Throughout 2017, I’ve shared on this blog best practices for resellers and ISVs in the retail IT channel. Essentially it’s been a you’ve-got-questions-I’ve-got-answers approach. But based on some of my recent phone calls and discussions at the ScanSource Global Partner Conference (Nov. 7-9 in Greenville, SC) and the Retail Realm Conference (Nov. 12-14 in Las Vegas), I’ve got a mammoth question to drop on you: Are small POS resellers an endangered species?
I’m not trying to be dramatic or alarmist asking that question. Here’s why the near-term landscape for one- and two-man shops has me and channel executives I talked with during my travels deeply concerned:
- We’ve experienced such a massive amount of change in retail and hospitality technology that even sophisticated medium-sized or larger VARs are struggling to adapt quickly enough. So how will smaller, less advanced resellers keep up? How does a one- or two-man shop that barely has time to keep the equipment room straight invest the necessary hours to transform their linecard?
- The smallest resellers tend to work with the smallest merchants – the independent retailer or restaurant who requires a couple terminals at the most. Square, Clover, PayPal, and others are stealing market share because POS resellers struggle to match the price point and simplicity.
- Perhaps those small resellers can win back some merchants (and make some margin) by offering a suite of IT services and add-on products. But, of course, price will be the #1 objection. And even if the merchant is willing to increase its spend, will the small reseller’s value-add be robust enough to be worth the added expense? There’s no shortage of as-a-Service offerings for POS resellers (I’m keeping a list of recurring revenue offerings which now includes 34 products and services), but how many of those new services can a small reseller add each year? A handful at most. Dealers who haven’t started to add services are already at the back of the pack in a footrace they can’t afford to lose.
- Finally, small dealers don’t have the working capital to quickly revolutionize their business. One reseller I talked with wanted to grow by adding a “really good” salesperson but said he was able to offer only $40,000 a year with no benefits. Another dealer said he could only afford $20k a year. That’s not a sustainable business plan; good salespeople don’t come cheap. I’m not angry with those dealers. If you don’t have the money to reinvest in our business, you don’t have the money.
So if one- and two-man shops can’t keep up with the pace of change … and are losing merchants … and don’t provide enough value to move upstream … and don’t have the capital to redefine their business … where are they three or four years from now?
I posed that question to several channel executives during my travels, and the only glimmer of hope some offered was survival in a niche vertical or an underserved geography. Outside of that, I essentially received shoulder shrugs and references to Darwin’s survival of the fittest. One executive pointedly told me, “They better be able to sell their business in the next five years. Or they better be ready to face reality that they’re going to close their doors.”
Don’t take this column as me waving the white flag for the small POS dealers. But take it as a clarion call that those resellers need to change course. ScanSource conference keynote speaker Phil Hansen, who became a world-renowned artist despite permanent and debilitating nerve damage in his right arm, offered hope for our industry during his talk. “There are solutions to every problem,” he said. “By getting creative you can build a future you shouldn’t have had. By asking new questions like How can I …?, limitations can become the pathway to creativity.”
Here’s what else I picked up at ScanSource and Retail Realm:
- The shift to the as-a-Service/recurring revenue business model is a hot topic no matter where I travel. One vendor at ScanSource told me he sees many resellers roll out as-a-Service to about 20% of their merchants – those who are most open to it – and then they stop pushing that model to the rest of their clients. That same vendor said another common reseller mistake is selling services a la carte. Successful VARs offer bundles, and many of them tell their merchants it’s an all-or-nothing proposition. One VAR said, “We offer two levels of service: awesome and none.”
- ScanSource POS/Barcode President Paul Constantine said mobile computing continues to be a fast-growth market. “We’re only in the second or third inning of this upside cycle,” he said.
- Some solution providers have viewed omnichannnel and unified commerce offerings as something that’s only for Tier 1 retailers. That shouldn’t be the case anymore said Greg Buzek of the IHL Group who spoke at ScanSource. “You’re either at the table of unified commerce ... or you’re on the menu,” he warned the audience of nearly 1,000 at the TD Convention Center.
- Two vendors shared great quotes about adaptation – a not-so-subtle reminder to the channel community – during their ScanSource presentations. Luis Artiz of Epson concluded his talk on mPOS with a slide saying, “Innovation is key. Only those who have the agility to change with the market and innovate quickly will survive.” Juliann Larimer of Zebra said on the main stage, “Being relevant is a choice. We need to wake up every day and choose to be relevant.”
Before I talk about the Retail Realm Conference in Las Vegas, one quick note about Sin City. My hotel was across the street from where the NFL’s Oakland Raiders will play in a few years, and this diehard fan was in my hotel lobby before sunrise to participate in the stadium groundbreaking ceremony later that day. Vegas does more crazy before 8 a.m. than other cities do all day.
- Microsoft’s Balaji Balasubramanian kicked off the Retail Realm event at the Four Seasons sharing four digital disruptions in retail: e-commerce competition, omnichannel personalized experiences, new distributor channels going direct to consumer, and platform technologies such as cloud, mobile, social, and analytics. “All of us in this room have gone through some disruption,” Balasubramanian said. “In the last 5-10 years, everything has moved to the cloud or is in the process of moving there – going as-a-Service.”
- Perhaps my favorite Retail Realm PowerPoint slide included this content that I think is instructive for POS solutions providers: “Help your merchants answer these three questions related to omnichannel – Who are my most important customers? How should I personalize this experience? What inventory will I need next month?”
- I was honored to conduct a Critical Thinking Workshop and moderate two payment-focused panels at Retail Realm. I couldn’t take notes during the panels, but I can share with you two overarching thoughts that tie together: payments are only increasing in complexity (security and mobility and blockchain, oh my!), so lean on your payments providers for ongoing guidance.