Why more merchants will plug in kiosks.

By Karen Epper Hoffman

The case for sleek new Web terminals for in-store shopping is hard to make if incremental transactions are your only focus. But merchants are interested in that and a lot more, and so it's likely these machines are going to continue turning up on retail sales floors.

It's hard to believe that just a few years ago,/ in the heady, over-hyped days when online commerce was all the rage, some pundits predicted that Web sites would ultimately supplant brick-and-mortar stores.

Since then, retail has settled into a decidedly more real-world, middle ground, one where many merchants trumpet steadily growing sales through their Internet channel, but almost none of them is hurrying to close their traditional stores. Enter the kiosk an emerging element of this more technology-influenced retail reality that is increasingly straddling the line between both channels.

In-store kiosks are nothing new, but as hardware costs sharply decline and consumers' comfort with cyber-shopping increases, more and more merchants are beginning to embrace these machines as a way to bridge the gap for customers who want the best that both online and offline have to offer: a wider breadth of products in a tangible setting.

Though kiosks have long provided customers access to store bridal and baby registries, retailers are now implementing Web-based terminals that can do much more than spit out a list of acceptable gifts. Office-supply stores like Staples Inc. and Office Depot Inc., electronics super-stores like Best Buy Co. Inc., and even mega-retailers like Wal-Mart Stores Inc. are using kiosks to let customers cruise products that might only be accessible online, review product information, order goods, and even pay for them.

"It really is happening? says Francie Mendelsohn, president of Summit Research Associates, a Rockville, Md, consulting firm that has tracked kiosk use for years. The retail space is really booming in terms of the use of kiosks." Indeed, about one-third of specialty retailers responding to a survey late last year by Cleveland-based consultants LakeWest Group had installed kiosks, up from 25% a year earlier.

But since the basic technology behind store-based kiosks has been around for years in fact, Recreational Equipment Inc. (REI), one of the earliest adopters, has been using kiosks for customer Web access in its stores since 1997 why are most retailers only now starting to jump on the bandwagon? Primarily, says Sunita Gupta, executive vice president for store operations at LakeWest Group, because the rest of their own internal systems weren't up to the task,

"Some retailers simply didn't have the infrastructure to support kiosks,' says Gupta, adding that the process of adding these terminals often requires getting the customer relationship-management, transaction, inventory-management, and other key systems working together more smoothly.

Heightened Profile

Also making kiosks a better proposition is that, as retailers move toward multi-channel integration and the cost of kiosk hardware drops, a ready market of willing customers is emerging. About 19% of U.S. shoppers have tried using a kiosk, according to a December 2003 Forrester Research report, and 45% of those shoppers found them "very valuable" That's not bad when you consider kiosks are still far from ubiquitous.

But, given the recent interest from retailers, kiosks are definitely enjoying a heightened profile.

Most recently, The Home Depot Inc. announced in September it would install kiosks in its new 105,000-square-foot Manhattan store to allow customers to peruse project ideas, print instructions, and get a list of materials they can purchase at the store. The home-improvement Goliath arguably represents the new, more varied group of retailers that is embracing the technology.

But many electronics merchants, office-supply stores, and retailers with a strong catalog business have been utilizing kiosks for years. And many are now building out their kiosk access, upgrading and adding new terminals, and stressing how the technology can help customers enjoy the best of online and in-store shopping in one.

Perhaps the most notable, Office Depot is in the midst of a massive upgrade to its fleet of kiosks, which will be a key ingredient in the chain's "new retailing concept," dubbed Millenium2, or M2 for short. The Delray Beach, Fla. retailer has had about eight kiosks per store typically a fixed PC and monitor in all 900 of its stores for more than two years, where customers have been able to browse expanded product lines, look up their allotted points in the company's loyalty program, and make a purchase.

But soon these stationary machines will get a wireless upgrade, including new hardware and a Windows XP operating system, that will make these devices more mobile, allowing store associates to move them where they're needed the most to accommodate special sales, incentives, or seasonal shopping, according to Michael LaBrec, senior manager of technology planning and implementation for Office Depot. "At the holidays, a store may want to move an extra [kiosk] to the copy center for easier access to shipping service," LaBrec says. So far, Office Depot has upgraded kiosks at 30 of its stores.

REI Inc. is one of the pioneers of in-store kiosks. In 1997, the Kent, Wash.-based recreational equipment seller installed its first kiosk in its flagship Seattle store to give its customers access to five times as many products, which they can buy through the kiosk or at the company's Web site. The typical REI store carries about 8,000 stock-keeping units, whereas there are 40,000 products available online. The kiosks also give REI's discerning, outdoorsy customers access to a plethora of helpful product information.

Since 1997, the store has branched out, adding three or four kiosks to every one of its 71 stores nationwide. "REI is probably one of the key companies that everyone looked at to figure out what a kiosk can do," says Gupta of LakeWest.

According to Mike Foley, a spokesman for REI, the kiosks have been a particularly good fit for the chain. The company boasts a very tech-savvy customer base open to online purchasing. Some 97% of REI's customers have a computer at home or work. The kiosks also serve a useful purpose for customers who really do want to touch and feel the goods they're buying-feel the weight of a backpack, sit in a few different types of kayak, look at the quality of a particular tent but also want access to the widest possible choice of products.

Still, for all the machines can do in merchandising, order-taking, and transaction processing, skeptics question whether the kiosks are worth the cost they represent. Gupta of LakeWest says kiosks typically cost between $3,000 and $5,000 a piece. Most retailers are relatively mum on not only what they have spent on the terminals themselves, but also on the back-end systems overhauls and marketing campaigns often necessary to support them. While providing the product information to help consumers make decisions is nice, Gupta says that "for most retailers, the only way to get kiosks in is to justify the cost [through] incremental sales."

The Selling Question

But are consumers actually buying through these kiosks?

According to Mendelsohn of Summit, many customers have limited opportunity to make a purchase since the lion's share of in-store kiosks today-roughly 80%, she estimates-lack transactional capabilities. Also, experts point out, customers' use of the newer multifunctional kiosks can be hampered by sales associates who feel uncomfortable with the technology or who see their jobs threatened by it.

Neither Office Depot nor its rival Staples would comment on the volume of sales they are seeing through their in-store kiosks. Previous press reports cited Mike Ragunas, vice president of technology strategy and architecture at Staples, as saying that in-store kiosks at the chain were ringing up sales of $4 million a week. In a recent interview with Digital Transactions, Ragunas said he could not confirm if Staples kiosks are responsible for that kind of sales volume, or even if they ever were.

Even in the best environments, with tech-friendly customers supported by a secure sales staff who are trained to guide customers to a transaction-enabled kiosk, these terminals aren't anywhere near rivaling traditional point-of-sale and online sales. Foley of REI says that kiosk sales represent less than 5% of the company's online sales;in turn, REI's catalog and Internet sales together account for just 15% of the company's overall sales.

While Foley says that REI is happy with its in-store kiosks, the company has no immediate plans to upgrade or expand their usage. Further, Foley says he understands why many retailers might "look at the numbers and say, 'How many feet do these things take up and what do they generate?"' and dismiss the idea of in-store kiosks.

Indeed, for many stores in the mid-to late '90s, the kiosk was initially intended to get store-shopping consumers comfortable with the idea of buying and browsing online. But, with a majority of U.S. consumers now embracing the Internet, do kiosks still serve a useful role as a bridge between the traditional in-store point of sale and Web transactions?

While retail experts agree kiosks are entering more into retailers' plans, examples abound of retailers who have tried and failed with the machines, as well as those that are still struggling to make kiosks worthwhile for customers to use. "Retailers of all shapes and sizes are putting computer kiosks into their stores,' says Kate Delhagen, an analyst with Forrester Research in her December 2003 report "Making Store Kiosks Work." "But many shoppers remain unaware of kiosks, and many kiosks are ineffective."

Some kiosk stats

$6.5 Billion - Volume of business kiosks are expected to generate by 2006

33% - Number of specialty retailers using kiosks in their stores, up from 25% a year earlier

56% - Number of specialty retailers using kiosks that use them to enable online ordering. Source: The LakeWest Group

In the course of her research, Delhagen and her team visited more than two dozen retailers late last year and reviewed a wide array of kiosks and applications. Some, says her report, "worked flawlessly," while others were hard to find, or didn't work well. Problems ranged from machines that were hidden in low-traffic areas of the store to units that didn't work or were unplugged. Some working units made browsing and buying difficult because they had cluttered interfaces that might have worked well for an online shopper at home, but were not intuitive and straightforward enough for a hurried shopper standing in a store.

Early stumbles have caused some retailers to throw in the towel. Mendelsohn says Ace Hardware, which tested kiosks about five years ago, gave up when its customers chose not to use them. Customers were frustrated with kiosks at Sephora because they couldn't access the beauty store's complete product line, she adds. Best Buy has made numerous efforts to sell products via kiosks, but Mendelsohn says its units "aren't intuitive" for users. Best Buy did not respond to several phone calls for this story.

'Increasingly Vital'

Kmart Corp. was forced to phase out its ambitious kiosk deployment plans because of the company's bankruptcy and eventual reorganization. When announced in early 2001, these plans called for the installation of about 3,500 Web-based kiosks throughout the discount chain's more than 1,100 stores. According to spokesman Stephen Pagnani, Kmart has no kiosks in place now, and no current plans to deploy any.

Nonetheless, proponents believe that despite these early failures, kiosks will continue to become more popular with retailers and consumers. If employed properly, well-maintained and placed prominently with user-friendly interfaces and store staff providing some hand-holding kiosks can provide the access to information and a wider array of goods that will make the experience better and win retailers more business. The LakeWest Group survey report estimates these machines will account for $6.5 billion in sales by 2006.

"Despite their many challenges, kiosks are becoming an increasingly vital part of the retail landscape," Delhagen says in her report. "Retailers want to take advantage of existing networks and declining hardware costs to deploy kiosks that will improve their convenience, service and merchandising value propositions."

It's hard to pin down how many transactions these machines generate that wouldn't have occurred any way at the point of sale. But it's also true, proponents say, that the kiosks can be credited with some percentage of point-of-sale transactions that wouldn't have been made without them. Foley of REI says that, while it's hard to calculate, the kiosks at his stores do generate sales that may not otherwise have been rung up.

Even when purchases are not executed at the kiosk, they may occur at the cash register after customers use the kiosks to compare merchandise that's in the store with the wider selection that's available online, or look up particular information on a product. Items not in stock can be delivered or picked up later at the store.

Ragunas says Staples doesn't even break out the sales that come specifically through the kiosks, but says the company "kiosks as being a great investment" because they not only contribute to sales executed elsewhere, they enable the store to engage the consumer in a more interactive way, and save space in the process. Staples is migrating more of its computer business from pre-configured models that sit out on the store floor to build-to-order models that a customer can piece together at the kiosk.

Thus, the store saves floor space while satisfying customers by providing them exactly what they want, which the company hopes will leads to repeat business. Since the bulk of such interactions are aided by sales associates, the actual purchase of the computer may take place at the kiosk or at the cash register, making it hard to determine just how much kiosks contribute to sales overall.

Ultimately, experts agree that, when a retailer decides to deploy kiosks, the most important step is to first determine what they want to accomplish with them, provide detailed information, make sales in a particular department and also to get the support of the in-store staff.

"The people who are most successful are figuring out what they want to get from [kiosks]," Gupta says, adding that a health-food store might have a terminal that's more oriented toward simply providing medicinal information, while a high-end apparel retailer might gear their kiosks more toward streamlining specialty orders.

More Kiosks Coming

Staples and Office Depot have each of the kiosks in their stores oriented for a different purpose based on its location In the store. Mendelsohn says one of the strengths of Staples approach is that they "really got the buy-in from their staff, getting sales associates to steer interested consumers to the kiosks and walk them through the process. Similarly, REI's salespeople tend to point customers toward the technology since there's no individual sales commissions and they typically have enough special knowledge themselves not to feel threatened by the kiosks.

While it's still difficult to gauge how much in-store kiosks contribute to retail sales, experts predict we'll continue to see them pop up, both in the electronics, media, office-supply, and specialty segments where they've gained a foothold already, and in other retail sectors as well, like high-end apparel. Such advantages as saving floor space, in-store mobility, and automated merchandising will lead to more installations. For stores that already use kiosks, the next step will be making them easier to use and more flexible, through the use of wireless technology and better user interfaces, so that customers will be more apt to shop, and buy, through the terminals.

All of REI's stores are already equipped with wireless capability, primarily used now for inventory management, according to Foley, so he could envision a move toward making his stores' kiosks mobile. But he says there are no such immediate plans on the horizon.

"Retailers really need to think about how they could use the kiosk and use it appropriately," Gupta says. "In general, for retailers who have a large array of products they cannot showcase at a store, kiosks are a good fit."