‘THE MILLENNIUM BUG’: A GLITCH THAT COULD COST RETAILERS MILLIONS
Byline: Denise Zimmerman
NEW YORK — In what could be a precedent-setting lawsuit triggered by the “millennium bug,” a Michigan retailer is seeking damages from technology providers because his point-of-sale system fails to process data that contains references to the year 2000.
According to the plaintiff, Mark Yarsike, an owner of Produce Palace International in Warren, Mich., all 10 of his cash registers lock and shut down when any check lane attempts to process electronically a customer’s credit card bearing an expiration date in the year 2000 or beyond. As a result, he claims he lost sales.
This case may just be the tip of the iceberg. Legal battles pitting retailers of all types against computer software and hardware firms could proliferate as the year 2000 nears. Though the problems of processing the year 2000 are widespread and complex, the cause is fairly simple: Many computer systems were designed to recognize only the final two digits of a year, with the assumption that the first two digits are “19.” Such systems misread the year 2000 as 1900, resulting in system failures.
The Michigan case has ignited a fire storm of debate among retailers and manufacturers over what parties ultimately are responsible for insuring computer systems can process dates correctly into the next millennium. There are also serious questions about the potential financial impact on companies that must modify their systems.
The initial lawsuit was filed by a grocery retailer, but the implications are far more extensive for product manufacturers and retailers.
The costs to companies to fix this computer snafu are estimated at $300 billion to $600 billion worldwide, according to testimony from the Gartner Group, of Stamford, Conn., an information technology consulting firm, at Congressional hearings. Legal experts have said resulting litigation costs could top $1 trillion.
“This lawsuit is the first of many. It’s going to be really, really bad,” said Don Gilbert, senior vice president of information technology at the National Retail Federation in Washington. “Retailers have a bigger exposure to year 2000 problems than some other industries might.”
Gilbert said the complexity of the problem is compounded for the retail sector in particular because of technology’s pervasive and growing role in the supply chain. While a single company can insure its own internal systems operate properly in the year 2000, its computer systems and data files still can be contaminated, most likely via electronic data interchange, by supply chain partners who have not solved their own date-sensitive computer problems.
The case brought by Produce Palace names Tec America, Atlanta, which developed the POS technology, and All American Cash Register, Inkster, Mich., which sold and services the system.
The plaintiffs allege breach of warranty and breach of contract and seek $150,000 in damages to recover the POS investment and lost sales, according to Brian Parker, the attorney who filed the suit July 7 in Macomb County Court on behalf of Yarsike and Sam Katz, the other owner.
Larger companies, Gilbert said, have begun working to solve the problem, but far too many small and mid-size companies have not, according to an NRF study due to be released next month at the Retail Information Systems Conference (RISCon) in Philadelphia. The results indicate retailers and their trading partners are woefully unprepared to solve their inevitable year 2000 problems before system crashes, such as those at Produce Palace, begin to disrupt business.
Burlington Coat Factory, based in Burlington, N.J., is among the larger retailers addressing the problem by upgrading their systems. While Monroe Milstein, president and chief executive officer, is confident his systems will work properly in the next millennium, he empathizes with Produce Palace’s plight. “We think we are in good shape for the year 2000, but I can understand the man’s chagrin when he found out he wasn’t,” Milstein said.
Michael Baxter, assistant vice president of management information systems for Lancome Paris USA, agreed. “I think there’s a lot of lawsuits coming, perhaps against the major software vendors and the Big Six consulting companies,” he said. “I know how I’d feel if I’d just spent several million dollars putting in a new system and then be told I’d have to spend another two or three million to make it year 2000 compliant.”
Baxter said Lancome is well under way with its year 2000 conversion project, which involves replacing some of its systems and upgrading others to insure all can handle year 2000 date calculations by Jan. 1, 1999.
Ray Pet, vice president of management information systems at S&K Menswear, Richmond, Va., a 200-unit chain, said his company works closely with technology vendors to insure systems are year 2000 compliant.
“All of the contracts we sign with technology vendors contain a standard clause that says, ‘Is your product year 2000 compliant?’ We then ask for examples of how the products are compliant and we give examples of what we mean by ‘year 2000 compliance,’ such as date manipulations that are typical to our industry.”
Pet said he is somewhat surprised by the publicity surrounding the Produce Palace lawsuit. “I think there has been enough attention brought to the year 2000 issue. I don’t know how most people who manage technology investments in their company could not be aware of it.”
“The thing that bothers me the most is all the publicity,” added a source at Stein Mart, based in Jacksonville, Fla. “I’m sick of it. My boss, the cfo [chief financial officer], reads things and his boss reads things and they get all nervous.”
They should be nervous, according to Peter de Jager, a public speaker on the year 2000 topic who maintains a Web page on the subject at http://www.year2000.com. “This problem is real and will affect you in ways other than your systems. Lawsuits are not systems problems. They are business problems and a lawsuit does not fix the year 2000 problem. It’s a form of retribution, not a solution.”
The Michigan lawsuit is likely the first of hundreds, if not thousands, to come, he said.
“The lawyers are drooling. They are gathering in hoards getting ready for this thing and it won’t just be the manufacturers of software and hardware which are sued. It will be companies who depend on them that will be sued by their other clients down the supply chain because the company was not able to deliver a contracted service.”
De Jager noted retailers not only lose sales when year 2000 problems disrupt business; they lose face with customers. “When a customer comes in and is delayed at the cash register, suing the cash register company down the line doesn’t really satisfy that customer.”
Produce Palace’s Yarsike said he has lost customers, and sales have dropped 10 percent due to problems with POS systems installed only two years ago. The 49,000-square-foot store, which carries produce, meats, bakery products, wine and gourmet grocery items, generates annual sales of about $15 million.
The defendants named in the lawsuit declined to comment on particulars of the case, but one source familiar with the litigation said Tec America and All American have filed separate suits against one another.
Rich Piwko, president of All American Cash Register, said he hopes year 2000 awareness gains more publicity. “I’d like to see people get the word out on the year 2000 issue so other people are prepared. It’s not unique to us. It’s a universal problem. This affects every business out there.”
Jeff Warren, controller for Tec America, said his company developed a manual “work-around” in May that enables its systems to process year 2000 credit cards. He said the procedure has proven to work at other locations, but Produce Palace’s Yarsike said it does not work for his store.
Major credit card companies have temporarily discontinued issuing cards bearing the year 2000 expiration date, but credit cards represent only a drop in the ocean of year 2000-related problems. Every type of technology based on date-sensitive information, from security systems, telephones and fax machines to global logistics networks, is affected.
Produce Palace’s lawsuit clearly is not the first year 2000 dispute. Others have been waged behind closed doors and often resolved in out-of-court settlements.
Warren S. Reid, president of WSR Consulting Group, Encino, Calif., follows year 2000 developments and was an expert witness in a dispute that was settled early last year. In that case, the complainant was awarded “an awful lot of money,” he said, and the other company, a technology outsourcer, negotiated for the case to be sealed from the public record to guard the integrity of its company.
In that case, the company bringing the complaint sold subscriptions for goods to teenage girls, Reid said. In 1995, computer systems began having trouble processing five-year subscriptions because it involved the year 2000. As a result, the company scaled back to offer four-year subscriptions, expiring in the year 1999. In the following year, 1996, the company was forced to offer three-year subscriptions to avoid the year 2000 issue and as a result lost more potential sales, he said, because the business plan was built around five-year subscriptions.
Produce Palace’s attorney, Brian Parker, said he did not file the lawsuit with any grandiose intentions. “I’m not trying to solve the year 2000 problem,” he said. “This is basically a ‘lemon law’ complaint for the computer.”