China POS Sales Soaring

China's skyrocketing retail growth is the result of-among other things-its one-child rule, perhaps the largest unintended consequence in the history of retail.

As Chinese consumers suddenly start to embrace the retail store, orders for point of sale systems are soaring, according to a new study from IHL Consulting Group.

IHL is projecting that Chinas accelerating 20 percent annual growth rate last year will catapult it this year beyond the POS sales of Germany, which is Europes largest POS market.

Like all statistics, these POS sales numbers look very different depending on context. Historically, Chinas POS sales have been very low despite a huge population. Just like a startup company, when a retail industry such as Chinas does start buying POS units, the initial purchases will likely be massive. After all, a developed retail infrastructure such as Germanys needs only replace aging POS units, not replace every single POS in every establishment. But Chinas need is much more extensive.

/zimages/2/28571.gifTo read about Microsofts push into the POS space, click here.

Also, many of the POS purchases that China is making are very low-end units, raising the question of whether its a fair statement to compare the units with Germanys without factoring in price, said report co-author and IHL President Greg Buzek.

"It should be noted that more than 75 percent of the installed base of POS devices in China are actually PC-on-Cash-Drawer [PCOCD] devices," the report said. "This is much higher than any other country in the world and shows that, although the POS growth opportunities are huge, the traditional POS vendors will need to adapt their strategies to take full advantage in the region."

Although Chinese retailers are more willing than ever to embrace Western retail technology approaches, the IT environment is radically different.

"Fully 92 percent of the POS population used 486 or higher processors at the end of 2004, mainly due to the relatively young age of the modern retail landscape in China," the IHL report said. "There are still 36,000 older POS devices installed. The older technologys hold on the POS market is exacerbated by the food and specialty retailers using DOS terminals and showing little initiative to change."

/zimages/2/28571.gifIBMs China PC deal is giving Big Blue a big help in that country. To read more, click here.

Even though the typical U.S. retailer is technologically behind some of the more sophisticated Japanese and European retailers, Chinas current retail technology "is probably about 70 to 80 years behind" the United States, Buzek said in an interview.

In China, POS systems—and low-end POS systems at that—are only in the larger retail chains. Small chains and single-store retailers rarely use POS, Buzek said.

"One interesting aspect of POS systems in China is the relative lack of scanners, even in new installations," the report said. "Simply, there are not that many products in Chinese retail locations that have barcodes. The retailers therefore rely upon time-honored price tags."

Cash systems dominate, with credit-card units rare, Buzek said.

Next Page: Is Chinas economy growing too quickly?