Making it Happen

Few would argue that IBM is one of the most iconic American businesses and the driving force behind the advent of computers, which have forever changed the way we work and live. But a retail trailblazer?

Indeed. The company, which celebrates its centennial this month, also pioneered technology that has redefined the retail industry, from the UPC barcode system and magnetic stripe technology used on credit cards to the platforms that power retailers’ e-commerce businesses.

Here’s a look at some groundbreaking IBM technologies — and the people behind them — that have reshaped the retail industry, including Watson, the Jeopardy-slaying supercomputer it hopes will usher in the next phase of retail change.

Magnetic Stripe Technology
I t was the late 1960s, and IBM was faced with the challenge of updating the point-of-sale payment business, which was inaccurate, costly and used an old card imprinting technology “that wasn’t reliable and was expensive,” recalls Jerome Svigals, the former IBM project manager who is known as “the father of mag striped cards.”

At that time, when a shopper paid with his credit card, a retail sales person would capture the transaction by imprinting the card’s raised embossed characters against a piece of paper to get an imprint of the consumer’s bank information. The store would then have to call the shopper’s bank to approve the sale transaction.

IBM was under a time pressure to come up with a reliable, machine-readable technology, Svigals says. The airline and banking industries were betting on the company to devise an improved payment method fast: ultra-modern 747s were coming online, and the airline sector was worried about the increased number of passengers who would be flying. Meanwhile, banks were worrying about the rollout of ATMs.

“We decided that the thing to do was magnetics,” Svigals recalls, but IBMers were scratching their heads as to how to get the strip of magnetized tape to adhere to the plastic card.

The “a-ha” moment came when IBM engineer Forrest Parry was sharing this dilemma with his wife, who had been ironing. She suggested that he use the iron to melt on the strip. It worked. Svigals then developed the process by which the magnetic stripe is hot-stamped onto the plastic credit card.

Today, “There are five billion swipes of a magnetic card every day,” says Jill Puleri, IBM vice president and global retail leader. “It absolutely changed the way we handle payment.”

The magnetic stripe card and the magnetic stripe readers at POS were “the catalyst for the use of credit cards at retail,” she says. “It really paved the way for a cashless society.”

The advent of “e-money,” or the “e-wallet,” shorthand for an electronic wallet, is the magnetic stripe card’s natural descendent. Already in use in Japan, e-wallets store credit card information in smartphones. Consumers can use their phone for payment much the same way they use an E-Z pass to whiz through a toll booth, Puleri says.

The UPC Barcode System
G eorge Laurer joined IBM in the summer of 1951 as a junior engineer. Two decades later, he would usher in a technology that would revolutionize the retail industry: The Universal Product Code, which has come to be known as the barcode.

The UPC barcode system was born out of the need to adjust to the changing climate of post-war America. The grocery industry, amid the boom in suburban supermarkets, was looking for ways to automate checkout at stores to increase speed, reduce hiring costs and computerize inventory management.

In 1970, Laurer went to work on scanning labels and developing a digitally readable code. “In 1973, prior to the UPC, stores could only know the dollar amount of merchandise sold and sometimes the department that stocked it,” Laurer says. “It wasn’t until a physical inventory was taken that the store knew what items were sold.”

When the retailing and manufacturing industries adopted the product identification system along with the related deployment of scanners, it allowed for the large-scale collection of consumer data.

With the advent of the barcode, stores knew immediately what items were sold. And this knowledge was power: With it, “They could update their inventory and reorder as necessary,” Laurer says. “Among other things, they could track sales promotions so they could optimize them.”

The UPC code debuted on a package of Wrigley’s Juicy Fruit chewing gum in 1974 at a Marsh’s supermarket in Troy, Ohio. (The gum? It’s now on display at the Smithsonian’s National Museum of American History in Washington, D.C.) Today, the UPC is a universal standard and the most widely used inventory-tracking tool around the world. For retailers, its development resulted in precise inventory control, savings and improved customer service, all while yielding reams of marketing data.