ROI Case Study: Woolworths & Episys

THE COMPANY

Woolworths Group plc is one of the United Kingdom’s leading retailers focused on the home, family, and entertainment markets with leading market positions in toys, children’s wear (Ladybird), homegoods, entertainment, and confectionery. The company comprises Woolworths Mainchain stores, Woolworths big W, VCI, MVC,Streetsonline, and EUK.Woolworths stores offer customers great value-for-money products, and the company is focused on being famous for kids’ products and celebrations. The store portfolio includes 824 retail outlets.EUK is Britain’s largest wholesale distributor of home entertainment products, and VCI is an audiovisual publishing group.

MVC is a specialist high street retailer of entertainment products. StreetsOnline, one of the United Kingdom’s leading specialist online retailers, was acquired in December 2000 to complement the MVC high street store chain.

THE CHALLENGE

As a leading retailer, Woolworths has as a chief priority to continue providing a high level of service to customers, across every store and during all times of the year. Operating in the retail industry,Woolworths is subject to seasonal spikes in demand during such peak shopping periods as Christmas and Easter. In order to provide consistent and competitive service, Woolworths needed toimprove on the following aspects of its operations:• Reduction of queues.

Woolworths stores relied primarily on traditional “tills,” or cash registers, to process purchases. Market data indicated that customers strongly disliked waiting in long lines at the cash register, and Woolworths believed that it was potentially losing sales because of the wait associated with the existing system.• Real-time visibility into stock. Under its existing system, each time a customer inquired about the availability of a product at a Woolworths store, a store employee had to go into the stock room and search for the individual item — which was a long process that consumed labour and sometimes resulted in the loss of a potential sale. Store employees needed a way to access updated stock data regardless of their location within the store.

THE BOTTOM LINE

Implementing an Episys solution to support mobile point-of-sales transactions has allowed Woolworths to provide a consistently high level of service at its stores at all times of the year.

Woolworths has enjoyed profits on additional revenue and an improved corporate image.ROI: 94%Payback: 1.59 years• Corporate image. Another key strategic priority for Woolworths was assuring market analysts that customer satisfaction was its leading priority. Woolworths needed to find a way to enable faster, better customer service without adding more cash registers.

The company concluded that installing a system for mobile point-of-sales transactions would help achieve this goal by enabling store employees to:• Reduce or eliminate long queues by checking out customers at any location on the store floor, using handheld terminals• Access information about item availability without having to physically search for the item in the stock room• Manage store stock through better visibility into the demand and supply for various items

THE STRATEGY

Woolworths began searching for a mobile point-of-sales system in early 2002 and considered a number of alternatives. One option was to install a system that provided each shopper with a barcode to use at the register to check out items, a method some other UK retailers were using. The other, more attractive path, was to find a solution that enabled store employees to process sales with handheld terminals supported by software designed for mobile transactions that was fully integrated with the company’s existing core EPOS solution.In March 2002, Woolworths decided to purchase a mobile solution from Episys for the following key reasons:• Episys had experience with mobile retail initiatives and would be well prepared to partner with Woolworths to design a suitable system.

• Woolworths had a positive history with Episys; it had been successfully using the vendor’s solutions for point-of-sales signage and ticketing.• Episys’s mobile solution would automatically integrate with the existing infrastructure at Woolworths.In April 2002, Woolworths kicked off the project and began the process of designing the system, followed by the deployment phase starting in August. The implementation team consisted of twodedicated Woolworths employees and some support staff from Episys. By September, the first few stores were starting to go live on the new system, and by the end of the year, approximately 138stores were deployed. The team continued its implementation efforts throughout the year, deploying close to 320 stores by the end of 2003.

Woolworths expects to complete deployment at all 824 Woolworths stores by the end of 2004.

KEY BENEFIT AREAS

For Woolworths, the chief benefit of using Episys’s mobile solution has been the ability to cut down queues and reduce customer waiting times by being able to process purchases at any point within a store.

BENEFITS

Direct100%Indirect0%3-YEAR TOTAL: ?3.95MAs a result of the ability to more efficiently serve customers during both peak and regular shopping periods, Woolworths has enjoyed the following key returns:• Increased profits from additional revenue. Woolworths has reported an increase in store revenues following the implementation of the mobile Episys solution in 2003 and the success of its “line-busting” efforts.

Woolworths expects continued increases in sales in years two and three because ofits ability to service higher shopping volumes and acquire customers.• Improved corporate image. The mobile initiative at Woolworths, based on Episys, was received well by the investor community. It demonstrated that Woolworths was a retailer fully ready tocope with surges in customer demand and effectively add to shareholder value.There are two key areas of benefit that Woolworths expects to achieve in the future:• Opportunities for optimizing store space.

Space is often a constraint for retailers such as Woolworths. With a mobile infrastructure, Woolworths now has the opportunity to replacemore registers with a mobile handheld system and use the additional space for stocking and selling more goods.• “Chip and Pin” compliance. Woolworths is actively considering extending the existing Episys infrastructure to become compliant with specifications for the Chip and PIN standard, defined by theUK government and industry retail groups to reduce credit and debit card fraud.

KEY COST AREAS

Key costs included software, hardware, personnel, and training. Software made up the largest cost category, accounting for 71 percent of total project costs.

Hardware needed to support the mobile solution, consisting primarily of printers at each store location, accounted for nearly a quarter of the total expense. Personnel time devoted by internal Woolworths staff for both implementing and supporting the system was 3 percent of the total cost. This is not surprising, given than Woolworths relied primarily on its own internal staff for this project and did not engage any third-party consultants. The costs of training, including both trainer and employee time as well as training materials, made up 2 percent of the company’s total investment in the mobile Episys solution.

LESSONS LEARNED

Woolworths found that ensuring the scalability and robustness of hardware supporting an intensive, time-critical mobile point-of sales transaction system is very important. The hardware that Woolworths had been using for the initial Episys solution was sufficient for supporting functions like mobile stock checking and price inquiry.

However, the company encountered a temporary lackof hardware scalability when it tried to transition the same hardware to support software for mobile point-of-sales transactions.

COSTS

Software71%Hardware24%Personnel3%Training2%3-YEAR TOTAL: ?1.09MTherefore, Woolworths would advise companies installing a similar solution for mobile point-of-sales purposes to conduct their due diligence when examining hardware requirements and thoroughlytest hardware under full production loads rather than engineering test levels.Woolworths also stressed the importance of training and promotion efforts to ensure full adoption of the system by store employees. While a mobile solution is clearly more efficient than registers, store employees may be slow in giving up a previous system without sufficient education efforts to promote the benefits of the new system. The company has found that its targeted training effortswere key to successful deployment and adoption of the system.

CALCULATING THE ROI

Nucleus quantified the costs of software, hardware, personnel, and training over a 3-year period to quantify the total investment by Woolworths in the Episys mobile solution. The ROI analysis hasbeen adjusted to reflect the company’s practice of capitalizing the personnel costs for technology projects and its applicable government tax rate of 30 percent as a UK corporation.Direct benefits calculated included increased profits on additional revenue. Nucleus Research has estimated that 10 percent of the incremental sales coming in through mobile tills can be attributed to the Episys solution. Benefits not quantified include the positive impact on corporate image and shareholder value and the achievable savings from optimized use of store space — an area ofbenefit that Woolworths plans to leverage but has not yet implemented.

The payback for this deployment is projected at approximately 1.6 years, reflecting the phased nature of the project: Woolworths had implemented 320 stores by the end of 2003 and plans to implement the remaining stores by the end of 2004. This payback would have been shorter had Woolworths chosen to implement all 820 stores simultaneously in 2003 because it would have started enjoying increased sales at an earlier point, hence offsetting the initial deployment costs sooner. Therefore, companies planning a similar project should take the implementation schedule into consideration when estimating a payback period for their investment.