By Paula Rosenblum, Managing Partner
6/23/2009
It may seem hard to believe today, but it wasn’t all that long ago that it was rare to see the words “business value” and “retail information technology” in the same sentence, especially when discussing annual or quarterly results. In fact, the very first time I remember hearing those phrases on an Earnings Call was 2002. On that call, the CEO of Long’s Drug attributed gross margin improvements to the company’s Demandtec implementation (Extra credit question: Who was the CIO who drove that implementation? Answer at the end of this article).
The Long’s story notwithstanding, executives at Oracle Retail and its precursor companies, ProfitLogic and Retek, were the folks who drove the concept of IT as a true differentiator deep into the psyches of both retailers and Wall Street. As an industry, we owe a debt of gratitude to people like Scott Friend, Dave Boyce and Duncan Angove in association with Wall Street analysts Bob Buchanan and Deborah Weinswig.
The tradition continues. In the current economy, we look hard for success stories, especially those enabled by technology. Last week at Crosstalk, its annual retail executive conference, Oracle delivered a real winner: Teknosa, a Turkish consumer electronics retailer (and a division of Sabanci Holdings), in the person of Mehmet Nane, General Manager of the company.
Teknosa
Like most of the industrialized world, the Turkish economy contracted in 2008. The country saw price deflation, shrinking total sales and lagging consumer confidence. Teknosa services the mid-market, much like Best Buy does, and it is seeing encroachment from foreign retailers in its space. Despite a contracting economy and increased competition, Teknosa enjoyed growth in 2008:
· Total square footage grew by 8% across the company’s three lines of business (“mega-box,” big box and standard)
· Total sales grew by 12% over 2007
· The company enjoyed double digit increases in market share across its major product lines, while overall spend for the categories across all retailers declined
· Its loyalty program garnered 800,000 new members in just eighteen months
In other words, the company is “kicking it.”
Mr. Nane engaged Oracle and Accenture in 2000 to begin creating an infrastructure for growth and the future. While it has a few non-Oracle applications (CRM, warehouse management and B2C eCommerce) its primary footprint is all Oracle. Mr. Nane was clear – he would not tolerate “cultural barriers” or other internal obstacles. His view is the company is dependent on a partnership between business and IT to drive its growth. In fact, the title of his presentation was “Growing with IT.”
The footprint is pretty much complete. Along with sales growth, the company has realized some powerful savings using technology:
· 40% of the unit sales represent just 6% of total sales dollar volume. These units are all under the control of automated replenishment
· Planning employees can focus attention on higher value/lower volume items in the assortment
· Assortments are facilitated by Oracle’s category management tool and are driven by historical sales, inventory cost and gross margin opportunity
In these times, across a sector that has been pretty well decimated, it’s really heartening to hear a business executive tout the power of IT to help drive growth.
Another Winner: Advance Auto Parts
We’ve highlighted segments that do well in a down economy before, but a new one emerged on our radar screens: the auto parts industry. I had the privilege of moderating a panel on managing business through tough economic times. One of the panelists, Geraldine Ryan, is VP Retail Applications for Advance Auto Parts.
It’s not a secret people are keeping their cars longer today. New car sales have been abysmal. But what I’d forgotten to consider is the impact of thousands of car dealership closings in the United States. This creates strong opportunity for small garage operators, and a need for rapid delivery of parts to those small businesses. Advance has determined that along with the DIY part of its business, a big part of the company’s future lies in what it calls DIFM or “Do it For Me.” This will remain true after the economy begins its recovery. The opportunity lies in having the right part located close to the point of demand, keeping obsolete parts to a minimum, and having the right ancillary assortment in the store for the do-it-yourselfer. The company is implementing Oracle's merchandising system to help manage inventory and get the right parts to the customer. Advance is early in its implementation cycle, but seems to be one to watch for future business success.
The Bottom Line: IT Really Can Help Deliver Differentiating Value
As we move through the most challenging economic times in memory, it’s helpful to look at some lights in the darkness. Some, like Advance Auto Parts are logical winners. Others, like Teknosa, are more counter-intuitive. But the common thread across all these success stories is a sound IT foundation to help maximize opportunity and minimize risk.
This is one of the most powerful industry-wide learnings of the past decade. In our recent report on IT / business alignment in retail, 38% of respondents reported meeting their corporate objectives is dependent on effective IT value delivery, while another 61% believed meeting their corporate objectives is aided by IT. Calling out use-cases is a way to continue that education. Oracle deserves its props as an early drum-beater of IT/business alignment in our industry.
Oh, and speaking of props – we promised the answer to our extra credit question at the end of this piece. The CIO who drove that price optimization implementation at Long’s Drug is none other than RSR’s own BRIAN KILCOURSE. Ten points for everyone who got that answer right!
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