Article

Zoom picks up two high-profile placements

Two recent deals are attracting a lot of attention for Zoom Systems, the company that is bringing the "robotic store" concept to retail.

June 25, 2006 by James Bickers — Editor, Networld Alliance

The writer is also editor of Self-Service World.

In the 15 short months since it installed its first machine, Zoom Systems has turned a lot of heads.

The San Francisco-based company, which was founded in 1998 and spent more than $20 million developing and patenting its automated retail concept, has landed two very high-profile deals that are moving it closer to chief executive Gower Smith's goal of 10,000 machines deployed in five years.

Zoom's "automated stores" are sometimes referred to as vending machines, but the differences far outweigh the similarities. Equipped with a touchscreen interface that offers detailed product information and cross-selling abilities, the robotic devices are primarily used to dispense high-end electronic items like iPods and digital cameras, and their accessories.

The product mix is stocked and maintained by Zoom, which also handles returns and customer service. Retailers are given a percentage of sales in exchange for the use of floor space, which is a negotiated rate. Smith said the first automated store was installed in March 2005, with more than 100 installed since.

Big-name deployments

The Federated Department Stores chain, headquartered in Cincinnati, announced it is adding the machines to 180 of its 800 Macy's stores this fall. Jim Sluzewski, spokesperson for Federated, said that number is likely to grow to "a fair bit more than that."

"It's a major deal for us, and the first channel to scale nationally for us," Smith said.

The Macy's robotic stores will carry the now-typical mix of personal electronics and accessories. Sluzewski said Zoom solved a very specific problem at the right time for the company.

"Electronics is a category that we've gotten away from over the years, and it's a category that customers tell us they'd like to see in our stores," he said. "We saw the Zoom concept and it really did strike us as a way to provide that to our customer in a way that is easily managed."

Sluzewski said purchasing personal electronics from a department store is typically a "deterring process" that involves finding a salesperson to unlock the cabinet (and, in many cases, "walk the product" to the checkout with the customer). Locked-down products also make it difficult for customers to peruse product info at their leisure, a problem solved by Zoom's on-screen library of specifications and capabilities for each item.

While the initial product mix for Macy's will lean on iPods and accessories, Sluzewski said the company isn't ruling out the possibility of selling other product types through the Zoom machines. "We'll have to feel our way through it as we go along," he said.

Another company experimenting with the system is Sony, which recently announced three Zoom placements in shopping malls in Atlanta, Boulder, Colo. and Santa Rosa, Calif.

"I think it's a great idea, and I give Sony a lot of credit for having first-mover advantage over the competition," said industry analyst Francie Mendelsohn, president of Summit Research Associates. "I will be very interested to see how the pilot goes. Sony will not consider the project a success if sales are cannibalized from other sources; they want new, incremental sales."

Expert opinion

Technology and logistics aside, are customers ready to buy a $200 product in the same way they buy a $2 one? Much has been made of the heartaches normally associated with candy-and-soda vending machines - lost money, incorrect products dispensed, vandalism - and the idea that all of those problems become incrementally worse when the product jumps from a few dollars to a few hundred dollars.

Mendelsohn said the company has gone to great lengths to resolve potential problems, like incorrect products or goods not delivered at all. Each machine bears a 24/7 toll-free phone number, and the company offers full refunds within 30 days of purchase.

But Mark Flanighan, retail consultant with U.K. firm IBD, sees a bigger problem with the idea.

"Vending machines are primarily a service of convenience, providing products that customers have an immediate need for," he said. "If you are thirsty, you buy a drink. If you are hungry, you will buy a snack. I don't see any relationship (between) high-ticket items and an immediate need."

He also said the "perception is still there" that vending machines will often lose or mishandle the customer's money, and that the continued rise of credit-card theft will make customers unwilling to swipe with a new machine.

Then there is the perhaps larger issue of returns - if someone buys a product at a machine inside a department store, will they be upset to learn that they cannot return it to the store if it is defective?

"I don't see any trust factor," Flanighan said.

But Mendelsohn, a fan of the Zoom stores, pointed out that it wasn't long ago when consumers were wary of buying anything over the Internet, for many of the same reasons - "and we've sure gotten over that!"

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