Oracle makes its move in retail industry software
By Paul Demery
As Anchor Blue Retail Group Inc. grew to 255 stores under two brands, CEO Michael Bush realized it was time to deploy a new integrated enterprise software suite. His goal was one system that delivered on the promises of the Internet age with data integration across customer-facing applications like merchandising management and back-end systems like financial and supply chain management.
“We wanted to achieve more flexibility and capability in our core merchandising system to get more granularity—down to the particular combinations of color and stripes on a shirt, for instance—so we can see what’s selling and in what store,” Bush says.
In selecting a retail-oriented software suite Bush made a choice that would not have been available only a year ago: Oracle Corp. In doing so, he followed a route taken by big-company technology pioneers Best Buy Co. Inc. and the U.K.’s Tesco plc.
But the Oracle that they’re dealing with is not the same Oracle that has provided enterprise software and a market-leading expertise in database technology for nearly 30 years, becoming the second-largest software provider after Microsoft Corp. Oracle’s strength has always been as a horizontal provider of enterprise software that can be applied across multiple industries, catering to companies who want the benefit of an integrated suite of back-end operations software designed to handle everything from accounting to inventory management.
Now there is Oracle Retail, a new unit that has broken the mold at Oracle by serving a single industry. While Oracle addresses industries like financial services and health care as horizontal markets within its main Oracle software offerings, it has been building Oracle Retail as the first distinct unit that addresses a vertical market with a combination of enterprise software and best-of-breed point solutions, starting with its acquisition last year of retail operations software provider Retek Inc., now a core unit of Oracle Retail division. Oracle also acquired ProfitLogic’s markdown optimization application and store operations software from 360Commerce. Oracle Retail is headed by Duncan Angove, former chief strategy officer of Retek, who reports to Oracle president Charles Phillips, who reports to chairman and founder Larry Ellison.
For Anchor Blue Retail Group, a company that has been re-inventing itself over the past two years, the new software is a crucial ingredient in its plan to double its number of stores to about 500 over the next few years. The retailer operates two chains—the 170-store Anchor Blue, and another 85 Levi’s and Dockers by Most outlet stores—with total sales of about $400 million.
Thanks to improved merchandising and other retailing fundamentals, comp store sales were up last year, helping total sales to remain the same despite the closing of several non-performing stores, and leading to a sharp rise in profitability, Bush says.
Crowded market
But that’s not good enough, Bush adds. He figures the company is still short of its potential for sales and profits, which is why he’s turned to a new software backbone that he expects will provide the kind of information that will enable Anchor Blue Retail Group to operate like a cutting-edge retailer, viewing and responding to customer and operational data throughout the enterprise, and giving customers what they want, when and where they want it. “We’re really putting a lot of effort into making the store experience terrific, because it wasn’t so terrific before,” Bush says.
Anchor Blue has joined several other retailers, including Canada’s Reitmans women’s wear chain and the U.K. general merchandiser Tesco, who have recently turned to Oracle Retail to deploy or expand web-enabled enterprise software suites.
In the past several months, Oracle Retail has absorbed several leading retail industry software companies: Retek, for merchandising, supply chain, point of sale and other applications; ProfitLogic, for its expertise in software that tells merchants when to mark down prices to get maximum returns; Global Logistics Technologies, or G-Log, for supply chain management that goes beyond Retek’s offerings; and 360Commerce, for multi-channel software that can bring the benefits of enterprise integration down to single stores. In addition, Oracle last year acquired PeopleSoft, a provider of enterprise software for human resources management and other applications used by retailers as well as other types of companies.
Why the bold move into retail? It isn’t only Oracle that’s undergoing a major market change. The retail industry itself is at a point where merchants of all sizes and categories are ready—in many cases overdue—for new web-enabled enterprise software that can handle the demands of an industry that has evolved at a torrid pace in the past decade. The evolution is multi-pronged:
l Web-enabled technology itself has improved to a new point of retail operating standards, which provide retailers with an ability to see and react to customer activity and operating data in real time throughout a multi-channel enterprise.
l Consumers, having experienced the benefits of multi-channel shopping provided by leading-edge retailers, have begun to expect the kind of service that results from this new level of integrated technology.
l Consistent growth in retailers’ revenues and profits has provided merchants with the capital to invest in new infrastructure.
Open architecture
Hovering over all these trends is the increasing role that open-systems technology, or web-based service-oriented architecture, is playing as a ubiquitous part of retail technology systems. “A few years ago you wouldn’t have this trend because we didn’t understand the value of open systems,” says Jeff Roster, analyst at Gartner Inc. who specializes in retail industry technology.
The web technology revolution that got most of its early attention in online retailing has finally come around to affect retailers throughout their multi-channel enterprises, he says. “The Internet created Amazon, which posed a threat to Barnes & Noble and started a massive process of understanding technology,” Roster says.
Meanwhile, he adds, “The consumer base grew up and insisted on retailers giving them the multi-channel functionality to interact with their systems. So retailers are getting behind technology as an opportunity to drive incremental revenue as well as save cost throughout the enterprise, and that’s what all these vendors see. They want to position themselves to be a dominant software provider and be a one-stop shop.”
Growth in multi-channel retailing is providing retailers both the capital and the drive to invest in new web-based enterprise integration. “Retailers realize they need to invest in integrated enterprise systems to compete with customer-serving applications and enhance the customer experience,” says Scott Langdoc, retail technology analyst and vice president of AMR Research Inc. That means many retailers can’t afford to continue investing in the legacy enterprise systems that many of them built in-house and that still run a lot of retail operations without the customer-serving integration needed to compete in today’s retail climate, he adds.
One-stop shop
Accordingly, retailers will spend about $7.4 billion on retail application software this year, up from $6.6 billion last year, as application upgrades and replacements continue to account for an increasing share of spending as compared to existing licensing and maintenance fees, AMR says in its report, “Retail Industry Market Analysis, 2004-2009.” The report projects that spending on retail applications will reach $9.3 billion in 2009.
Oracle, of course, is not the only technology provider with its eye on the retail market. It faces major competition from enterprise software rival SAP AG, which had fought Oracle over Retek but recently acquired Triversity for store operations software and Khimetrics for pricing optimization. Oracle also competes at different levels with companies ranging from infrastructure providers IBM Corp. and Microsoft Corp. to application providers like Art Technology Group Inc., Ecometry Corp. and Demandware Inc.
But while Oracle and SAP would each like to be known as a one-stop shop for full suites of retail operating software, the reality is that many retailers will opt to mix applications from two or more vendors, Langdoc says. The same Internet technology that makes it possible to integrate applications within enterprise suites like Oracle’s and SAP’s, he adds, also makes it possible to integrate with applications from other vendors—theoretically, at least.
Competition is increasing not only over individual retail software applications and suites, but over the underlying integration technology as well. While Oracle promotes its Java-based Fusion technology, SAP does the same with its NetWeaver, Microsoft with its .Net, and IBM with its Websphere platform. These and other versions of middleware technology, including from middleware specialists like Webmethods Inc. and TIIBCO Software Inc., all use open standards architecture, the guts of web-technology-based systems that are designed to easily integrate with one another.
Still, much remains to be proven, Langdoc and other experts say, especially that each vendor’s technology stack will operate smoothly within its own suite as well as with technology from other vendors.
Oracle, which like SAP introduced web-based enterprise software about 10 years ago, claims that its customers now have the ability to integrate information from all of the applications of Oracle Retail within a full Oracle e-Business Suite, integrating with Oracle financial management software, for instance, and pulling and analyzing data from a common Oracle database. It’s an option that Oracle is trying hard to get across to merchants who want to benefit from a truly integrated multi-channel environment.
Connecting the dots
“If you connect all the dots, it gives you a better feel for what customers are asking for at the store level, then you can take that up into the supply chain and back to the stores with the right products,” says Gladys Lau, senior director of strategy and marketing for Oracle Retail.
At the heart of Oracle’s combined offerings is its Java-based Fusion integration technology, which integrates multiple applications with minute levels of data and without extensive new coding and integration work, Lau says. “Not all software vendors can handle high volumes of product SKU-level data by color, size and location,” she says.
So far, analysts and retailers give Oracle high marks for coming through on its claims of inter-application integration. Anchor Blue Retail Group, Bush says, is not only getting the granular data it needs at the single store level, but is using the data to improve its level of communication with suppliers. “We’re doing more communication with suppliers electronically, which leads to fewer mistakes, and we’re no longer double- or triple-key-punching data into our system,” he says.
To make the new system work, Anchor Blue enters product codes for each product in purchase orders, so a rose-colored striped shirt would have an identifier distinct from a similar striped shirt in a different shade of red. Once the purchase order data is entered into the Oracle Retail system, he adds, it’s fully integrated with merchandising and supply chain applications.
Multiple names for red
“In the past, when buyers identified one color as being rose, another red and another hot pink, it was never clear which one was selling the best,” Bush says. “Now we have this on a more systematic basis, so we see what’s selling and where.”
Anchor Blue’s Oracle suite, which replaced a home-grown platform, was implemented on schedule last fall and within his planned budget of “between $2.5 and $5 million,” Bush says. The integration was not bogged down, he adds, even though Anchor Blue decided to keep its pre-existing Lawson Software financial application and its PKMS warehouse management software from Manhattan Associates Inc.
Neither was the project upset by the presence of Oracle itself, which acquired Retek after AnchorBlue had chosen Retek as its new software provider, Bush says, though he admits that he and his technology team had initial doubts. “We were concerned, but it wasn’t a panic attack,” he says. “The Retek team stuck with us, and Oracle did a good job of communicating with us.”
While Oracle is making definite inroads into the retail market—at last month’s annual National Retail Federation conference and trade show, Oracle trotted out Tesco, Reitmans, Anchor Blue and other customers to give positive testimonials—it’s far from dominating the market, and there may never be a dominant player, experts say.
SAP, which has been showcasing its work for The Home Depot and other major retailers, will not take a leisurely back seat to Oracle, analysts as well as SAP executives say. By acquiring both Triversity, which provides POS systems deployed across multiple channels, and Khimetrics, with its price optimization software, SAP is adding more demand-side applications to its forte in supply chain and enterprise systems, says Rick Chavie, senior vice president in charge of the SAP Retail suite.
An integrated platform
SAP can now offer in a single integrated platform the ability to manage customer and product data at both ends of the scale, from suppliers to customers in any shopping channel, Chavie says.
Moreover, SAP will leverage web-based service-oriented architecture to let retailers use either an entire enterprise suite or pick out only what they need from solutions like Khimetrics, Chavie adds. “We’re looking at what our retail customers need,” he says.
At the same time, other vendors like Lawson, Manhattan Associates, ATG, Demandware, Venda Inc., Ecometry and others are likely to continue building on their own expertise as well as their ability to integrate through open web standards with Oracle, SAP or whatever enterprise software a retailer chooses, experts say.
For now, Oracle is betting that it will win its fair share of the market—and then some—with its unique mix of enterprise software, integration technology and cutting-edge point solutions like ProfitLogic’s markdown optimization software. ProfitLogic has earned high praise in recent years from retailers and analysts, attracting even retailers like Anchor Blue, which won’t consider incorporating ProfitLogic into its Oracle suite until a later date. “We have to walk before we can run,” Bush says.
But a need for constant innovation could be Oracle’s downfall, experts warn. Some have expressed doubt that an innovative company like ProfitLogic can remain on the cutting edge within a major corporation, where it could get lost in bureaucratic battles and budget plans. “That’s the big question for Oracle, if it can keep its innovative products as well as its enterprise software over the long term,” says Langdoc, adding that the same kind of innovative environment that supported ProfitLogic will undoubtedly cultivate future stars. “If Oracle’s not careful, another startup company like ProfitLogic could pop up and the take the lead with new technology.”
SAP, for one, says it’s already planning to extend the optimization capabilities of Khimetrics to include product assortment as well as pricing optimization, to help retailers plan mixes of products by seasons and stores, Chavie says.
Oracle insists that it will stay on the cutting edge with ProfitLogic and other parts of its retail suite, which cuts to one of the main reasons it formed Oracle Retail as a distinct unit, Lau says. ProfitLogic will keep its own R&D unit in Cambridge, Mass., and 360Commerce its R&D in Austin, Texas.
What ultimately wins over retailers, of course, is how effectively it helps them win over customers and boost sales and profits. “If we can do a better job of retailing and fully use the capabilities of our new system, we could increase another 15 to 20% in sales, or another $65 million to $80 million,” says Anchor Blue’s Bush.
Three-channel benefit
That kind of performance upgrade will not only further hike profits, but also provide more of the capital Anchor Blue needs to fund its aggressive multi-channel expansion plans. In addition to rolling out more stores, the retailer expects to also develop AnchorBlue.com—now a playful site designed to draw the retailer’s teenage customer demographic into it stores—as an e-commerce destination, possibly with a complementary catalog—with all three channels benefiting from an integrated enterprise system, Bush says.
Bush’s goal is to keep the move toward profitability that has occurred since Anchor Blue started working on the fundamentals of retailing two years ago. He expects his new software will help him do more of just that—sticking to the fundamentals of retailing and giving customers what they want.
“Customers don’t care about the back-end,” Bush says. “They just want a great store experience.”
paul@verticalwebmedia.com
