Attention Kmart shoppers, your credit card data might not be safe. Last week, the discount retailer's IT department identified a breach of its point-of-sale, or PoS, computer system that exposed customers' credit card information. This is the third data breach at a large U.S. retailer within the last year. Target and Home Depot also saw their systems compromised by malware installed on their PoS systems.
Now, Kmart is attempting to clean up its mess, providing shoppers with free credit monitoring. It's also likely to lead to a loss of sales, just as it did for Target in the fourth quarter last year. After the large number of PoS system attacks (Neiman Marcus, SuperValu, and Albertsons have also been attacked this year), many retailers might be considering upgrading their old Microsoft (NASDAQ:MSFT) Windows-based hardware.
Disrupting point of sale
Retailers have been quite slow to switch to new hardware despite the security issues involved with running old software. The biggest reason is cost. PoS systems cost thousands of dollars. When each location has 10 to 20 registers, and a retailer has thousands of locations, the cost of those machines adds up.
The question for retailers is whether saving money now is worth the risk and potential costs in the future. With each new attack and every new step in PoS software, retailers are swaying more toward spending now and saving later.
But a hardware upgrade cycle is a huge risk for Microsoft. Twenty years ago, Microsoft had a stranglehold on PoS system makers. Microsoft used incentives to make it near-impossible for a hardware maker to compete without Windows installed, and it still absolutely dominates the market.
This could change as retailers are looking at solutions that use tablet computers like Apple's (NASDAQ:AAPL) iPad or Amazon's (NASDAQ:AMZN) Kindle Fire for their PoS systems. Add a credit card reader, cash drawer, a UPC scanner, a receipt printer, and subscribe to some cloud-based software like Leaf and the system is complete. A retailer can purchase all of that for less than $1,000.
Comparatively, legacy hardware systems cost around $3,000 to get started. Microsoft alone charges $1,290 per license for its Retail Management Solution software. That's on top of a Windows license, but that usually comes bundled with the hardware. Multi-station solutions with more sophisticated functionality can run upwards of $20,000.
Amazon recently released Amazon Local Register, which offers a low-fee credit card reader that it will bundle with a Kindle Fire (it also works with Apple devices). The online retailer is also offering everything else needed to set up a PoS system in a brick-and-mortar store, including built-in PoS and analytics software. Meanwhile, Apple is expected to release a large-screen iPad this week, which could be optimal for a mobile PoS system.
More than just cost
Using mobile PoS systems is more than just cost effective, it can effectively increase sales as wells.
A simple advantage of using a tablet as a PoS terminal is that it takes up less counter space. That provides room to display more impulse purchase products at the checkout counter. Another advantage is that it allows a store to give employees a smartphone, iPod, or tablet to check out customers in the middle of the store -- which could lead to an increase in sales due to increased throughput and more impulsive purchases.
Apple iPads and iPhones are equipped with iBeacon technology, which could be used in multiple ways. Retailers can use beacons to push shoppers promotions or additional product information on their iPhones. They could also be used to signal that a customer needs attention (if there's a fleet of smart-device-equipped employees), which will make customer interactions more efficient.
Additionally, software and hardware upgrades are easier and less expensive with tablets. We've seen how quickly the newest iOS is installed on iDevices. That's because installation is ridiculously easy and free. That means vulnerabilities are quickly closed, which helps prevent malware attacks. If a retailer wants to upgrade to an NFC reader -- assuming NFC isn't built into the tablet -- or a chip-and-pin credit card reader, it will be less expensive to buy a tablet add-on than a stand-alone terminal.
Spend now, profit later
Retailers are going to have to upgrade their systems sooner or later. Whether they overhaul the whole thing at once, or do it piece by piece, each upgrade carries significant risk for Microsoft losing business. As more businesses move away from Windows-based PoS systems to mobile-based systems, tablet makers -- particularly Apple with its iBeacon and Apple Pay technology -- stand to gain.
After all of the data breaches, retailers could be more inclined to make the switch. The cost of switching has never been lower, and many retailers can't afford a security breach.
Many retailers already have some sort of mobile commerce presence in their stores (beacons, mobile checkout). It seems like only a matter of time before tablets replace most of the computers at the checkout counter.
Adam Levy owns shares of Amazon.com and Apple. The Motley Fool recommends Amazon.com, Apple, and Home Depot. The Motley Fool owns shares of Amazon.com, Apple, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.