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- As seen in June, 1998 issue of...
"HOW TO
SELECT P.O.S. SOFTWARE THAT'S RIGHT FOR YOU" |
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_________________
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Hardware and software
represents between
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25-40% of your total
investment in a P.O.S. system.
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_________________
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Gift
retailers have a large turnover of small items, usually with low
margins. Hence, the cost of a computer system is important. But
don't look at out-of-pocket expenses only. Rather you should
look at what the system can do to increase business, reduce or
avoid costs, and the estimated payback period (which should be
less than two years). The most significant cost savings will be
in increased inventory turns, reduced shrinkage and reduced
markdowns (see cost savings chart below).
WHAT DO YOU LOOK FOR?
Look for a
specialized software package that will satisfy
your
needs
(see Software Checklist) and one that is easy to use. The cost of
hardware and software represents between 25-40% of your total
investment in a system. The balance is the cost of training,
supplies, outside help, and other such costs. Try to minimize
these costs and look for a system that will guide your sales
associates through the checkout process in an expedient manner
(avoid lines). What do you do if something fails, i.e., the bar
code scanner doesn't work, the cash drawer won't open, the
credit card authorization doesn't dial out? |
Since
inventory is your biggest investment, you need to know on a daily
basis which products are selling and which are not, so you can take
action fast. How does sales compare to last year at this time? Which
salesperson is performing best? But, more importantly, which customers
bought what. Proper sales tracking will allow you to negotiate better
pricing from suppliers, increase sales to customers by stocking
properly, increase inventory turns, reduce costs and increase margins.
OTHER
FEATURES:
The items in the
Software Checklist covers most requirements of a retailer. However,
there are some that require special attention:
Bar code printing.
In the gift business, bar coding is not
yet as prevalent as in other industries. If you plan to scan your
merchandise at the register, you need to be able to print bar code
labels, which means specialized software that integrates with your
inventory file and special bar code printers.
Purchase order
processing. If you run low on
merchandise, can the system order automatically? When merchandise is
received, will it match with the purchase order, and when the invoice
is received, does it agree with the price on you order? All part of
internal controls.
Advertising
Tracking.
This is a feature that most systems don't offer,
yet is one that can be most beneficial. You probably spend a lot of
money on advertising, so you should know which ads are pulling and how
effective is the ad. A simple way to handle ad tracking even if your
system doesn't is to assign an inventory item to the ad (no cost or
sales price). Then when customers redeem coupons, post a "sale" to
that item.
Accounting.
Some systems have their own
accounting interface where sales, purchases and adjustments are
automatically transferred to an accounting module. Others link to
standard off-the-shelf packages. Ask your accountant for help in this
area. Remember, your accounting system does not generate revenue or
profit for you, but your Point of Sale system will.
Sandra
Devereux-Croutch, a Chartered
Accountant and former gift retailer from Toronto recommends to her
clients: "Before you shop for a system, spend some time documenting
your requirements while you are working. Keep a notepad handy, and
make a note every time you need info that's not readily available,
every time something takes more time than it should, every time you or
one of your staff has a problem with your current process and every
time you wish you could do something that you can't now."
HOW MUCH CAN
YOU AFFORD?
Let's assume your
annual sales are $1 million and you are turning inventory 3 times a
year, and your markdowns are 19% and shrinkage of 3.5% of sales. If
you can turn inventory once more a year (to four), obtain a modest 1%
improvement in markdowns and ½ % decrease in shrinkage, and you want a
2 year payout, you can afford to spend $66,666 (see
cost savings chart below).
WHERE DO
YOU LOOK?
Talk to fellow gift retailers
and see what they use, and if it satisfies your needs. Don't assume
that it will, because you are in the same business. They may manage
their business differently.
Or contact your associations to
see if they have analyzed any products and would make recommendations.
If you have access to the Internet, search for software or join a
discussion list like E-Tailer's Digest (2),
where retailer's from 40 countries meet to discuss matters pertinent
to retailing, including software.
But, you need to evaluate
software on an equal basis. Take the Software Checklist, add to it the list that you developed and
start reviewing. There are hundreds of systems available, all with
different features. You need to find the one that satisfies
your
needs.
Good retailing.
{Software Checklist}
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Projected
Cost Savings With New Computer System
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1st Year |
5 Year |
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Now |
Desired |
Savings |
Savings |
| Annual sales |
$1,000,000 |
$1,000,000 |
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| Calculated inventory |
$ 333,333 |
$ 250,000 |
$(83,333) |
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| Inventory carrying costs |
10.0% |
10.0% |
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Inventory turns |
3.0 |
4.0 |
8,333 |
41,667 |
| Markdown % |
19.0 |
18.0 |
10,000 |
50,000 |
| Shrinkage % |
3.5 |
3.0 |
5,000 |
25,000 |
| Gross margins |
23.0 |
24.0 |
10,000 |
50,000 |
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Five Year Cost Analysis |
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$33,333 |
$166,667 |
Analysis: Assume you are doing
$1 million in annual sales and you are turning inventory 3 times a
year; markdowns are 19% and shrinkage is 3.5% of sales. You want a
modest improvement to 4 inventory turns; 18% markdowns; 3% shrinkage.
You would save $33,333 in the first year. If you want to pay off a
system in less than two years, you can purchase a system for up to
$66,666.
{Software
Checklist}
Thanks to:
(1)
Sandra Devereux-Croutch, Partner, Tax-Able Accounting Inc., Toronto,
Ontario scroutch@idirect.com
(2)
E-Tailer's Digest, a moderated Internet discussion list, with members
in 40 countries, that addresses the particular needs of the retailer
-- marketing, merchandising, administration, technology and other such
issues.
http://www.gapent.com/etailer/
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