The AMR Research Alert:

	Fujitsu Redefines the Rules for Retail Technology and Service Management Thursday, July 29, 2004
by Scott Langdoc

Retailers rapidly increase spending on store technology to catch up from years of limited investment and to implement systems that help provide competitive differentiation. Beyond selecting the best hardware and software, retailers should give priority to suppliers that help drive support costs down and service levels up.

The Bottom Line: Fujitsu's willingness to put skin in the game--partnering with retailers to drive cost out of store field service and sharing the financial benefits--redefines the store technology support model for all vendors.

What It Means: The list of store technology providers is wide and varied. However, AMR Research is impressed with Fujitsu Transaction Solutions' recent momentum in the Tier 1 retailer market. The company achieved a remarkable turnaround in the past 24 months after languishing for years with legacy products, limited development, and difficult customer experiences. Increased development, smart acquisitions, and improved sales and marketing execution result in a number of impressive accomplishments, including the following:

• A new approach to store support--Fujitsu is leading an all-out offensive to transform store technology service and support agreements. Rather than traditional fixed cost models exclusive of actual service events, Fujitsu convinced a number of retailers, including Staples and Hannafords, that they share savings if, by mutual effort, they trim overall costs by reducing actual support activity. One major retailer reduced store support costs 60% over previous levels. The Takeaway: Expect the major retail field service organizations to quickly adapt their business models as Fujitsu captures retail field support market share.
• Big wins--Fujitsu has captured significant and highly competitive wins in many different retail segments for enterprise Point-of-Sale (POS) hardware and/or software deployments. Successes include Nordstrom, ChevronTexaco, and Payless Shoe Source. Fujitsu's general merchandise POS software application, GlobalSTORE, captures retailer interest with or without Fujitsu hardware. The combination of Fujitsu and Retalix continues to gain momentum with targeted retailers through their StoreNEXT partnership. The Takeaway: Fujitsu has become a formidable and successful store technology provider for Tier 1 retailers.
• Established customer marketing footprint--Fujitsu impresses retailers with its Corema solution for managing customer loyalty programs, including the massive Safeway implementation. New partnerships, most notably with Klever Marketing, will introduce more interactive, targeted promotion technology to grocery shoppers. The Takeaway: A major professional services opportunity exists to help retailers transform customer data into targeted offerings, generating Return on Investment (ROI) from massive loyalty technology investments.
• An immediate major self-service player--The takeover of the U-Scan self-checkout technology from Optimal put Fujitsu into a highly competitive three-horse race with NCR and IBM. We believe that Fujitsu has spent a majority of the time maintaining incumbent U-Scan customers frustrated by stagnant development. But future component cost reductions and usability improvements will shift the focus to new customer acquisition. The Takeaway: Fujitsu needs to prioritize product development, expand retail segment opportunities, and improve sales and marketing execution to compete with the self-checkout leaders.

While Fujitsu has certainly turned a number of retailer heads, it is far from a cake walk to continue to see future success. Tremendous challenges continue, including:

• Intense competition--All the major POS technology players have had some recent big wins. NCR won Target for POS hardware and its FastLANE self-checkout products dominate with market-leading usability and flexible integration. Also, NCR's impressive StoreAssess consultancy arm helps retailers improve store-level operational processes. IBM is leveraging its massive number of legacy POS implementations to win new business, most notably at Sears. Wincor has built a passionate following for its BEETLE POS technology, and its competitive win at OfficeMax was significant. We are also impressed by its focus on tactically replacing older IBM POS terminals through support for the 4690 operating system. We also hear that one of the PC commodity players entering Tier 1 Retail may have won a really big reverse auction. The Takeaway: The real vendor winners will be the companies that revolutionize and package all offerings of hardware, software, service, and support.
• Reverse auctions--POS players kick and scream as retailers drag them into more reverse auctions for hardware and software. Unfortunately, these auctions often simply seek the lowest product cost. The Takeaway: Retailers should also focus on the total cost of ownership and the vendor's ability to provide the full solution necessary for their store technology replatforming.
• Store support strategies--Each of the major POS players maintains huge field support organizations that are equally capable of providing approaches similar to Fujitsu's. Even so, many major retailers provide internal field support, stunting the growth of new support models. The Takeaway: In additional to potential risk and benefit sharing, retailers must make service-level expectations granularly clear, and constantly measure metrics like technician training and time to repair.

Conclusion: The store technology changes give retailers the capability to drive new levels of customer service. Driving support costs lower for all existing and new store infrastructure requires new service and support agreements thinking. While Fujitsu's bold moves to transform retail service management are hitting on all cylinders, the accelerating competitive response ensures that multiple choices will exist for retailers willing to take the plunge in new service vendor partnerships.