are some interesting dynamics within the retail market segment. On one hand,
the market is much less penetrated by enterprise applications than most other
economic sectors, in part since retailers have largely been remiss in leaving
mainframes and other legacy technologies behind. Also, the sector has shown
some resilience even during the recent and possibly still ongoing economic malaise,
in part as the consumers have been stretching their credit card balances and
limits. Generating more than $3 trillion (USD) annually in sales, retail is
the second largest industry in the US, as reported by the US Census
Bureau in April 2003.
However, on the other hand, the sector has been demanding on both the software vendors' and their prospective customers' capabilities, since retail organizations and their suppliers alike are constantly facing intensifying competition, fluctuating demand whether or not due to seasonality, picky and fickle customers, evolving retail channels and increasing globalization, whereby sales are pressured, margins are compressed, and almost all participating companies have to try to achieve improved results with fewer people. As a result, retail organizations seek enterprise applications and other information technology (IT) solutions to better manage their increasingly complex businesses that have to cut across different enterprise business disciplines instead of focusing only on a particular one in an isolated manner (e.g., procurement, marketing, finance, customer service, etc.), and thereby improve their operating efficiencies and financial performance, and strengthen their relationships with customers and suppliers.
companies in the retail market do have specific IT requirements to support and
optimize their operations. To that end, general enterprise resource planning
(ERP) solution providers have traditionally been unable to fully meet the demands
of these organizations, but recently some major ERP players have been developing
in-house, buying, or partnering with vendors that have retail point solutions
to increase their appeal to retailers. Although the retail and wholesale customers
have typically invested a low proportion of their total revenues in IT, as the
leaders in this industry begin to demonstrate an ability to achieve market advantage
through effective use of specialized enterprise applications, the requirement
for all retailers to increase their investment in IT and adopt best practices
has thus grown. For a detailed discussion of what software vendors face when
addressing the retail market, see "Retail
Market Dynamics for Software Vendors".
Lawson Acquires Numbercraft
traditional ERP providers have lately made serious strides in the retail sector.
For example, one vertical segment in particular that has been expanding during
the last few years within Lawson Software's offering is indeed
retail, with over 350 customers. Lawson retail customers include five of the
top ten US-based retailers, eight of the top twenty apparel retailers, seven
of the top twenty-five grocery chains, twenty-three of the top one hundred restaurant
chains, and twenty of the top one hundred specialty chains. To maintain the
momentum, in 2003, Lawson acquired former Numbercraft Ltd.,
a privately held consultancy and provider of sophisticated analytic applications
for retailers and consumer packaged goods (CPG) companies.
Erstwhile Numbercraft, based in Oxford, England, had previously developed a strong following among leading retailers and consumer goods companies in the UK by using advanced mathematics to help convert large volumes of customer, product, and sales data into actionable information. The company had the four largest grocery retailers in the UK and several of the world's largest consumer goods companies among its customers. Underpinning the software are a number of algorithms within three separate components
Purchase Analyzer, which examines the efficiency of cross-selling
Seville, which is aimed at fast moving consumer goods
(FMCG) companies that need to plan, manage, and measure the impact of their
sales and marketing activities; and
Cairo, a product that helps analyze and discern why customers
change their purchasing behavior.
has since continued Numbercraft's successful consulting business for both the
global retail and CPG markets, and it has introduced several packaged analytics
applications based on Numbercraft's technology, which supposedly integrate with
both Lawson and legacy retail applications. The first two stand-alone variants
of these applications, Store Performance InSight and Advanced
Category InSight, have long been generally available. Additional InSight
applications now generally available include Promotions InSight,
Customer Lifecycle InSight, and Shopper Missions InSight.
Lawson Before Numbercraft
for the organic products' delivery, prior to Numbercraft acquisition, Lawson
announced the addition of Lawson Retail Comp Store Metrics Data Mart
and Lawson Store Operations to its ever-broadening suite of
retail applications. The latest additions were in response to retail executives'
struggles to better manage store level profitability and were specifically designed
to address the special mission-critical needs of the retail industry. These
two products aim at understanding the financial and operational health of a
retail enterprise with automated ordering, forecasting, inventory control, and
analysis of vital information to improve net profitability and increase revenues.
They also further expand Lawson's Retail solution that encompasses store operations,
supply chain, merchandising, human resources (HR), marketing, financials, analytics,
Store Operations supports the managers and employees through automated forecasting,
advanced replenishment, inventory control, and analysis, whereby enabling accurate
inventory visibility to anticipate rather than react to fluctuations in inventory
levels on the store shelf. Lawson Comp Store Metrics Data Mart, on its hand,
has also retail functionality and logic built into the analytic engine with
business intelligence (BI) that automates the comp store reporting
and analysis process. Additionally, together with these, Lawson also unveiled
Lawson Enterprise Integration, a new, open interface integration
application, using XML APIs (eXtensible Markup Language-based Application Programming
Interfaces) that should allow Lawson customers to communicate in near real-time
between retail operations and other enterprise applications. Within Lawson's
own Retail Suite, this integration format connects Lawson's Retail Operations
suite to the Enterprise Operations (back-office) set of products.
Other Recent Products
in the retail sector, Lawson claims to have already provided its customers with
a broad set of leading merchandising and back-office applications designed to
maximize net margins. Namely, at the beginning of 2003, Lawson announced its
Merchandising 2.10 and the addition of Enterprise Knowledge
Management for Retail and Portfolio Management for Retail
applications to its suite of applications.
Merchandising 2.10 application aims at increasing the efficiency of all merchandising
activities through improved planning, assortment, pricing, promotions, and order
and inventory management. It consists of
category management and merchandising functionality that includes assortment
management, promotion planning, category planning, strategic pricing, and performance
supply chain functionality that includes replenishment and store logistics.
Enterprise Knowledge Management for Retail provides a way to capture, organize,
and reuse retailers' intellectual assets. It also manages knowledge of daily
operating activities by capturing personnel policies, operational procedures
and documentation of other repeatable processes, such as labor-intensive activities
associated with store associate hiring and training. Portfolio Management for
Retail helps prioritization of IT projects and investments, based on their strategic
value to a retailer's business, which should reduce project redundancy and increase
the value of existing IT investments.
above delivery was in a great part a result of the 2002 acquisition of certain
assets of former Armature Holdings Ltd., a then bankrupt provider
of merchandising and category management and SCM solutions for retailers, consumer
goods manufacturers, and wholesalers. The Armature suite had been focused on
grocery and hard lines retail sectors, specifically those sectors with complex
product or item definition and rapid inventory management. The former Armature
product suite has been integrated with Lawson Solutions for Retail, and the
new solutions were first renamed Lawson Merchandising and thereafter
renamed to Lawson Retail Operations for release 2.11 and forward,
whereby release 2.13 is scheduled for release in September 2004. With the Armature
acquisition, Lawson has enriched its grocery and hard-line retail expertise
like automated three-way invoice matching capability, as well as its European
foothold through a handful of former Armature's clients. With the more recent
Numbercraft purchase, moreover, Lawson has added very sophisticated applications
for analyzing customer behavior and retail revenue streams, designed to help
retailers address both revenue and margin challenges.
Lawson does not have a full-fledged supply chain management (SCM) offering
in terms of planning and execution part and parcel modules, it features strong
requisitions and procurement capabilities for its industries of focus. Through
the above Armature and Numbercraft acquisitions (for more details, see Lawson
Software-IPO and Several Acquisitions After), the vendor has further bolstered
the merchandizing part of the equations that matches the leading retail point
solutions, and that traditional ERP vendors that are targeting the retail sector
are yet to deliver. Namely, Numbercraft's software was closely tailored to specific
niches like retail and fast moving consumer goods (FMCG). As a result,
Lawson Retail Operations Suite solutions are built for high-volume
retail enterprises and encompass a range of activities, including the management
of item information, category planning and review, assortment, pricing, promotions,
warehouse replenishment, multi-channel ordering, store replenishment, forecasting,
and order determination.
the decision to base the enterprise application backbone on an ERP system or
piece together a best-of-breed strategy has never been an easy decision in any
industry and in any functional area like business intelligence (BI),
customer relations management (CRM), supply chin management
(SCM), product lifecycle management (PLM) and so on, at least given
that there are a number of possible package combinations alternatives in most
of these. Also, the ERP vendors had long ignored the retail sector to only recently
move more aggressively into the wide-open market, striving to thereby provide
greater industry-specific functionality if they are to displace today's still
popular approach of opting for integrating best-of-breed software.
brings us to the fact that the ERP vendors are making their way into the retail
market by bundling, acquiring point solutions (as in the case of Lawson), or
partnering strategically to embed retail-specific functions within their suites.
Like in all other enterprise applications markets, eventually albeit not any
time soon, the retail market too will come down to a showdown between the pure
retail vendors and the enterprise application vendors (e.g., Oracle,
SAP, PeopleSoft, SSA Global,
Geac, Intentia, etc.), which have been striving
to natively embed more retail-specific capability into their products. As usual,
the enterprise vendors will bet on leveraging existing customers who will have
deeply invested in them, and have even reorganized operations around their ERP
promise of retail products from ERP vendors is the link to financial and manufacturing
systems (albeit mostly the vendors' own, which is logical at this stage) and
include collaborative supplier relationship management (SRM) and PLM
capabilities and links to customer data in CRM systems. A single-vendor approach
by ERP providers could produce other benefits too, like integrated and consistent
processes throughout the supply chain, consistent data-model for the entire
enterprise, and easier estimation of overall project cost and implementation
management through primary relationship (i.e., "one throat to choke"). The business
opportunity is to move from supply- to demand-driven retailing, via merchandising,
replenishment, pricing, promotions, consumer loyalty schemes, and multichannel
management systems, all working off the single ERP platform.
the retail vendors' Holy Grail has become working with information from heterogeneous
sources, an order du jour' within many large organizations, which often have
more than one ERP system and various retail point solutions and legacy systems.
This is analogous to the enterprise applications integration (EAI)
market, since in larger corporations, customers still may prefer integration
vendors with renowned product strength, vertical expertise, financial viability,
and savvy in XML-based B2B integration, multi-platform integration, and workflow
management. The best-of-breed approach could still often provide the selection
of a functionally richer system for each business area from a more specialized
vendor, elasticity or exit strategy against a particular vendor's failure or
demise, and greater flexibility in terms of substitution of individual elements
as to accommodate any adaptation needs.
The current retail leaders' superiority, like in the case of the SCM and CRM markets, will eventually diminish as the ERP vendors continue to improve their retail-specific functionality, collaborative capabilities and accessibility, and add universal interfaces, including the new web service standards to facilitate access and integration of data outside their own environment. Thus, the retail vendors need to establish as strong a hold on the market as possible before the enterprise and platform vendors catch up. Especially if the remaining Tier 2&3 retail point solution vendors cannot gain significant traction and distinctive differentiation, they could find themselves in a position of needing to either be acquired or join forces with a complementary functional or platform technology vendor via alliance or acquisition.
On a more general note, retailers will have to find a fine balance between investments in emerging technologies and their ability to tactically stake out effective competitive differentiation in what seems to be challenging times for all. The winners will be those who can align their investments with the ever-changing preferences of their customers, who may prefer in-store or off-store channels, or both. On one hand, technology investments that facilitate speed of check out, self-service, multiple sales channels, inventory availability, and personalized content are what will engage customers and make them feel close to being the only customer. On the other hand, strategic technology investments in historical data analysis, demand-based forecasting and replenishment (store- and distribution center [DC]-level), seasonal profiling, allocation, and space planning, measuring shelf space performance, will be the pedestals on which growing revenue and improving margins will be built.
Whether considering new enterprise applications based on a single-vendor offering or constructing a best-of-breed portfolio of retail applications, prospective users should espouse a consistent technology infrastructure to avoid the pitfalls of too many supported platforms, while ensuring open and broad integration functionality that focuses on common product and pricing data sources and the necessary, ubiquitous connections to trading partners. In retail companies where employees have more autonomy and initiative, best-of-breed approach will typically let employees work with the best tools for their peculiar needs and talents. On the other hand, the sweeping changes imposed by usually more rigid single-vendor solutions (particularly from unified ERP offerings) may work better in more autocratic companies.
Still, these are only generalized conclusions, where exceptions might be possible in some instances. For example, Lawson is often included in the ERP-based solution category, but it often can offer flexibility to address the needs of retailers that vary in size as well as complexity. Lawson Retail applications allow retailers the flexibility to implement single components over time that best suit the needs of their specific business. This component approach often will allow retailers to address specific areas of their business that can have the biggest impact to their business pains. Further, the capability of the InSight products as retail point solutions often might help both small and large retailers compete effectively in their markets. On the other hand, the scalability of the Lawson Retail Operations applications has so far accommodated many business sizes, including the large volumes required for major grocery customers.