ 30%$ 30%$ 25%$ 50%$ 50%$ 48%$ 52%$ 14%$ 64%$ 34%$ 43%$ 86%$ 27%$ 11%$ 2%$ 7%$ 2%$ 14%$ 2%$
2%$5%$

Exhibit 1: Importance to Organization

Very$important$ Important$ Less$Important$ Neutral$ Not$Important$

16%$ 7%$ 5%$2%$ 5%$ 9%$ 14%$ 5%$

7%$ 9%$ 16%$

Self$service$opHons$ 5%$

2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

Boston Retail Partners 14 Annual POS Benchmarking Survey Page 5 of 29

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Pure play e-commerce will continue to erode brick-and-mortar sales, particularly as certain categories become more commoditized. Software, video, and books are great examples of disintermediation, i.e. cutting out the middleman, by completely changing the way they are delivered to the customer. Unsurprisingly, customer service continues to be a focus for retailers. As the competition for consumer dollars increases and the number of shopping options continues to expand, customer service is a key differentiator and those retailers who get it right can ensure strong customer loyalty. Retailers in this years survey indicated that customer service is the most important area to the organization with 97% stating it is important/very important to the organization. This is closely followed by more specific areas of customer service, including efficient processing at the register (91% indicated it is important/very important), and providing employees more product knowledge to help them assist the customer (84% indicated it is important/very important). (Exhibit 1) It is interesting to note that the retailers surveyed feel that self-service options are less important. As our world becomes more mobile, our smartphones offer consumers the ability to take on customer service options such as price checks, scanning barcodes for product information or even as a checkout device. The challenge remains for retailers as they work to understand what their specific customers define as customer service and how they can meet their customers needs. With customer service and efficient processing at the register as the key focus of top retailers, lets take a look at how retailers are addressing key areas in their organization: Mobile Omni-Channel Store Point-of-Sale Infrastructure Payment Technology Marketing

MOBILE

There has been a huge technology shift in the last few years and mobile shopping has been the driver. Mobile technology is becoming ubiquitous, from the local food truck utilizing Square to swipe your credit card and email you the receipt, to the mobile shopping app at your local supermarket allowing you to use your smartphone as a scanner as you shop, check out, and go. According to a recent survey from Perception Research, 76% of smartphone owners use their phones while shopping. The technology is now mainstream and is revolutionizing the shopping experience.

14.$$What$vendor$hardware$does$your$company$ Exhibit 2: Mobile Device Hardware currently$use$for$its$mobile$devices?$

Motorola( 17%(

Google( 13%( Samsung( 7%( Customer0owned( 3%( Microso'( 3%(

Blackberry( 20%(

Apple( 37%(

2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

Boston Retail Partners 14 Annual POS Benchmarking Survey Page 6 of 29

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Mobile point-of-sale (mPOS) enables the customer to make the purchase at the moment she wants to purchase, and for the retailer it offers the ability to capture the sale when the customer makes the decision so there is less probability that she changes her 13.$$What$vendor$so0ware$does$your$company$ mind. Exhibit 3: Mobile Device Software currently$use$for$its$mobile$devices?$ Mobile shopping offers flexibility and capabilities to Motorola0 12%0 customers and raises the bar on what customers now want Other0 13%0 delivered. Global0Bay0
19%0

Trends
While mobile is ubiquitous, the opportunities that it can Proprietary/ Homegrown0 offer retailers and consumers are still being explored. 56%0 Mobile has only made inroads in the retail industry for the last few years with the vast majority of mobile devices utilized at the POS for less than four years. (See Exhibit 25) While Apple seems to be the hardware of choice with 37% of the retailers utilizing it for their mobile devices, it seems that retailers prefer to utilize Proprietary/ homegrown software on their mobile devices. (Exhibits 2 and 3) Since many retailers have created their own apps based on the Droid or iOS operating systems this makes sense.

Opportunities
There is much interest in customer-facing mobile services and the opportunities are endless. Offering customers the ability to use social networking through their mobile phone to share their shopping experience with friends is one area of interest. While 41% of the retailers offer this ability to their customers, and another 33% have plans to implement this capability, more than a quarter of the retailers have no intention of implementing this option. (Exhibit 4) This is an area that we expect to grow tremendously over the next few years. According to a recent Harvard Business Review study, consumers use their smartphones 19% of the time for socializing. In the last few years consumers have consistently demonstrated their desire for feedback and interaction with their friends and similar individuals, by providing this ability while they shop the retailer helps develop further customer intimacy. Brick-and-mortar retailers have to figure out how to embrace this, because the social aspect to shopping is a big reason customers still go to the store.

26.$$What$is$the$implementa0on$status$of$the$following$customer8facing$mobile$services?$
Share#with#a#friend#via#email#or#social#networking# Smartphone#app# Product#informa<on#(price,#loca<on,#availability,#research)# Shopping#list/wish#list# Mobile#coupons,#specials,#promo<ons# Electronic#receipt# Mobile#wallet# 15%# 14%# 14%# 14%# 9%# 9%# 6%# 6%# 9%# 29%# 24%# 46%# 24%# 10%# 20%# 15%# 30%# 40%# 50%# 60%# 26%# 26%# 26%# 26%# 26%# 66%# 12%# 18%# 20%# 59%# 70%# 80%# 90%# 100%# 44%# 45%# 23%# 24%# 34%# 26%# 17%# 9%# 46%# 14%# 34%# 11%# 11%# 9%# 9%# 9%# 26%# 14%# 11%# 20%# Implemented#and#working# well# Implemented#but#needs# improvement# Plan#to#implement#in#<2# years# Plan#to#implement#in#>2# years# No#plans#to#implement#

Exhibit 4: Customer-Facing Mobile Services

GeoCloca<ng/global#posi<oning# 3%# 9%# Mobile#loyalty#iden<ca<on# 11%#

Wardrobing/ou8it#sugges<ons# 3%# 0%#

2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

Boston Retail Partners 14 Annual POS Benchmarking Survey Page 7 of 29

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We are seeing some improvements in retailers offering more services to their customers via mobile devices. 89% of the respondents indicate that they have plans for a smartphone app; either the retailer already has one or has definitive plans to implement it. Retailers also are testing mobile coupons, specials, and personalized promotions to customers as they walk in the store. More than one-third of the retailers surveyed offer this ability now and another 57% plan to offer these services within the next few years. The mobile trend began with retailer websites available via mobile to allow customers to access the brand from their smartphones, but the possibilities continue to expand as mobile can be used for interactive customer service, to drive store traffic, as a sales channel, and to provide in-store product information. (Exhibit 5) For the first time, with a mobile device, the POS is out on the floor and being utilized in a collaborative fashion, and retailers need to put more thought into the look and feel of the point-of-sale, since it is no longer hiding behind a counter. This mobility is a benefit. By making the POS mobile the associate is also able to be mobile and engage with the customer instead of hiding behind a wrap desk. This guided selling technique is the future.

27.$What$are$your$organiza2on's$main$drivers$for$enhancing$its$current$ Exhibit 5: Mobile Strategy Drivers mobile$strategy?$

Drive#store#trac# Increase#customer#conversion# Enhance#brand# Improve#customer#service# Provide#customers#with#another#sales#channel# Drive#customers#to#website# Provide#customers#with#mobile#checkout#and# payment# Oer#customers#the#ability#to#check#prices/ inventory# Meet#compe4tors'#oerings# 56%# 52%# 44%# 36%# 27%# 18%# 12%# 9%# 9%# 0%# 20%# 33%# 52%# 48%# 40%# 60%# 36%# 62%# 33%# 21%# 33%# 80%# 41%# 48%# 50%# 61%# 21%# 6%# 3%# 15%# 18%# 21%# 18%# 9%# 100%# 3%# Not#very#important# Most#important# 3%#

Important#

Least#important#

The next step in mobile is enabling customers with their own POS - cPOS - customers already have the hardware, why not leverage it? The future is now; POS is literally in your customers hand. Weve already given customers most of the traditional functionality that exists in POS, and with mobile shopping cart and payment abilities, retailers have created cPOS. This can now be leveraged to create a true customer-centric Omni-channel shopping experience where a sales associate can be empowered to interact with customers in new and innovative ways. Retail is never going to be the same, and the Appleization of retail was just the beginning.
2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

Boston Retail Partners 14 Annual POS Benchmarking Survey Page 8 of 29

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OMNI-CHANNEL
Omni-channel retailing is an evolution of multi-channel retailing, with the focus on a seamless approach to the customer experience across all available channels. Recent research from Perception Research Services indicates that consumers are combining the digital and non-digital worlds to make purchases, rather than limiting themselves to one channel. The Omni-channel customer uses more than one shopping channel simultaneously, and retailers who employ Omni-channel retailing track customers and their shopping habits across all channels. Omni- channel retailing offers a one-to-one connection between the retailer and the customer. This experience harkens back to early retailing when this was how shop owners interacted with their customers. They knew the customers name when she walked in the door, they knew her family members, what she was interested in, even what size she was, to be able to immediately offer her items that she would be interested in. Technology is giving us an opportunity to go back to the future to gain intimacy again with the customer instead of alienating them as we often have in the past. Omni-channel retailing offers customers a complete brand experience across all touchpoints. Integration of channels gives retailers visibility into customer purchase patterns, return frequency, shopping habits, and merchandise preferences. Leveraging this information across channels offers retailers a depth and breadth of customer data that could not be gained through a single channel. The key to delivering this experience to customers is to integrate all shopping channels utilizing real-time architecture.

Trends
Retailers continue to expand their shopping channels with the latest proliferation being the mobile channel. It was not long ago that having a web presence was unusual now the vast majority of retailers offer an online shopping experience, and more than half also offer a mobile shopping experience. (Exhibit 6) And now the next step is offering customers the best of both Exhibit 6: Organization Channels worlds by giving them the 6.##Please#indicate#all#channels#that#your#organiza5on#employs.# convenience of online shopping with its rich content and 100.0%% Store% customer reviews and offering 84.1%% the stores ability to allow Web%/%Online%Order% customers to examine the Mobile%(cellphone,%PDA,%Electronic% 54.5%% Shopping%Assistant,%etc.)% merchandise and immediately 36.4%% Kiosk% have the item. It is allowing them to order online and return 22.7%% Catalog% to the store, or go to the store to 4.5%% Wholesale% touch and feel an item and order the correct size from their smartphone as they stand in the store. It is allowing, and even encouraging customers to research products and giving them access to as much information as possible to help drive the sale.
2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

Boston Retail Partners 14 Annual POS Benchmarking Survey Page 9 of 29

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Exhibit 7: Real-Time Features at POS 33.##What#is#the#implementa/on#status#of#the#following#real6/me#features#at#POS?#

Transac4ons# Returns#management# Inventory# Credit#applica4on#(instant#credit)# Analy4cs/repor4ng# Point#redemp4on#(ability#to#immediately#redeem# points#from#today's#transac4ons)# Loyalty#program#enrollment# Loss#preven4on# Customer#transac4on#lookBup#(from#any#channel)# Recogni4on#for#change#in#loyalty#4er/status# 31%# 27%# 26%# 20%# 19%# 19%# 10%# 7%# 6%# 6%# 0%# 6%# 19%# 27%# 27%# 26%# 20%# 56%# 31%# 30%# 13%# 3%# 23%# 23%# 10%# 7%# 13%# 28%# 20%# 30%# 13%# 40%# 60%# 7%# 13%# 48%# 80%# 100%# 9%# 19%# 17%# 10%# 7%# 58%# 40%# 39%# 25%# 37%# 23%# 13%# 6%# 6%# 3%# 17%# Implemented#and# working#well# Implemented#but# needs#improvement# Plan#to#implement#in# <#2#years# Plan#to#implement#in# >#2#years# No#plans#to# implement#

27%#

Imagine offering the customer the ability to ship the item she wants to purchase directly to her home so they she doesnt have to carry it around. The retailer can then fulfill the order through the DC and leave the store set intact. The customer is happy because she doesnt have to drag merchandise around and the retailer is happy because they didnt have to pay to ship an item twice once from the store to the customer and again from the DC to the store to replenish the item. This model also allows some retailers the possibility of carrying less inventory in the store, and requires less real estate. The idea is to offer visibility and interactivity across all channels so the customer is able to access the same type of experience from any touchpoint. To accomplish this, retailers must be able to flow transactions and data in real-time. While we see retailers working on flowing real-time transaction data at the POS with three-quarters of the respondents already doing this, we also see that nearly 20% have issues with the transaction flow. (Exhibit 7) There are also still a few retailers who do not have plans to do this anytime soon. Returns management and Inventory information in real-time are also areas where retailers are working to expand the capabilities, but many have issues with the implementations. This is a critical piece that retailers need to address. Of the 62% of respondents that offer returns management, half of them are having issues. An easy way to drive a customer away is to create a painful returns policy. When we asked retailers about their organizations plans for Omni-channel retailing we found that 21% have already implemented a centralized technology platform with another 45% planning to do so in the next few years. (Exhibit 8) This is an increase over last year when 15% had implemented a centralized platform and 38% were planning to implement in the next few years. Another big change is that last year nearly half the respondents had no plans to implement a centralized platform this year the number has decreased to 33% of retailers. As we indicated in previous surveys, to effectively support the Omni-channel experience, retailers need tight integration across multiple systems and a strong Service-Oriented Architecture (SOA) layer. This year retailers realize the importance of a centralized platform.
2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

Boston Retail Partners 14 Annual POS Benchmarking Survey Page 10 of 29

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Exhibit 8: POS Platform Expansion 20.$$What$are$your$organiza2on's$plans$for$point8of8sale$pla9orm$expansion?$

Centralized#technology#plaDorm#for#store,#mobile,#and# web# Thin#client# Mobile#POS# SaaS#(SoKware#as#a#Service)# 21%# 16%# 12%# 7%# 14%# 23%# 44%# 79%# 87%# 19%# 30%# 20%# 40%# 60%# 65%# 55%# 80%# 100%# Plan#to#implement# in#>#2#years# 33%# 12%# 61%# 32%# 12%# 33%# Already# implemented#

Plan#to#implement# in#<#2#years#

Cloud#or#Virtual#POS# 3%# 7%# 3%# Centralized#POS#plaDorm#(i.e.#hosted#point5of5sale)# 3%# 13%# Customer5owned#mobile#device#as#POS# 0%# 15%#

No#plans#to# implement#

SOA technology enables a true Omni-channel environment and ensures exceptional customer service while retailers simplify their support structure and lower costs. While last years survey found 34% of the retailers planning to utilize a middleware/SOA layer as an enabler, this year finds 60% of the retailer having already implemented or planning to implement this technology. (Exhibit 9)

Opportunities
Retailers continue to inch towards offering customers the seamless shopping experience desired across channels. While we see a trend in including a middleware/SOA layer to enable the Omni-channel vision, there are still issues and opportunities retailers need to tackle. (Exhibit 10)
25.$Please$indicate$whether$your$organiza7on$u7lizes$a$middleware$layer/SOA$as$an$ Exhibit 9: Middleware/SOA Layer enabler$for$its$omni?channel$vision:$
Implemented#and#working#well# Implemented#but#needs#improvement#

Middleware#layer/#SOA# 6%#

20%#

17%#

17%#

40%#

Plan#to#implement#in#<#2#years# Plan#to#implement#in#>#2#years# No#plan#to#implement#

While half the retailers have the ability to process cross-channel returns, 26% need to improve the current process, which as we mentioned earlier is a prime area to drive customers away if you cannot process the return as they expect. There are also a number of retailers who cannot presently process cross-channel returns at all, plus 17% who do not have plans to offer this ability. This should be an area of concern for retailers. Many of your competitors can do this so your customer expects it and will be dissatisfied if you cannot fulfill their expectations.
2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

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Another 21% of the retailers surveyed have no plans to allow customers to place online orders in the store by choosing not to allow customers to do this they are potentially sending customers to another retailer.

24.$$What$is$the$implementa0on$status$of$the$following$omni6channel$services?$
Usability$of$stored$value$cards/giS$cards$across$ channels$ Processing$of$cross>channel$returns$ Placing$online$orders$in$the$store$ Lookup$or$reserve$inventory$in$another$store$ Provide$shipping$opMons$for$special$orders$(home$vs.$ store$pickup)$ Order$on$web/$fulll$from$store$ Lookup$of$online$orders$in>store$ Purchase$in$store/$fulll$from$DC,$other$store,$or$ vendor$ In>store$pick$up$of$online/mobile$orders$ Allow$special$orders$to$be$placed$in$all$channels$ 0%$ 43%$ 34%$ 26%$ 24%$ 24%$ 22%$ 18%$ 15%$ 15%$ 12%$ 9%$ 30%$ 18%$ 26%$ 20%$ 40%$ 18%$ 18%$ 13%$ 26%$ 29%$ 18%$ 15%$ 38%$ 41%$ 18%$ 39%$ 26%$ 60%$ 6%$ 9%$ 9%$ 12%$ 9%$ 9%$ 23%$ 17%$ 12%$ 23%$ 6%$ 3%$ 9%$ 17%$ 21%$ 32%$ 35%$ 16%$ 13%$ 24%$ 27%$ 15%$ 29%$ 80%$ 100%$ 12%$ Implemented$and$ working$well$ Implemented$but$ needs$improvement$ Plan$to$implement$in$<$ 2$years$ Plan$to$implement$in$>$ 2$years$ No$plans$to$implement$

Exhibit 10: Omni-Channel Services

Omni-channel customers continue to increase in number and these customers are critical to a retailers success. It has already been proven that Omni-channel shoppers spend more than multi-channel shoppers and, this is critical to a retailers long-term success, they show stronger brand loyalty. Omni- channel retailing is not a fad and will not likely go away, in fact it will become more prevalent, and retailers who do not embrace it will likely lose in the long run.

STORE
Earlier we addressed what retailers indicate is most important to their organization and an overwhelming majority indicated that customer service and efficient processing at the register are of vital importance. One area where retailers can make a difference is to provide associates with customer information, including shopping history and purchasing suggestions, to enhance the shopping experience.
29.$$Which$of$the$following$methods$are$u7lized$to$iden7fy$ Exhibit 11: Identifying Customers at POS customers$at$the$POS?$
Email&address& Telephone&number& Customer/&idenAcaAon&number& Name&and&address& Member/club&number& Private&label&credit&card& Driver's&license& Mobile&device&J&optJin&to&Wi& Do&not&idenAfy&customers&at&POS&
0.0%& 21.8%& 9.3%& 15.6%& 31.2%& 37.5%& 43.7%& 56.2%& 62.5%&

2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

Boston Retail Partners 14 Annual POS Benchmarking Survey Page 12 of 29

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Trends

We have seen over the last few years how top retailers excel at gathering customer data and analyzing it to understand and react to their customers shopping habits so they can continue to improve customer service and outperform the competition. The good news is that retailers as a whole are becoming better at gathering customer data. While one-third of the respondents were unable to identify customers at the POS last year, this year the number is down slightly to 22%. (Exhibit 11) Interestingly, the method of identifying customers at the POS has shifted. Email addresses have become the de facto identifier (and also enable further marketing benefits) over telephone numbers, but there is still a reluctance to utilize a customers mobile device as the method of identification. Since there has been an increase in consumer utilization of location-based social networking services such as Foursquare and Facebook Places, it is surprising that more retailers are not incorporating some of the same efforts into targeting their Exhibit 12: Customer Information Available customers as they 30.$$What$customer$informa3on$is$available$at$store7level?$ enter the store, or even when they check Contact&informa8on&(e.g.&name,&address,&telephone&number,&email& 68.7%& address)& in within the stores Transac8on&lookup&for&returns& 40.6%& vicinity. There is Sales&history& 37.5%& opportunity, as cPOS Purchase&summary&(e.g.&average&transac8on&amount,&purchases&this& 21.8%& adoption becomes year,&life8me&totals,&etc.)& more prevalent, to CustomerKspecic&oers&and&discounts& 12.5%& have customers opt-in CustomerKspecic&messaging& 9.3%& from their mobile Warranty&and&service&lookup& 9.3%& device, but retailers Friends&and&family&informa8on&(e.g.&birthdays,&anniversaries,&sizes,& 6.2%& need to engage and wardrobe)& Prole&(e.g.&demographics,&preferences,&sizes,&etc.)& 3.1%& give customers a Purchasing&sugges8ons&(based&on&customer''s&current&or&previous& meaningful reason to 0.0%& purchases)& opt-in and interact in No&customer&informa8on&is&available&at&store&level& 28.1%& the retail store. Retailers are doing a better job of providing customer information at the store-level. While last year half the retailers provided contact information, this year the number has increased to more than two-thirds of the respondents. (Exhibit 12)

Opportunities
While we have seen improvement in the information provided at the store-level to the associates, there are still many missed opportunities. There is an amazing opportunity for savvy retailers to establish customer intimacy by utilizing this information. The ability for an associate to drive a sale by understanding the customers purchasing history or being able to offer customer-specific offers and discounts is currently very limited. An associate who has this information can greatly enhance the customer shopping experience by offering items that match previously purchased merchandise or even show them something similar to items they have purchased in the past. We believe interactive wardrobe applications are an opportunity and we are working with a firm that offers a cloud-based wardrobe application populated by both the retailer and the consumer.

2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

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Not only what customer information is available at the store but when the customer information is available is important. (Exhibit 13) Nearly 30% of the respondents can access transaction data and almost 20% have access to customer contact information before the transaction actually occurs. Allowing the associate to access this information pre-transaction Exhibit 13: Customer Information Available 31.$$What$is$the$earliest$point$at$which$customer$informa6on$is$available$at$ offers further options to the store9level?$ retailer to tailor the sale before the customer purchases, but TransacBon#lookup# 29%# 6%# 16%# 48%# there is opportunity for further Contact#informaBon# 19%# 39%# 3%# 39%# Pre5transacBon# tailoring by offering suggestions (assisted#selling)# to customers before they ever 19%# 23%# 13%# 45%# Purchase#summary# In5transacBon# reach the checkout. (during#checkout)# Customer#prole# 17%# 20%# 7%# 57%# Post5transacBon# SuggesBons# 14%# 3%# 83%# There are myriad opportunities to enhance the customer Customer5specic#messaging# 7%# 11%# 82%# Not#available# shopping experience by Friends#and#family#informaBon# 7%# 7%# 86%# understanding the customers closet, their needs, their Customer5specic#oers#and#discounts# 7%# 10%# 3%# 80%# lifestyle, etc. This area will 0%# 20%# 40%# 60%# 80%# 100%# continue to grow with apps currently being created and tested to help fill in the gaps that retailers are leaving open by not providing associates the tools they need to develop customer intimacy in the store. Instead, retailers should be embracing the idea and creating or implementing their own tools to offer to associates.
32.$$What$is$the$implementa0on$status$of$the$following$CRM/loyalty$program$features$ Exhibit 14: CRM/Loyalty Program Features at POS at$the$POS?$
Customer#lookup# Full#transac:on#history#lookup# Oer#a#loyalty#program# Current#oer/discounts#lookup# View#period#and#life?to?date#customer#summary# Look#up#all#loyalty#ac:vity# Customer?specic#messaging# Look#up#available#redemp:ons# 30%# 27%# 22%# 19%# 17%# 13%# 19%# 13%# 10%# 13%# 28%# 26%# 30%# 30%# 34%# 43%# 40%# 60%# 30%# 27%# 31%# 6%# 20%# 23%# 24%# 13%# 80%# 23%# 20%# 9%# 29%# 20%# 23%# 24%# 20%# 100%# No#plans#to# implement# 10%# 7%# 13%# 9%# Implemented#and# working#well# Implemented#but# needs#improvement# Plan#to#implement#in# <2#years# Plan#to#implement#in# >2#years#

7%# 10%# 7%# 0%# 17%# 20%#

We are seeing a disconnect for many retailers as they indicate that customer service is a priority but they do not have plans to implement CRM/loyalty features at the POS to really serve their customers. Lifetime customer value (LTV) is important in retail, yet there are retailers with no plans to implement the ability to view period and LTV customer summary information. (Exhibit 14)
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Boston Retail Partners 14 Annual POS Benchmarking Survey Page 14 of 29

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We still see opportunities for retailers to tailor the Amazon model to their organization. Amazon has pioneered the model of utilizing customer information to not only improve the customers shopping experience by directing them to the products they are most likely interested in, but also to offer suggestions for items that fit with items previously purchased. While Amazon has pioneered this online, there are opportunities for brick-and-mortar retailers to track what their customers have previously purchased and then offer suggestions based on purchases and current inventory. As the point-of-sale shifts to the customers device this becomes even more critical and retailers who do this right will maximize up-sell and cross-sell opportunities.

34.$$What$is$the$implementa0on$status$of$the$following$customer$services$at$store9level?$
Self#checkout# Self1service#price#check# Store#portal# 2D#barcode#scanning# Electronic#coupons# Self1service#loyalty#program#status# Wi1Fi#customer#use# 16%# 16%# 13%# 13%# 10%# 7%# 3%# 6%# 13%# 24%# 10%# 20%# 16%# 30%# 16%# 3%# 30%# 40%# 50%# 7%# 19%# 69%# 60%# 70%# 80%# 90%# 100%# 3%# 3%# 3%# 6%# 20%# 23%# 25%# 10%# 6%# 10%# 26%# 45%# 13%# 13%# 53%# 45%# 74%# 47%# 47%# 26%# 16%# Implemented#and# working#well# Implemented#but#needs# improvement# Plan#to#implement#in#<2# years# Plan#to#implement######in# >2#years# No#plans#to#implement#

Exhibit 15: Customer Services at Store-Level

Self1service#inventory#availability#check# 3%# 0%#

Stores continue to change in ways we would not have imagined twenty years ago. More than 15% of the respondents offer self-checkout and self-service price check to their customers (Exhibit 15). This is interesting because there are a number of areas in which retailers can reduce expenses and resources by putting services into their customers hands. By allowing customers to take on these services, retailers actually increase the customer service offered to customers, which can enhance customer loyalty. Many customers like to be able to DIY because they feel more in-control and leading retailers are catering to this trend. There are many opportunities available for retailers to put more information and control in the customers hand, and in many cases, this refers to the customers own smartphone.

POINT-OF-SALE
The point-of-sale continues to change and evolve. In the past, when we discussed the point-of-sale (POS) we referred to a cash register stationed at a wrap desk, generally in the front of the store. Now the POS refers to any touchpoint where the customer makes a purchase, including mobile devices and even a customers own smartphone as the point at which the sale takes place. In fact, the customer has really become the point-of-sale cPOS - wherever she wants to purchase is where she needs to be able to purchase.
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Boston Retail Partners 14 Annual POS Benchmarking Survey Page 15 of 29

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Trends

As we asked retailers Exhibit 16: POS H ardware Devices 12.$What$type$of$hardware$does$your$organiza7on$currently$u7lize$as$a$point:of:sale?$ what type of hardware their 0%# 10%# 20%# 30%# 40%# 50%# 60%# 70%# 80%# 90%# 100%# organization uses as Customer5owned#mobile#devices#(iPhone,#Android,#iPad)# a point-of-sale we 0%# discovered that Tablets# <#10%# traditional registers still play a big role, 10525%# Mobile#devices# but they are not the 25550%# only players Notebook/laptop#computers# 50575%# anymore. (Exhibit 16) 755100%# A few years ago, this PCs/desktop#computers# question would have been irrelevant, as TradiKonal#registers# the majority of retailers would have indicated that they utilized traditional registers with only a few innovative retailers utilizing PCs. Today, we can see how technology has advanced with most retailers using some mix of technology, and a few retailers utilizing tablets and mobile devices as a portion of their organizations point-of-sale devices. While traditional registers certainly still play a role, it will continue to diminish as other technology gains traction. The momentum has already shifted and mobile devices are poised to pervade the retail industry within the next few years we expect that by the end of next year the shift in point-of-sale hardware will be significant.

21.$$What$are$your$company's$overall$point7of7sale$spending$plans$for$2013?$
Mobile$POS$ Customer@facing$mobile$soluGons$ POS$hardware$ POS$so2ware$modicaGons$ POS$so2ware$ Mobile$inventory$soluGon$ Store$network$ Customer@owned$mobile$device$as$POS$ POS$hardware$maintenance$ POS$so2ware$maintenance$ 0%$ 43%$ 43%$ 35%$ 32%$ 24%$ 19%$ 14%$ 20%$ 22%$ 20%$ 40%$ 60%$ 6%$ 44%$ 56%$ 57%$ 80%$ 46%$ 60%$ 57%$ 11%$ 17%$ 9%$ 41%$ 62%$ 32%$ 3%$ 9%$ 100%$ 20%$ 43%$ 34%$ 46%$ 24%$ 6%$ 3%$ 31%$ 23%$ Increase$spending$ Decrease$spending$ No$change$ Unsure$ 9%$

Exhibit 17: Overall POS Spending

It is interesting to see that more than 10% of the retailers surveyed allow customers to use their own devices to check themselves out of the store. This number will continue to increase over the next few years as retailers take advantage of what is often called BYOD or BYOT (Bring Your Own Device or Bring Your Own Technology) and which we call cPOS (Customer Point-of-Sale). This offers advantages to retailers by alleviating some equipment expenditures since the customer is now responsible for purchasing their own checkout device.
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Boston Retail Partners 14 Annual POS Benchmarking Survey Page 16 of 29

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Opportunities
Overall, retailers are looking at mPOS and customer-facing mobile solutions as a focus for 2013 more than half of the respondents have plans to increase their spending in these two areas. (Exhibit 17) It is also interesting to note that a few retailers are decreasing their spending this year on POS hardware, software, software maintenance and modifications, and hardware maintenance. This is likely because retailers are shifting the point-of-sale to mobile devices, both retailer-owned and customer-owned. Retailers who are not shifting their focus will miss out on opportunities as customers embrace being able to do more through their mobile devices. As we look at the specifics of point-of-sale technology in the next two years we see that retailers are have plans to increase their reliance on 15.$What$type$of$hardware$does$your$organiza7on$plan$to$u7lize$as$a$point9of9sale$by$the$ Exhibit 18: 2014 POS Hardware Plans end$of$2014?$ customer-owned mobile Notebook/laptop$computers$ 61%$ 22%$ 11%$ 6%$ devices with more than 0%$ half of the retailers Customer;owned$mobile$devices$(iPhone,$Android,$iPad)$ 45%$ 35%$ 10%$ 10%$ <$10%$ surveyed indicating that PCs/desktop$computers$ 38%$ 5%$ 10%$ 14%$ 14%$ 19%$ 10;25%$ these devices may 25;50%$ Tablets$ 22%$ 26%$ 30%$ 13%$ 9%$ account for up to 50% of 50;75%$ the point-of-sale In;store$mobile$devices$ 20%$ 24%$ 32%$ 16%$ 4%$ 4%$ 75;100%$ technology devices used Tradi2onal$registers$ 18%$ 3%$3%$ 27%$ 48%$ by the end of 2014. 0%$ 20%$ 40%$ 60%$ 80%$ 100%$ (Exhibit 18) Another opportunity we see for many retailers is the centralization of POS through centralized processing at the Home Office. The store-level environment can become less complex by consolidating or virtualizing servers, the operating system, and applications at the data center or Home Office instead of at each individual store. By centralizing these items there are fewer devices and licenses to deploy and maintain across the store chain, plus any application updates can be deployed centrally, thus more quickly and easily. This offers the retailers a more agile environment and a richer shopping experience for the customer. Plus, it enables real-time integration across all channels and touchpoints to offer customers the Omni-channel environment they want.

23.$$Please$indicate$where$each$of$the$following$store$systems$operate$within$your$store$ Exhibit 19: Centralization of Store Environment environment:$

0%$ Point2of2sale$ Special$orders$ Returns$processing$ Task$Management$ Workforce$Management$(Time$&$AHendance/$Labor$ CRM$ Loss$prevenNon$ Pricing$ Inventory$ Business$intelligence/$enterprise$reporNng$ 28%$ 34%$ 47%$ 57%$ 64%$ 78%$ 81%$ 81%$ 86%$ 94%$ 6%$ 22%$ 34%$ 47%$ 37%$ 14%$ 22%$ 8%$ 11%$ 19%$ 8%$ 6%$ 3%$ 3%$ Do$not$have$applicaNon$ 20%$ 40%$ 60%$ 72%$ 31%$ 6%$ Centralized$(Home$ oce)$ 80%$ 100%$

De2centralized$(Store$ controller)$

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Boston Retail Partners 14 Annual POS Benchmarking Survey Page 17 of 29

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Retailers are already experimenting with centralization. (Exhibit 19) When we asked retailers what processes they have centralized through the Home Office, many of the respondents indicated they already operate business intelligence, inventory, pricing, loss prevention, and CRM there. Nearly one- third of the retailers have also centralized their point-of-sale application and realize benefits such as providing fast access to web-and mobile-based solutions for customer self-service capabilities and cross- selling and up-selling capabilities. But there are still opportunities for centralization of point-of-sale processes. Networks are more reliable and more resilient than ever before and this offers retailers the opportunity for a completely different store environment one that is agile and even more customer-oriented.

INFRASTRUCTURE
For the past three years we have asked retailers about their organizations information technology adoption. (Exhibit 20) Last year we noticed an uptick in retailers indicating that their organizations were early adopters this year it seems that more organizations settled back into being mainstream adopters. It is likely that last years blip was a reflection of the pent-up technology demand after the recession and a move to mobile technology. The infrastructure within the organization is critical. Retailers realize the necessity of a sound infrastructure and are investing the creation of a strong foundation.

4.##Which#of#the#following#best#describes#your#organiza8on#with#regards# Exhibit 20: Information Technology Adoption to#informa8on#technology#adop8on?#

Innovator()(adopts(new(technology(rst(in(order(to( retain(edge(in(market(

Early(adopter()(quickly(adopts(once(new(technology(has( stabilized((follows(the(market(leader)(

Mainstream(adopter()(upgrades(only(to(keep(up(with( general(market(requirements( Slow(adopter()(waits(unBl(technology(is(market(standard( before(adopBng((is(forced(to(upgrade(technology(due(to( either(rising(service(costs(or(growth(inhibiBng(capability( limitaBons)( Late(adopter()(adopts(new(technology(last((only(adopts( new(technology(when(exisBng(technology(can(no(longer( support(current(applicaBons(or(store(expansion)(

2013( 2012( 2011(

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Boston Retail Partners 14 Annual POS Benchmarking Survey Page 18 of 29

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Hardware
Satisfying the customer is an ongoing challenge as customers become more demanding they want instant gratification and if a retailer cant get them what they want, they are more than willing to take their business elsewhere. The hardware utilized as this foundation can easily 11.##What#vendor#hardware#does#your#company# Exhibit 21: Traditional POS Hardware make or break customer transactions. currently#use#for#its#tradi8onal#point9of9sale?# 39%# Toshiba/IBM# When discussing the traditional POS 17%# Dell# hardware market, it continues to look 14%# Other# similar year after year with IBM 14%# HP# remaining the dominant player and the rest of the category relatively segmented. 11%# NCR# (Exhibit 21) 11%# Fujitsu# 6%# Wincor#Nixdorf# While the IBM-established base is still 3%# Epson# dominant, there was a shake-up in the 3%# DigiPOS# industry earlier this year when IBM sold its Retail Store Solutions (RSS) business, including hardware, software, and in-store solutions, to Toshiba TEC. This is a very big change as the question becomes, why did IBM leave the POS hardware and software businesses? So although we now identify it differently, the established base by IBM (now Toshiba) is still the most dominant in the industry. We also asked retailers what 16.$What$opera-ng$system$does$your$organiza-on$ operating system is most prevalent on Exhibit 22: POS O perating System their POS hardware and currently$use$on$your$POS$hardware?$ unsurprisingly; Microsoft maintains the lions share with nearly 75% of the retailers utilizing some type of Microsoft product. (Exhibit 22) This Windows'XP' 33%' will be interesting to watch as traditional POS hardware declines and Windows'Embedded' 19%' more tablets and smartphones take Android' their place. POSReady'7' 2%' 13%' MS,DOS' This year saw another decline in the 2%' usage of Linux with only 4% of the Apple'iOS' respondents indicating they use Linux 4%' Linux' as their POS hardware operating POSReady'2009' 4%' 8%' system. Generally we would assume IBM'4690' Other' 9%' 6%' this number would be higher, but the adoption rate may be low due to some difficulties in interoperability with other point solutions, a lack of vendor experience with Linux, the cost and availability of expert Linux resources, and issues in interfacing Linux with Microsoft Office. With Microsofts additional willingness to offer deals, it seems that retailers are continuing with a more mainstream platform.
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Boston Retail Partners 14 Annual POS Benchmarking Survey Page 19 of 29

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Software
As noted earlier, retailers are focused on enhancing the checkout experience and 10.$$What$vendor$so0ware$does$your$company$ Exhibit 23: Traditional POS Software currently$use$for$tradi:onal$point;of;sale?$ making it more efficient for both the associate and the customer. Choosing and utilizing the Epicor%(CRS,%NSB)% 18.0%% right software to offer associates the tools they SAP%(Triversity)% 18.0%% MICROS%Retail%(Datavantage,% need plus offer customers the ease and 15.0%% Torex)% Toshiba%(IBM)% 12.5%% efficiency that they desire, is a never-ending Retalix%(CornellPMayo)% 10.0%% challenge for retailers. Even after an in-depth Fujitsu% 7.5%% selection process and a potentially lengthy Other% 5.3%% implementation process, retailers tend to Jesta%I.S.% 4.5%% Proprietary/Homegrown% 3.3%% second-guess themselves as to whether they JDA%(Red%Prairie)% 2.8%% have chosen the best option for their PCMS% 2.4%% organization. Luckily, in the past few years we Microso2% 2.0%% have seen an increase in hardware and software options by vendors that has offered retailers more opportunities to purchase software instead of building their own software. For the first time, Proprietary/homegrown software is not one of the largest groups when we asked retailers what software they use for their traditional point-of-sale. (Exhibit 23) The tendency for retailers to build their own software has trended down for the last few years. The software market still remains relatively segmented with no one vendor leading the category SAP, Epicor, MICROSRetail, and Toshiba have the most implementations with Retalix, Fujitsu, and others close behind. For Retalix, the acquisition of Cornell-Mayo fills a hole in their portfolio and opens up the specialty retail marketplace.

Network

As we mentioned in the 13th Annual POS 19.$Please$indicate$what$services$your$company$ Benchmarking Survey, the improvements that have Exhibit 24: Store Network Services currently$uses$your$store$network$for:$ been seen in networks over the last few years 48.1%% VoIP% completely change how retailers should be thinking 48.1%% POTS% about networks. The recent investments made have 44.4%% Wireless%back@up% created a robust network infrastructure that is faster 37.0%% Call%center% and more reliable than what previously existed. 33.3%% Fax%machine% 19.0%% Wi@Fi%customer%use% We asked retailers what services they are generally 7.4%% PBX%in%the%cloud% using their store network for and nearly half of the 3.7%% Trac%heatmaps% respondents indicated VoIP or POTS. (Exhibit 24) This indicates that a tremendous number of retailers are still using POTS lines when they could see incredible cost savings by upgrading their networks to accommodate VoIP. A key benefit to improved network architecture is the ability to utilize VoIP (Voice over Internet Protocol) as an option instead of POTS telephone lines to every store location. There are also opportunities for retailers to recognize major cost savings by bundling store services such as Data, Voice, Wi-Fi, Video, Fax and PBX into one integrated package. It is surprising the number of fax machines still in use; there is the opportunity for cost savings by utilizing scanning and document management instead.
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Boston Retail Partners 14 Annual POS Benchmarking Survey Page 20 of 29

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While 7.4% of the respondents are utilizing PBX in the cloud, this indicates that another 92.6% are utilizing a PBX or similar phone system in the store. Again there are opportunities for retailers to reduce expenses by centralizing communication through the cloud.

Trends
There has been resurgence in the last few years of POS infrastructure upgrades and replacements due to escalating maintenance costs, end of lifecycle management, and newer technologies entering the field. This year is no exception. (Exhibit 25)

17.$$Please$indicate$the$current$average$age$of$your:$
Store$network$ POS$soBware$ POS$terminals$ Mobile$devices$7$POS$ Mobile$devices$7$back7oce$ 0%$ 23%$ 19%$ 16%$ 15%$ 10%$ 6%$ 3%$ 15%$ 20%$ 9%$ 30%$ 6%$ 40%$ 50%$ 60%$ 34%$ 17%$ 42%$ 75%$ 56%$ 70%$ 80%$ 90%$ 100%$ 34%$ 37%$ 31%$ 29%$ 14%$ 3%$ <$2$years$ 9%$ 6%$ 3%$ 2$to$4$years$ 5$to$8$years$ 9$to$11$years$ >$12$years$ N/A$

Exhibit 25: Current Age

The most dramatic change is in store networks with 34% of this years respondents operating networks that are less than two years old, while last year it was only 18% of respondents. On the software side, last year more than half the retailers were utilizing software that was installed more than eight years ago while this year it is closer to 25% with one-quarter of the retailers surveyed utilizing software that was implemented less than 2 years ago. On the hardware side, it is not quite as dramatic, but the age of terminals is down slightly from only 13% running terminals that were less than two years old last year, to 19% this year.

Opportunities
Based on the trend we saw above of retailers replacing and upgrading hardware, software, and store networks, there are fewer immediate opportunities for replacement in these areas. (Exhibit 26) Many

Exhibit 26: Years of Continued Usage 18.$$Please$es*mate$how$long$your$organiza*on$plans$to$con*nue$using$your$current:$

POS#soCware# POS#terminals# 9%# 6%# 13%# 16%# 17%# 10%# 20%# 30%# 29%# 26%# 6%# 19%# 6%# 3%# 34%# 40%# 50%# 60%# 26%# 34%# 74%# 53%# 29%# 70%# 80%# 17%# 90%# 100%# 20%# 26%# 17%# <#1#year# 9%# 1#to#2#years# 2#to#4#years# 4#to#5#years# >#5#years# N/A# Store#network# 3%# 0%#

Mobile#devices#=#POS# 3%#3%# Mobile#devices#=#back=oce# 3%#

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Boston Retail Partners 14 Annual POS Benchmarking Survey Page 21 of 29

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of the retailers we surveyed have plans to utilize their current set-up for at least another year or two. Of course, because this is a long-term investment and due to the number of stores that a retailer may have, it means that a number of retailers will spend 2013 researching their options, reviewing their competitions infrastructure, understanding their own current and future requirements, and then selecting the best option. This leaves 2014 for the implementation of the new technology.

PAYMENT TECHNOLOGY
It was not long ago that many consumers didnt feel comfortable transmitting their credit card information over the Internet. Now most consumers embrace it, as evidenced by the popularity of Cyber Monday. The next step, which gained acceptance in 2012, is to utilize a smartphone as a payment device. Most of us have probably had an introduction to this concept, whether you purchased a lobster roll at the food truck at the beach, or you nabbed a handmade necklace at the local art show, you probably saw or utilized Square recently. This is just going to continue to expand. Our smartphones have become an extension of ourselves, we feel lost without them, so why not let them replace the contents of our wallets? One of the technologies that enables a smartphone to be used as a purchasing device is near field communication. Near field communication (NFC) is a set of standards for smartphones to establish radio communication with each other by bringing them into close proximity, generally just a few centimeters apart. The current and potential applications include contactless payments, coupons, price check, data exchange, and mobile speed pass. Some of the new Google Android phones currently have an NFC chip that powers a digital-wallet service. This gives customers the ability to pay for goods at certain retailers simply by tapping their phones. The latest iPhone still lacks NFC but has taken steps towards offering customers this ability with its digital- coupon and loyalty-card app called Passbook.

22.##What#plans#does#your#company#have#for#implemen7on#of#the#following# Exhibit 27: Payment Security Technology payment#security#technology?#

TokenizaCon$for$payment$processing$ 24%$ 32%$ 15%$ 29%$ Already$ implemented$ Planning$to$ implement$in$<$2$ years$ Planning$to$ implement$in$>2$ years$ No$plans$to$ implement$

End1to1end$encrypCon$for$payment$processing$

23%$

46%$

14%$

17%$

Near$eld$communicaCon$

21%$

18%$

15%$

47%$

Chip1and1pin$(EMV)$ 0%$

14%$ 20%$

43%$ 40%$ 60%$

23%$ 80%$

20%$ 100%$

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Boston Retail Partners 14 Annual POS Benchmarking Survey Page 22 of 29

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Trends

Chip-and-pin technology (EMV) is a global standard for safety and security for credit card transactions that has been implemented around the world including Europe, and more recently, in Canada. This technology provides enhanced protection against fraud if a card is lost or stolen. Chip-and-pin technology is a worldwide initiative but there are still some U.S. retailers who do not have plans to implement the technology. (Exhibit 27) This technology will continue to expand internationally and within the U.S., driven somewhat by PCI requirements. Those retailers who do not have plans to implement chip-and-pin technology will find themselves falling behind.

Opportunities
End-to-end encryption will be coming on strong in the near future with chip-and-pin technology taking a bit longer, although it is getting increasingly difficult to use US-issued credit cards in Europe as they no longer support that technology. This, in conjunction with the push because of PCI, may drive chip-and- pin technology adoption more quickly than some retailers planned.

MARKETING
Non-traditional marketing continues to change and evolve as retailers explore social networking as a cost-effective and successful marketing tool. Social networking sites provide messaging to customers about new products, information about in-store events, and personalized customer offers. But the challenge remains for retailers to do more with social networking than just get customers to like the companys Facebook page.

Trends
This year nearly 75% of the retailers host their own social networking sites, up slightly from last year. (Exhibit 28) The big difference from the last few years is that fewer retailers are monitoring external sites such as Facebook, Google+, and Pinterest (56% TY versus 67% LY). This points to more retailers controlling their destiny by creating and managing their own social networking sites. This offers retailers the ability to react more quickly to any issues that may occur and more readily reward loyal customers.

35.$$What$is$the$implementa0on$status$of$the$following$"non7tradi0onal'$marke0ng$methods?$
Hosted#social#networking#sites#(e.g.#Facebook,#Google+,# Pinterest,#TwiUer)# YouTube#videos# Hosted#blogs# Monitoring#external#social#networking#sites# SMS#(text)# 2D#barcode#scanning#by#customer#smartphones# Loca<on=based#social#networking#(e.g.#Foursquare,#Gowalla)# 23%# 19%# 13%# 10%# 10%# 10%# 30%# 20%# 19%# 40%# 10%# 20%# 30%# 40%# 19%# 42%# 17%# 19%# 43%# 23%# 33%# 13%# 13%# 50%# 10%# 60%# 70%# 10%# 10%# 32%# 17%# 10%# 20%# 13%# 17%# 39%# 33%# 80%# 90%# 100%# 3%# 6%# 33%# 42%# 7%# 17%# 23%# 20%# 16%# Implemented#and# working#well# Implemented#but#needs# improvement# Plan#to#implement#in#<#2# years# Plan#to#implement#in#>#2# years# No#plans#to#implement#

Exhibit 28: Non-traditional Marketing

Monitoring#external#blogs# 3%# 0%#

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Boston Retail Partners 14 Annual POS Benchmarking Survey Page 23 of 29

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Social networking will continue to influence customers shopping experiences and it is imperative that top retailers use that to their advantage in this competitive environment.

Opportunities
Social networking offers the ability for interaction with customers and can give the Executive Team valuable feedback. It also offers customers a voice that they have not previously had a bad experience with a brand can translate into a viral video that thousands or even millions of customers can see which can be disastrous for a retailer. But it can also offer a venue where customers can demonstrate their loyalty the challenge for retailers is to ensure there are more positives and that any negatives are addressed quickly and viewed as an opportunity to gain customer loyalty. The opportunities for retailers lie within the relationship-building arena. Social networking gives retailers the ability for a one-on-one connection with their customers. Utilizing social networking to develop a relationship with customers is the future of social networking for retailers.

ECONOMIC OUTLOOK
The economy in 2012 continued its slow recovery. Retailers are optimistic about 7./8.%Company's%Outlook%on%Economy%and%Business%Prospects% Exhibit 29: Economic Outlook economic recovery and even more 2%# optimistic about their organizations Very#Posi1ve# 8%# future. (Exhibit 29) Last year only 15% of Economic#Outlook# 32%# Posi1ve# the retailers indicated that they felt 56%# positive about the economy. This year, 56%# Outlook#on# Neutral# 25%# more than one-third of the respondents Organiza1on's# Business#Prospects# 10%# feel positive about the economy clearly Nega1ve# 5%# most retailers are seeing the light at the 0%# end of the tunnel. Their outlook on their Very#Nega1ve# 0%# organizations business prospects is even more optimistic with nearly two-thirds of the retailers having a positive/very positive outlook. When we asked retailers what steps they have successfully taken in the last few years to overcome difficult business conditions we found that the top two areas that retailers have addressed successfully are the same as last year refurbish stores and improve customer service. (Exhibit 30) Some interesting changes from last year involve a shift from last years success in reducing inventory and reducing store payroll while this years success rides on enhancing assortments and increasing promotions.

2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

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9.##If#your#organiza/on#has#taken#the#following#steps#to#overcome#dicult#business# Exhibit 30: Overcoming Difficult Business Conditions condi/ons,#please#indicate#each#step's#success.#

Refurbish#stores# Improve#customer#service# Enhance#assortments# Increase#promo@ons# Reduce#inventory# Reduce#capital#expenses# Increase#crossEchannel#eciencies# Reduce#store#payroll# Close#stores# Expand#interna@onally# 54%# 54%# 50%# 45%# 42%# 33%# 27%# 27%# 21%# 18%# 22%# 41%# 18%# 34%# 42%# 5%# 51%# 61%# 66%# 32%# 28%# 32%# 8%#
3%# 3%#

24%#

11%# 14%# 8%# 5%# 29%# 21%# 22%# 27%# 10%# 13%#

Successful# Neutral# Not#Successful# Not#Applicable#

CONCLUSION
As we stated in the Introduction, the lines have blurred. Channels are no longer distinct. Customers easily move among channels and even shop via more than one channel simultaneously. The line between customer and associate has also blurred with customers sometimes having access to more information about a product than the associate, or the associate utilizing customer-facing tools and information to be as informed and knowledgeable about the product as the customer. And most of all, the lines have blurred as to what the point-of-sale is. We used to refer to the point-of- sale (POS) as the register with the checkout line feeding into it, where the customer made their purchase. But the true meaning of point-of-sale refers to the point at which the sale is made and can include a register, PC, tablet, or smartphone inside or outside the store environment where the customer makes their purchase. The point-of-sale is now in the customers hands. The challenge (or opportunity) for retailers is to take these game-changers that are rapidly occurring in the industry and use them to their advantage. The customer is continually changing and evolving and retailers must do the same to survive.

2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

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SURVEY METHODOLOGY
Boston Retail Partners (BRP) conducted the 14th Annual POS Benchmarking Survey in October through December of 2012 by contacting more than 500 top North American retailers and with our largest response base ever, gained insight into their planned initiatives, priorities, and future trends. This paper summarizes the results and key findings of the survey, offers insight into the store-level tactics and channel strategies of top retailers, and identifies current trends in the industry to offer retailers opportunities to continue to evolve and prosper in the future. The focus of this survey is primarily on the specialty retail segment. (Exhibit 31) Nearly two- thirds of the survey respondents fell into the specialty category with the remainder in other lines of trade such as general merchandise, grocery, and convenience and fuel.
3.##What#was#your#company's#gross#annual#revenue# Exhibit 32: Company's Gross Annual Revenue last#year?#
$10B%or%more% $5B%to%$10B% $1B%to%$5B% $500M%to%$1B% $100M%to%$500M% Less%than%$100M%

2.##Which#category#best#describes#your# Exhibit 31: Company Category company?#

Grocery,*Food,*and* Beverage* 9.1%* Convenience*and* Fuel* 6.8%* Drug*Stores* 2.3%* QSR/*Restaurant* 2.3%*

General* Merchandise*(Mass* Merchant/* Department)* 11.4%*

Other* 6.8%*

Specialty*+*Hard* Goods*(Books,* Electronics,* Furniture,*Home*and* Garden,*SporCng* Goods,*etc.)* 20.5%*

Specialty*+*So-* Goods*(Accessories,* Apparel,*etc.)* 40.9%*

11.4%% 11.4%% 36.4%% 11.4%% 22.7%% 6.8%%

Of the retailers surveyed, the breakdown in size based on gross annual revenue included a broad selection of Tier 1, 2, and 3 retailers with nearly 60% above $1B and even 23% above $5B. (Exhibit 32) The specific respondents for each company were mainly Vice President/Director of IT or C-level executives.

2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

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ABOUT BOSTON RETAIL PARTNERS

For more information or assistance on any of the topics covered in this survey, please contact: Brian Brunk, Principal: Boston Retail Partners; Independence Wharf, 470 Atlantic Ave, 4th Floor, Boston, MA 02210; (405) 590-0542; bbrunk@bostonretailpartners.com Walter Deacon, Principal: Boston Retail Partners; Independence Wharf, 470 Atlantic Ave, 4th Floor, Boston, MA 02210; (781) 337-2060: wdeacon@bostonretailpartners.com Ken Morris, Principal; Boston Retail Partners; Independence Wharf, 470 Atlantic Ave, 4th Floor, Boston, MA 02210; (617) 880-9355; kmorris@bostonretailpartners.com Kathleen Fischer, Marketing Manager; Boston Retail Partners; Independence Wharf, 470 Atlantic Ave, 4th Floor, Boston, MA 02210; (330) 289-3342; kfischer@bostonretailpartners.com Boston Retail Partners is an innovative and independent retail management consulting firm dedicated to providing superior service and enduring value to our clients. Boston Retail Partners combines its consultants' deep retail business knowledge and cross-functional capabilities to deliver superior design and implementation of strategy, technology, and process solutions. The firm's unique combination of industry focus, knowledge-based approach, and rapid, end-to-end solution deployment helps clients to achieve their business potential. Headquartered in Boston, Boston Retail Partners serves all retail segments and channels.

2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

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ABOUT OUR SPONSOR - EPICOR

Epicor provides advanced solutions for retailers seeking to streamline processes, integrate channels, leverage intelligence and inspire customers, to maximize profitability. The Epicor Retail end-to-end suite includes Store / Mobile Store, Enterprise Selling, CRM / Clienteling, Audit and Operations Management, Loss Prevention, Business Intelligence, Planning / Assortment Planning, Merchandising, and Sourcing and PLM. These solutions are designed to meet the evolving merchandise and service expectations of todays connected, cross-channel shoppers, and the business requirements of the most demanding retail environments. Thousands of leading companies trust Epicor to help them remain current, competitive, and consistently strong. Epicor Retail Store is an integrated suite of applications that optimize transactions and customer engagement, in store and across channels, with unrivalled flexibility. This suite includes: POS, a feature-rich system that supports all types of transactions, integration to central data, and easy customization Mobile Store, which makes all Store functionality available on tablets and other mobile devices without duplicating platforms or introducing additional technology stacks Enterprise Store Central for direct access to near-real-time data, highly efficient analysis and communications, and central systems monitoring Promotional Events Manager to create, manage and execute item- and transaction-based promotions In-Store CRM to capture customer information and optimize engagement and sales Multi-Channel Transaction Adapter, which extends POS functions to a wide range of other channels and devices such as ecommerce, call centers, kiosks, digital signage, and consumer mobile applications Back office applications with centralized access to key management functions and reports Secure Data Management to consolidate and rigorously secure payment cardholder data, allowing PCI compliance to be supported efficiently through a single product Epicor has its headquarters in Dublin CA and offices worldwide. For more information, please contact Epicor at 800.992.9160, retailinfo@epicor.com, or Epicor.com/retail.

2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

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ABOUT OUR SPONSOR - MICROS-RETAIL

About MICROS-Retail
MICROS-Retail, a division of MICROS Systems, Inc. (NASDAQ: MCRS), is a leading global provider of technology and services for the specialty and general merchandise retail industry. Software solutions include point of sale, eCommerce, mobile point of sale, loyalty and CRM, loss prevention and analytics, order management, inventory management, and merchandise and supplier management. Services include creative and user experience design, business consulting, hosting, and managed services. Hundreds of retailers around the worldincluding bebe, Cabelas, Charming Shoppes, Chicos, Godiva Chocolatier, Gucci, Guess, IKEA, The Limited, Payless ShoeSource, Polo Ralph Lauren, Staples, Starbucks Coffee, Vera Bradley, and Whirlpoolrely on MICROS-Retail to strengthen their businesses and deliver results across all retail touch points: store, web, direct and mobile. Headquartered in the Boston, MA area, MICROS-Retail has offices and affiliates across the globe. To learn more, please visit www.micros-retail.com.

2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.

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ABOUT OUR SPONSORS - RETALIX

Retalix is a leading global provider of innovative, integrated software solutions and services for high volume, high complexity Fast Moving Consumer Goods retailers and distributors including supermarkets, grocery stores, convenience stores, health and drug stores, and department stores. The companys centrally-managed offerings and services help optimize retail operations, strengthen brand differentiation, enhance shopper experience and build consumer loyalty, while providing the flexibility and scalability to support ongoing business transformation and growth. Retalixs comprehensive offering comprises a broad range of solutions for POS (Point of Sale), sales channel, store, customer and marketing, merchandising, logistics and transportation management, with integrated support for both mobile and e-commerce channels. In addition, the company provides best- in-class capabilities, such as retail operations, customer and supplier relationship management, ERP and business intelligence, distribution operations and master data management all of which are synchronized across multiple business formats. Leveraging a multitude of implementation options, including SaaS (Software as a Service) delivery, Retalix serves a large customer base of approximately 70,000 stores and more than 400,000 checkout lanes across more than 50 nations worldwide with many of its customers ranking among the top retailers in their respective market domains. More information on Retalixs complete suite of software solutions and services is available at www.retalix.com.

2013 Boston Retail Partners. All rights reserved. No part of this document may be reproduced or distributed in any form or by any means without prior written permission of the publisher.