Creative Disruption: The Changing Landscape of Technology

Technology in Retail

The steady interjection of technology into the retail process has helped to move the United States from a nation of small, main street stores into a shopping morass of big-box stores and online department stores. This shift has provided cost savings to consumers and given rise to scientific supply chain management, resulting in greater efficiency and improved customer service. On the other hand, it has also led to lower salaries and reduced employment in many parts of the retail sector. As in all areas involving technology innovation, technology's effects on retail have been a mixed bag of blessings and hardships. Here we'll take a look at this sector's evolution.

A Look Back at Retail Through the Ages

Retail can be defined by the sale of physical goods or merchandise from a fixed location. Based on this broad definition, retailing has gone on since humankind left the hunter-gatherer stage and moved on to agriculture. While historians date this type of activity to approximately 150,000 years ago, modern commerce really did not begin until currency began to be accepted as payment for goods.

As civilizations became more sophisticated, trade became more important, and trade routes, such as the Silk Road, the Incense Road and the Amber Road, sprung up, linking far-flung parts of the world for the exchange of goods - in essence, the first "global economy."

It was the desire for expanding markets and the search for shorter trade routes that led to the Age of Exploration and the discovery of the New World. As the New World's British colonies became self-sufficient, one of the main bones of contention that led to the American Revolution was England's refusal to allow manufacturing in the colonies; raw goods were sent to England for processing and finished products were returned to America for sale. Clearly, trade and commerce played a major role in the very earliest history of the United States.

After the colonies gained their independence and the migration throughout what is the United States began, demand for dry goods, kitchen goods, tools and other products throughout the country and towns developed around the setting up of stores (and saloons and churches). The establishment of rural and urban America had begun!

More People, More Demands

The expanding demand for goods led businesses to focus on how to maximize both the selling and distribution of goods and, in 1734, the first department store, Bennett’s of Irongate, was founded in the U.K. Department stores came later to the U.S., when the Marble Palace was founded in New York in 1846; This was soon followed by iconic names such as Macy’s, B. Altman's, Lord & Taylor, McCreery's and Abraham & Straus, also in New York, as well as Marshall Field's in Chicago and Wanamaker's in Philadelphia. Soon, these and other stores throughout the United States were in competition for both products and the most efficient and cost-effective method of acquiring and selling them.

Stores selling grocery goods also evolved over the years, when A&P came into being in 1859 to compete with small independents. Starting as a coffee and tea company (The Great Atlantic and Pacific Tea Company), A&P standardized grocery store operation, and grew to become the world’s largest retailer, with 16,000 stores and $1 billion in retail by 1930. As it turned out, this was a landmark year in grocery retailing as the first self-service supermarket, King Kullen, opened in Queens, New York. Established grocery chains, such as A&P and Safeway, first resisted the supermarket concept but most grocers eventually made the transition to compete.

Telegraph: A Step Toward Point-of-Sale Systems

By the mid 19th century, technology had begun to make an impact in the process with the development of the telegraph in 1836 and the cash register in 1879. The telegraph allowed stores to communicate with far-off suppliers, while the cash register provided the first step toward today’s modern point-of-sale systems.

The developer of the first cash register, John Ritty, sold his company to Jacob Eckert, who in turn sold it to John Patterson, who renamed the company National Cash Register (NCR). NCR improved the device by adding a paper roll to record transactions and provide receipts to customers. It was further improved in 1906, when inventor Charles Kettering added an electric motor. NCR was to be the leader in cash register production for many years, even as it expanded into other areas. In fact, its early sales manager, Thomas J. Watson, was to leave the firm to form the IBM Corporation, a company that would become a key player in this area - and in many more technological developments in the future.

Inventory Management Emerges

As technology continued to develop, other retail activities such as inventory management began to be explored. Inventory management is a major problem for any retailer - customers want what they want, and they want to get it at the store of their choice. Retailers, on the other hand, would rather not have unsold items tying up their shelf space. The development of point-of-sale (POS) systems combined the functionality of a cash register with inventory management functions.

In 1973, IBM announced a store management system built around a central computer controlling up to 128 IBM POS registers. The system was first installed in 1974 in Pathmark supermarkets and Dillard's department stores. That same year, an Intel 8008 microprocessor-based system was installed for McDonald’s restaurants by William Brobeck Associates. This system managed all the phases of a fast food order: food preparation, bagging and collection processes.

In today’s POS systems, items are scanned at the cash register and the transaction is captured to both tally the customer’s bill and update the on-hand inventory. The customer may pay cash or use a credit card (which is electronically validated) for payment. The adjusted inventory is then compared to re-order points and, if an order is necessary, it is placed, often electronically over communications facilities, to a warehouse or supplier. This process leads to a just-in-time system for the retailers. Many of the large retailers, such as Home Depot, Wal-Mart and A&P have since taken the process one step further, by place self-checkout stations with scanners, credit card and cash input devices in their stores.

Supply Chain Management Become a Priority

A major concern to retailers in inventory management is not only determining what is needed in the stores, but how to get it to the stores in the fastest, most cost-effective way possible. The leader in this science, which is called supply chain management control, has been Wal-Mart.

Wal-Mart is the largest retailer in the world, and its success stems from many factors, including:

  • A voice and data communications network that links all Wal-Mart facilities to its Bentonville, Ark., headquarters
  • A superior supply chain system that incorporates its own warehouses and its supplier warehouses into one system
  • Constant pressure on suppliers to lower costs
  • A low salary structure throughout the store network
  • Heavy use of foreign-produced products
It is these factors that contribute to Wal-Mart’s ability to offer products at the lowest possible price to consumers, and therefore beat out its competitors.

Outsourcing, Insourcing and Everything In Between

A key part of Wal-Mart's strategy is its use of foreign labor. For younger readers, buying products that were produced overseas has probably been a part of life for as long as they can remember. However, it was technology, high-speed telecommunications and the emergence of the global economy that made using foreign labor possible. Accurate inventory forecasting systems have allowed firms to outsource to distant lands to take advantage of lower labor costs.

The same technology has also led to insourcing, where companies such as UPS have been able to insert themselves seamlessly into corporate supply chains. When a customer orders something online, the order may go directly to the UPS facility in Kentucky, where it is filled and sent off from a warehouse that UPS maintains for the vendor, a system that gets the order to the customer days sooner.

Finally, the advent of online vendors has dramatically changed the retail landscape. Amazon.com, which was founded in 1994 and first appeared online in 1995. It is the world’s largest electronic retailer, with a customer base of around 30 million, but most other major retailers have also developed an online presence, while many other online stores have sprung up. And, year by year, the number of consumers who shop online continues to increase.

Technology's Impact on the Retail Industry

The impact of the changes in retailing is complex. There is no arguing that there is tremendous value to the consumer in the form of lower prices, availability of product and ease of acquisition. On the other hand, more efficiency often means fewer jobs. Automation also means that employees require less training and skill, and may therefore be paid less. Finally, the combination of online stores and big-box stores with low prices has taken a toll on countless small businesses.

And So It Goes

The economic scene sure changes rapidly and in unexpected ways. However, no matter what the future brings, we do know that technology will continue to serve up both ground-breaking innovation and some destructive consequences. The bottom line is that it'll happen whether you like it or not, so stay educated, learn to master new challenges in an ever-evolving economy.

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Written by John F. McMullen
John F. McMullen lives with his wife, Barbara, in Jefferson Valley, New York, in a converted barn full of pets (dog, cats, and turtles) and books. He has been involved in technology for more than 40 years and has written more than 1,500 articles, columns and reviews about it for major publications. He is a professor at Purchase College and has previously taught at Monroe College, Marist College and the New School for Social Research. He is also a member of the American Academy of Poets, the American Civil Liberties Union, the Freelancer's Union, the Association for Computing Machinery, the American Academy for the Advancement of Science and the World Futurist Society.

His current non-technical writing includes a novel, "The Inwood Book" and "New & Collected Poems by johnmac the bard." Both are available on Amazon.com.