When In Doubt, Farm It Out

Outsourcing its point-of-sale system proved to be a perfect fit for a midsize apparel retailer.

To listen to Rocky Taylor describe his experience in outsourcing is to imagine a magical world of fairies and elves dancing happily around a retail point-of-sale (POS) terminal. A midsummer nights retail dream.

OK, thats overstating it. But given the sorry state of many vendor-customer outsourcing partnerships, the four-year relationship between Beach Street, a 27-store national chain of outlet stores, and Kliger-Weiss Infosystems (KWI), a Long Island, N.Y., company focused on turnkey POS solutions for specialty retailers, is unusual for its lack of acrimony. "Its a partnership that works," say Taylor, CFO of Beach Street, the exclusive factory-store licensee for the Quiksilver and Roxy lines of boys and girls surfer apparel.

"We get what we need, we pay them a monthly fee, no complicated contracts, no lawyers ... their system is bulletproof, it never goes down. Ive been with other smaller retailers that tried [to manage their own IT], and it was a nightmare."

Before encountering KWI, Beach Street was operating in 19th century mode, using electric registers, totaling everything up manually. Clearly, with its plan to ratchet up its store count (the company then had about 15 outlets), the chain needed a computerized solution to link the register to the back office, aggregate store information, generate timely reports, and perform the myriad other present-day retailing functions. Without a POS system, there was no way to know what items were selling in what stores.

"If mens knit shirts, for example, were selling great in Store A, or Roxy womens wear was strong in Store B, we had no effective means of tracking that, so we would be perpetually low on the hottest stock," says Taylor. He adds the company considered buying a midlevel retail information system like Cam Commerce or Retail Pro for about $100,000 to $150,000 but was put off by the commitment in up-front money and IT staffing. By chance, Beach Street officials stumbled upon KWI at a trade show, and the vendors pitch— youd have to be crazy to do this yourself—resonated powerfully.

"Sure, they could go out and buy a package, but theyd have to maintain it with three or four full-time IT staffers, seven days a week," explains Sam Kliger, president of KWI. "Good IT people want to work in Silicon Valley or Wall Street, not in a small retail environment. Plus, when you buy a software package from one guy and hardware from another, all youve got is finger-pointing when things inevitably go wrong."

One-Stop Shopping The nuts-and-bolts of this outsourcing deal were elemental. Beach Street bought Fujitsus TeamPOS 2000 register platform and bundled industry-standard software from KWI, one of Fujitsus largest VARs. The plug-and-play system handles every register function the modern retailer requires—sales, returns, exchanges, gift certificates, returns to vendors, etc. Then, KWIs Unix-based host system downloads all of those transactions each day, and uploads any information that Beach Street wants added to the system, such as price changes or SKU changes.

The retailer has 24/7 access to its data on the KWI Sun server, simply by running a basic telnet session on its Windows PC. The retailer, in other words, need make no significant investment on the back end.

"Up until a year ago, we were paying $800 a month for a frame-relay line," says Taylor. "KWI connected us up through the Internet, using specialized software on their back end for a secure VPN connection. Now we pay $89 ... this system is built for dummies." In addition to installation, the monthly fee—based on the number of stores—covers help-desk support, system upgrades and daily backup. The retailer funnels requests for service through KWI, which diagnoses the hardware problem on the phone, dispatches the Fujitsu maintenance person and follows up to see that the job is done.

Equally critical to the success of this deal is KWIs ability to generate reports tailored to Beach Streets unique requirements. "Most retailers care if theyre selling 100 blue long-sleeved medium shirts. They need very detailed information," explains Taylor. "But because were a factory outlet that takes whats left over from Quiksilver, we cant reorder that specific item anyway. In our business, we care about selling thousands of mens long-sleeve knit shirts. Thats the lower level of detail we need to see, and our only challenge is to compile our data so it rolls up properly into KWIs system. Sometimes things get a little backed up in their queue, but in general, they are very responsive."

Mix-and-Match Data Perhaps the most attractive element of the outsourcing arrangement, continues Taylor, is KWIs willingness to bring new technologies and best-of-breed security practices to bear on Beach Streets business. Specifically, KWI brought in Cognos enterprise data-mining tool, giving the retailer the ability to manipulate its store data in a visual Windows format, rolling up stores and departments in various ways to produce specialized reports on the fly.

"Perhaps once a year, we may have to view our data in a certain format," says Taylor. "Cognos allows you to do that easily. And its a win for KWI, because it reduces the number of reports they have to write."

Another contribution of KWI was bringing in The Zellman Group, one of its consulting affiliates that specializes in identifying pilferage problems. Zellman takes KWIs data, runs it through proprietary software and pinpoints high levels of "post-voids" (employees voiding sales after the fact). This is indicative of thefts—employees ringing up sales, giving the customer a duplicate receipt and pocketing the original, and then using the original to punch in a phony return and steal the cash.

Once those red flags are identified, the chain can keep a closer watch on suspect employees. If there is further reason for suspicion, Zellman goes in and conducts an in-store investigation. On its very first day on the job last year, Zellman caught a Beach Street sales associate in the act of theft.

KWI executive VP Dan Markowitz says that in its first 12 months at Beach Street, Zellman has returned the retailers investment twice over.

KWI, which claims 60 straight quarters of profitability since achieving a critical mass of customers, does not see its month-to-month arrangement with Beach Street as anything out of the ordinary. "Were the ones on the hook," says Markowitz. "If there is ever a screw-up, they come to us. Its a beautiful business model for the customer."

And thats no fractured fairy tale.