Turning to the Cloud
While 2011 may be half-over, there is still plenty of time to incorporate the right technologies to streamline retail operations by yearend. Chain Store Age spoke with Jay Yanko, managing principal of Verizon Retail & Distribution, about some top technologies for lowering costs and upping efficiencies.
How can a retailer decide which technologies will lower costs, maximize efficiency and create value?
It’s not an easy question. I can tell you that we’re seeing many retailers turning to the cloud. Even with ambiguity around an exact definition, the cloud is a key way for retailers to streamline their IT operations. Previously, the cloud was a symbol on a diagram, a way of representing the communication infrastructure between two systems that were not on the same local network. Today, it is a universal term used to describe billions upon billions of dollars of infrastructure — computers, routers, switches, copper, fiber — operating systems and applications that make up and operate the Internet.
How does the cloud help retailers?
Cloud allows for the centralization of operational systems and aggregation of metrics from disparate business processes. This creates a more efficient and costeffective deployment of systems and people, as physical and logical functions can be pushed up the technology stack. The cloud also allows instrumentation, such as sensors and other business intelligence tools, to gather information about and monitor lower-level operations and then make their outputs more visible to decision-makers. New technologies, centralization and services enabled by cloud allow for new business processes to be conceived, implemented, managed and monitored.
How else does the cloud help centralize the management?
First, the cloud means lower levels of integration with store-level systems because integration is intrinsic in the development and deployment of centralized systems. This reduces the effort required to connect to and gather store-level metrics and aggregate functions and provide better, timelier reporting. Centralized systems delivered as services also lend themselves to op-ex models. That becomes important as many retailers look for ways to shift their balance sheets. And lastly, centralization reduces the complexity of integration for systems and data as it is much easier to integrate a few systems based on services, rather than thousands of distributed systems.
Are there some key functional areas where retailers can take advantage of the cloud to centralize operations?
Absolutely. There are four main areas where retailers can centralize the management of IT operations: point of sale; task and workforce management; digital media management; and customer analytics.
To elaborate on digital media management, it is important to note that central management of content in the cloud minimizes work at the region or in-store. It also creates a consistent brand feel and awareness across stores.
For instance, retailers can tailor media experiences that are customized for the brand, season, time, weather, location and customer demographics. The issue, of course, is that this calls for high bandwidth. High-quality digital media is comprised of large files that need to be distributed to many locations for display. While bandwidth and timing of content delivery are concerns, they can be managed by scheduling delivery at low-network usage times and by only delivering updates and not complete refreshes.
Customer analytics allows for click stream in the real world. It provides the brick-and-mortar equivalent of click-stream data. When combined with click stream and central POS, this offers a complete view of consumers across all channels. Once again, video means high bandwidth, which can be overcome with systems that perform the analysis in the store and only aggregate the analytics information centrally. This increases the store footprint a bit but also provides on-site repository of video that can be repurposed for loss prevention.
Any final thoughts or recommendations for retailers?
All retail technologies out there certainly create challenges for retail IT professionals. The technologies we talked about today help cut through the noise. One thing to note is that all of these solutions are either consumer facing or a way to understand the consumer better, or a combination of both. Because at the end of the day, it’s all about the customer
Information is power, particularly when it comes to energy consumption. Just ask Deneice Marshall, director of retail services for Brookshire Brothers Food & Pharmacy. The Lufkin, Texas-based chain receives a detailed analysis of its energy use each month via meter data reports. The reports summarize energy consumption for both Brookshire’s entire supermarket portfolio and each individual site.
Brookshire receives the monthly, easy-to-interpret reports from Novar, Cleveland, whose sub-meters are installed in the company’s 73 supermarkets.
“You get what you inspect, not what you expect, meaning that energy needs to be monitored,” Marshall said. “Sub-meters are among the most important tools that we use to monitor our energy consumption.”
Marshall said Novar helps Brookshire achieve its energy and maintenance goals, and delivers automation of key information and peace-of-mind regarding meter infrastructure.
The Novar sub-meters, which shadow the utility meters at each location, provide more granular, detailed data by system (such as lighting load, refrigeration load and the like) and record minute-by-minute energy usage. In effect, the meters give the chain a live feed as to what is occurring in each store on a near real-time basis.
“Our monthly utility bills gave us a basic overview,” Marshall explained, “but sometimes the data was more than 60 days old. It was reactive, and we weren’t able to make changes to things that were actually happening. But the sub-meters provide the type of information that supports more precise corrective actions.”
As part of the reporting, Brookshire receives an annual consumption comparison per store, showing how a site is currently performing, and how it stacks up against the previous year.
“Probably the most useful data we get has to do with energy usage per square foot,” Marshall said. “Some of our stores are larger than others. Energy-use-per-square-foot data, as opposed to a store’s total kilowatt hours, levels the playing field.”
Brookshire gets three different rankings of its stores based on the metric of energy use per square foot: One shows which stores consume the most energy while they are open, one shows the same for when the stores are closed, and one looks at the “total” consumption over the full 24 hours.
Brookshire also receives detailed reports from each store location that include graphic depictions of energy use as compared with outside air temperature (from the reporting period compared with a year ago), graphic depiction of monthly consumption from one year to another and a graphic depiction of its daily-load profile.
“Our monthly summary also shows us when demand peaks were high — how high they were — and consumption and intensity information,” Marshall added.
Brookshire uses the data it receives from Novar in numerous ways, such as launching investigations into stores with high energy use.
“The data allows us to easily identify sites operating outside of our corporate standards, outlier sites that need to be brought back into compliance in order to save energy—and money,” Marshall said. “We uncovered such things as corporate standards that weren’t being adhered to, open refrigerator doors and sloppy maintenance on equipment.”
Brookshire has also used the energy information to help justify equipment updating, and to check into the programming of specific equipment that is driving high usage at the stores to find anomalies that were previously unknown.
The information enables Brookshire to stay ahead of the maintenance curve by identifying issues and taking corrective action faster.
“We also use the data to show management how effective actions by the maintenance staff have paid off,” Marshall said.
FUTURE: Brookshire is now looking to extend sub-metering to its 32 convenience stores (Polk Oil). It also is looking into Novar’s next-generation software, whose extended capabilities include automated demand response and correlation of meter, utility and POS data to understand their relationships.
“As in our other projects, we would start off with some test stores,” Marshall said. “We always start with small steps.”
Gift Cards: Opportunity and Issues for Retailers
The growth of gift cards has been nothing less than phenomenal. But while gift cards have come to provide a critical source of earnings, they also face an intensifying regulatory environment, including tax and financial reporting for gift cards, that has become increasingly complex.
Gift cards can be instrumental to improving a retailer’s cash flow and managing inventory. Perhaps the greatest benefit to retailers is that a sizable number of consumer gift card purchases are never redeemed. Estimates of the percentage of gift card balances that remain unredeemed — otherwise known as breakage — range from 10% to 19%.
But as gift card sales continue to surge, financial executives in the retail industry must carefully keep track of ever-changing tax, regulatory and financial reporting that can affect their bottom line. There is an uptick in scrutiny and regulation, especially within the past year. For consumers, there is increased protection under Title IV of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act), which went into effect in early 2010. The CARD Act restricts gift card issuers from charging fees on cards for 12 months and extends card expiration until five years after purchase. In addition, the Federal Reserve Board (FRB) and the IRS have recently issued new rules for companies with gift card programs, providing much-needed guidance.
Key issues for retailers to consider include:
State tax nexus issues for retailers: For gift card issuers to be subject to state taxation, the issuer must have nexus — a physical or economic presence sufficient to establish jurisdiction to tax — in that state. It is important for companies to understand what establishes nexus in the various states in which their gift cards are sold, since each state’s rules differ.
State escheat rules: The increasing popularity of gift cards also makes the management of escheat, or unclaimed property, liabilities an important issue. All U.S. states and the District of Columbia, as well as Puerto Rico, Guam, the U.S. Virgin Islands and certain other foreign jurisdictions, have explicit unclaimed property reporting requirements. Unclaimed property liability is not a tax, but rather a liability under state succession laws relating to property rights.
Breakage and GAAP accounting: Retailers routinely sell gift cards to individuals with the expectation that a certain portion of these cards will never be used, called “breakage,” which mostly results from lost cards. Gift card breakage has certain accounting and state escheat implications, since it affects income recognition. These unredeemed dollars can have a significant influence on many companies’ bottom lines. If the card does not fall under specific state escheat rules, the question arises as to when companies can recognize income from breakage for financial statement purposes under GAAP.
The popularity of gift cards shows no sign of abating and will likely continue to grow as more consumers begin to use gift cards via convenient new mobile applications and to enjoy heightened consumer protections under the CARD Act. The benefits to gift card issuers remain numerous: increased sales, improved inventory management, better cash flow and higher profitability.
While there is also more scrutiny of gift cards from the IRS and the FRB, the new rules mean more clarity for gift card issuers with respect to federal tax accounting rules and the financial accounting treatment of advance payments. Companies have done a significant amount of work in the past to ensure that they are able to recognize gift card breakage income, but they must continue to evaluate and monitor the legislative changes in the various states in which they operate. The last thing retailers want is to have a financial restatement that is due to lack of awareness of changes in state regulations.
Giles Sutton is a state and local tax partner and the national retail tax practice leader for global accounting firm Grant Thornton (Giles.Sutton@us.gt.com); Mark Wuller is an audit partner and the national retail practice leader for the same firm (firstname.lastname@example.org).