PetSmart acquired Pet360 for $130 million in cash and up to $30 million more in future performance-based payments.
New e-commerce technology is no longer a choice between best-of-breed or single-source provider. Web integration technology makes both possible—in the same installation.
New e-commerce technology is no longer a choice between best-of-breed or single-source provider. Web integration technology makes both possible-in the same installation.
By Paul Demery
The picture of a retailer immersed in market niches, Ritz Interactive Inc. plays a dominant role in the online retailing of cameras and photographic supplies, operating nine sites in that market. But Ritz wants to build on those niches in a big way and in recent months has moved aggressively into consumer electronics. “Adding consumer electronics to our mix of photography and camera SKUs is a natural market opportunity for us,” says Peter Tahmin, vice president and chief operating officer.
So far, Ritz seems to have hit its target dead-on. It launched its consumer electronics business in time for last year’s holiday shopping season, a move that CEO Fred Lerner says played a key role in boosting holiday sales by 35% over the prior year. The holiday surge resulted in full-year e-commerce sales of $98.8 million, up 19% from 2005-a year when sales had declined 3% from 2004.
The turnaround in sales might not have occurred, however, if Ritz hadn’t been able to extend the investment it had already made in an e-commerce platform to connect with a slew of some 15 new distributors of consumer electronics products-many of which drop-ship orders directly to Ritz customers.
Ritz says the brand extension went smoothly in part because it operates its e-commerce sites on an IBM Corp. technology platform that can effectively integrate with a best-of-breed fulfillment application-an on-demand, web-based system from Vcommerce Corp.-that connects easily with its new suppliers. “This is an opportunity for us to quickly brand a new line of business without having to build a back-end order management system from scratch,” Tahmin says. “We could have built it ourselves, but we’d probably still be building it.”
Retailers who in the past wanted to do what Ritz has done might have found themselves scaling up their technology platform to accommodate the larger number of products, shoppers and relationships with suppliers. And they would also have faced the decision of going with a single source for all technology, with the resulting reliance on a single vendor, or undertaking the resource-consuming evaluation of dozens of technology providers to choose the best-of-breed solution for each application, with the resulting integration headaches.
But today XML and related integration technologies are enabling many applications to work well together. As a result, software-suite vendors have been acquiring best-of-breed applications over the last year or two to offer the best of both worlds: the advantages that a single-source strategy brings in application integration and the simplicity of dealing with a single vendor, and the advantages that best-of-breed brings in application functionality.
And so Road Runner Sports, for example, has upgraded its technology with Art Technology Group Inc., or ATG, which in recent years has acquired a number of outside applications to build on its core technology platform with built-in best-of-breed applications like coordinated site search and navigation from Primus Knowledge Solutions Inc., which it acquired in 2004. “We don’t see any limitation to what we can accomplish on the ATG platform,” says Peter Taylor, general manager of Road Runner Sports.
At the same time, however, retailers that decide to bring in third-party applications, as Ritz has done with Vcommerce and other vendors, can do so with greater confidence that outside applications will successfully integrate into their core technology platform. “With service-oriented architecture taking center stage in many retail environments, the risks associated with best-of-breed investment decrease,” says Rob Garf, director of retail research at research and advisory firm AMR Research Inc. Service-oriented architecture, also referred to as open architecture, is designed from the ground up with XML and other web-based integration technologies to enable free data flow among software applications.
Retailers, therefore, are beginning to think outside the technology box, so to speak, when deciding whether to go with a single-source provider of enterprise applications or take a more customized route. “18 months ago, retailers weren’t even having this discussion, but by now 90% of our retail client base has asked us about the future of enterprise suites in retail,” Garf says.
Not that retailers still don’t need to do their homework, because there is no one-size-fits-all technology platform, experts say. “What’s important for one retailer may not be universally important for others,” says Colleen Coleman, an associate with retail consultants McMillan/Doolittle in Chicago.
Cautions Garf, “With the buying frenzy among technology vendors of the last 18 months, we’re closer to reality in having single sources of technology, but we’re not there yet.”
The right combination
While Ritz has found a combination of an extensive feature set and best-of-breed flexibility with IBM, and Road Runner Sports prefers the broad application platform of ATG, other retailers have chosen other partners that deliver the right combination of suite software, application integration, and application functionality.
For example, Musician’s Hut, which is aggressively building out its online market while integrating customer data with its retail store partner, is working with Demandware Inc., a provider of on-demand software that can bring in best-of-breed applications. Pet supplies retailer Fish Net Inc., with a need to better manage customer data for its growing web channel and a big single store with a multi-state customer base, takes a single-source approach with the software suite vendor Profit Center Software Inc. Also taking a single-source approach is MarketExpo.com, a home-and-garden retailer operating on the Venda Inc. platform.
As Ritz planned its foray into consumer electronics, it decided to add it as a category to its photography and camera sites. With much of its e-commerce infrastructure in place, it had realized that a new back-end fulfillment system would be critical for bringing in products ranging from desktop computers and DVD players to video game consoles and waffle makers.