Until the 1970s, retailers had been processing transactions the same way for decades. For the most part, point-of-sale (POS) cash registers manually recorded transactions through a progression of clacking keys, bell tones and un-itemized receipts. Even the most sophisticated enterprises, which had mainframe systems in the backroom, used “dumb terminals” with no independent processing capability.
That dynamic changed dramatically when IBM rolled out a raft of POS systems with computing capabilities and networked power. During the ensuing decades, such machines would enhance workforce efficiency, improve oversight of cash flow, refine customer service and overhaul inventory management. Eventually, IBM’s solutions in the retail sector would lead to even more powerful applications built on AI and the cloud.
IBM’s original POS system stemmed from the frustrations of supermarket industry executives in the 1960s who needed a standard coding system to cover grocery items and health and beauty aids, which were becoming an important part of the product mix. They adopted a 10-digit code — five digits corresponding to the manufacturer and five to the product — and called on IBM and manufacturers to develop a symbol to convey it on product labels and packaging. The consortium embraced a Univeral Product Code (UPC) symbol, which could be read quickly and accurately by scanners.
The UPC became a key tool in IBM’s 3660 Supermarket System. Introduced in 1973, it allowed cashiers to slide items over a plastic window embedded in the counter. A laser identified the code on the label and a small controller cross-checked it in the memory to log a product description and determine the price. Customers confirmed the accuracy on a lighted panel, and the information would simultaneously be printed on sales slips. For retailers, the innovation lowered manual labor costs, reduced errors and sped up the checkout process. IBM had been envisioning such systems for the better part of a decade. “But,” recalled Marvin L. Mann, a manager for advanced systems development at the time, “it was not until our latest technologies were being developed for terminals that the economics of a supermarket system became feasible.”
IBM made pioneering installations of the 3660 at a New Jersey Pathmark and a Steinberg’s supermarket in Quebec. Within a year, the company was launching the system in other sectors. It installed the first retail system, the IBM 3650, at a Dillard’s department store in Little Rock, Arkansas; a J.C. Penney in North Carolina; and a B. Altman’s in New York. Other retailers quickly followed.
When linked to a System/370 mainframe, the 3660 allowed store managers to instantly monitor sales flow and make better-informed decisions about restocking. The system logged sales data for every product with a UPC and automatically reordered when necessary. It streamlined daily audits by showing managers at the close of business how much cash should be at each terminal. Moreover, it spawned today’s sophisticated systems of customer management.
The ability to correlate customer traffic and sales data allowed supermarkets to build up a history of the shopping habits of their customers. “The computer can be used to plan for different traffic patterns at different hours and in different time periods,” said Mann, “permitting stores to allocate their manpower.”
IBM introduced systems with a broad set of functionalities to serve an array of retail clients. The 3680 Programmable Store System was geared toward the experienced data processing user with multiple small stores, yet was intuitive enough to be operated by retail clerks. The 5260 Retail System was designed for first-timers, usually retailers with fewer stores. Both systems recorded sales, computed tax, validated credit cards and checks, and issued bespoke receipts for an array of clients, from drug and hardware stores to apparel shops and department stores. Both systems also provided more timely POS data that boosted efficiency and profitability.
Subsequent updates featured new types of terminals: A POS control unit included 985,000 characters of random access diskette storage for application programs, transaction logs and reports. An adjunct device offered a full-function, microprocessor-driven POS terminal. Centrally based host system computers could use store data for inventory replenishment (even after hours), gross profit margin analyses, workforce scheduling, automated price management and customized, site-specific merchandising.
The company announced the IBM 3687, a compact checkout scanner that used holography to speed the checkout process. It bent light around objects so the system could identify products without forcing clerks to precisely position a code. The company also announced five new models of its 3660 systems, featuring IBM’s densest memory to date, a new silicon chip that could store 72,000 bits of information. Each chip could store up to 390 supermarket records for instant retrieval.
As the decade progressed, POS systems made inroads into fast food and elsewhere, enabling customers to quickly order through automated kiosks and restaurants to easily manage reports and receipts for the first time. Touch screen technology and color monitors became more affordable, and networking technologies allowed machines to communicate with each other. In the 1990s, IBM strengthened its hold on the POS sector, achieving a 70% share or greater in grocery, drug stores, mass merchants, supercenters and warehouse club segments in North America.
Over the ensuing decades, retailers increasingly sought open-source solutions for convenience and cost savings. In 2004, IBM responded with the IBM Retail Environment for SUSE, intended for both retail and enterprise applications and built entirely on Java. It provided retailers with multiple options and configurations, including Linux, an open-source operating system that could be run on relatively inexpensive commodity computers. Other important advances in the 2000s included SurePOS (delivering maximum performance and adaptability for large and midsize retailers), Any Place Kiosk (with a lightweight design allowing for much greater versatility in where the product could be placed) and the Self Service Checkout.
In 2011, IBM’s Smarter Checkout provided shoppers with a more interactive experience. They could purchase lottery and theater tickets, use mobile devices to process orders, redeem digital coupons, access loyalty points and pay for orders at a self-service station. The system was built to help retailers maximize returns at checkout and to leave an enduring impression on shoppers. “Smarter Checkout connects the store to shoppers by simplifying the delivery of end-to-end channel offerings, and providing a seamless shopping experience,” said Steve Ladwig, general manager of IBM Retail Store Solutions, “all while keeping costs down and managing risks.”
In the same year, IBM launched its Smarter Commerce initiative, bolstered by the acquisitions of Sterling Commerce, Unica and Coremetrics, to expand into healthcare, telecommunications, consumer packaged goods, financial services, hospitality and transportation.
IBM sold its Retail Store POS Solutions Business to Toshiba TEC in 2012, but it maintains a robust POS business that entails developing new technologies. The company also has more than a thousand global consultants helping clients reimagine their business models and anticipate the future of commerce.
As the 21st century progresses, cash continues to fall out of favor. Contactless transactions and e-commerce are on the rise. Clients are adopting Agile methodologies to streamline operations and supply chains. And a spate of IBM technologies, including hybrid cloud, IoT and AI are all helping to reduce the friction from commerce while creating safer, more efficient workplaces.
Increasingly, consumers expect the conveniences of online shopping — quick access to product information and easy checkouts — in physical retail settings. To meet these expectations, IBM is helping retailers shift their selling floor strategies, focusing less on transaction volume and more on providing an informative and convenient path to purchase.
During the past half-century, IBM’s POS solutions have drastically improved the shopping experience for consumers worldwide. Along the way, they have helped clients slash costs, improve oversight and reduce risk — all while ushering in a 21st century of increasingly smart commerce.
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