Insight-Driven Retailing Blog

Here in Texas it's relatively warm. I spent Christmas and New Years day outside playing with the kids or working in the yard. But every January I dig out my winter-wear and make the trek to New York City for NRF's Big Show. This year the conference is a week earlier than normal, so I have a little less time to prepare.

With the economic downturn and the slow holiday season, I wonder if attendance will be as good as past years. Regardless, Oracle will there in full force, ready to show retailers how to make the best of a bad situation. And as always, there's the Oracle Red Hot Party Monday night. My advice: don't schedule any meetings for early on Tuesday.

Of course I'm anxious to see what the Eternal Order of AccessVia will be up to this year. Dean Sleeper, known as the Richard Branson of Retail, is always full of surprises and knows how to get your attention. Check out their short flash production, New Consumer, New Messaging. Top quality work for sure.

If you're interested in hearing viewpoints from some accomplished retailers that have written books, read this blog entry over at NRF.com. I just ordered my copy of Retail: The Art and Science. I hope it arrives in time for the plane ride.

Duncan Angove will be speaking on retail imperatives for growth and value creation on Monday 1:45 – 2:30 pm ET in room 3D04. Duncan is an engaging speaker, mixing his retail acumen with a dash of technology and large portion of English accent. Its a great combination that requires very few slides (something to which I aspire). "In this session, learn how retailers are able to scale customer intimacy and pursue fresh growth opportunities to give them unparalleled competitive advantage with the help of Oracle’s complete, open and integrated footprint for retail."

More NRF info to come...

At next week's NRF Conference, retailers that are interested in technology standards should stop by the ARTS booth where they can speak with various committee members about the retail standards that ARTS develops. Oracle is an active participant (Jerry and I with occasional help from Dan) and believes strongly in the goal of lowering integration costs for retailers. Those standards fall into four groups:

1. Peripheral integration standards (JPOS+OPOS=UPOS)
2. Data models (both operational and warehouse)
3. XML schemas
4. Request for Proposal (RFP) templates

You can hear from Richard Halter, Chief Architect at ARTS, in this previous post. The SOA Blueprint for Retail v1.2 and SOA Best Practices v1.2, two documents aimed at helping retailers implement SOA, will be released at NRF. Since I've been participating on both committees for over a year, I'm excited to see them in the hands of retailers. I believe they are now complete, so we don't plan any new updates in the near future.

Also in the booth will be interesting demos from several vendors. Two that jumped out at me are focused on mobile commerce, a topic I follow closely. Both IBM and Epson will be demonstrating how the ARTS standards can help enable mobile POS.

On Monday and Tuesday from 11am to 5pm the ARTS booth with host conversations with special guests on the following topics:

Even if you're not interested in the demos or the discussion topics, its always good to check in with Dick Mader, the director of ARTS and knower of all things retail. As a former CIO at a department store, Dick keeps the committees grounded and working toward content that delivers real value. His latest endeavor has been putting together training to educate retailers on the use of ARTS standards. A small investment up-front could have big payoffs if integration costs can be lowered.

At OpenWorld, Oracle Retail tried holding Birds-of-a-Feather breakfast meetings where customers could sit down with other customers to discuss specific topics (and get a free breakfast to boot) in an informal setting. A table-moderator handled the introductions and kept the conversations going. Based on the success of those breakfasts, we're doing something similar at NRF this year, although the program has been renamed to Affinity Group Discussions (I like BOFs better, but maybe that's because I'm a JavaOne Alumni).

If you're a retailer that doesn't already have plans for breakfast or lunch on Tuesday, you'll probably want to sign-up to attend these networking opportunities. The topics are:

--Hosted Deployment Models for Major Retail Projects
--Unleash the Value of Your Oracle Merchandising Applications
--Green Retailing in the Real World
--Where Phones and People Meet: Delivering the Perfect Retail Experience in Telecommunications
--Emerging Challenges within Retail Loss Prevention
--Why Settle for Tracking your Inventory When you Can Manage It?
--Bundle Store Applications, Hardware and Services to Decrease Cost and Optimize Store Operations
--Retail CRM
--Worst of Times, Best of Times: Retail Real Estate Management in 2009
--The People Factor: Managing Talent In Today’s Retail Market

Oracle is also sponsoring this year's Members-Only lunch on Monday. You'll want to arrive early because space is limited. Michael Gates Gill, author of the bestseller How Starbucks Saved My Life, will be speaking followed by a book-signing. Get your copy of his book signed before its turned into a movie (starring Tom Hanks, no less).

Last year about this time Cisco announced their Lean Retail Architecture, a network-centric (surprise!) approach to handling distributed systems. The main ideas are to centralize, virtualize, and optimize. Getting as many servers out of the store and into the data center makes a lot of sense. Ever seen how hardware gets treated in stores? (Worst I've seen was in a bowling alley, but that's another story). Once most of the hardware is centralized, you'll want to consolidate by using virtualization. Then you'll want to optimize the network using compressing and caching. All of this has the goal of decreasing costs without sacrificing service-level-agreements.

Cisco's lean retail architecture provides the hardware and blueprints to make all this happen on a large scale. Seems like a pretty good recipe to me. While I'm not completely sold on centralized POS today, I think it holds promise for the future. An application that does make sense today is in-store inventory management. This tends to be a chatty application as it communicates with other stores and warehouses for transfers, receiving, and cycle counts. Cisco recently tested Oracle Retail Store Inventory Management (SIM) on the lean retail architecture and was able to show significant decreases in transaction time.

If you plan to be at NRF, you might stop by the Cisco booth and ask about Oracle SIM on Cisco's lean retail architecture.

Oracle's recent acquisition of AVT, a UK-based provider of 3-D visual macro space planning solutions, adds end-to-end space management to Oracle's existing footprint. But what does that really mean for retailers?

Once a retailer decides what to buy from vendors and how much of it to allocate to specific stores, someone needs to decide where in the stores the products will sit. This is a very important step in retail since store layouts are crucial to the shopping experience. Products need to be easy to locate, near related products, and have the correct facings. Should this product be on the endcap? Should it be at eye level? Should it have 8 facings or 10? Space management is about maximizing every inch of the selling floor.

Traditionally, headquarters creates a limited number of planograms (PoG) that define where products go for a particular store format. Unfortunately, not all stores are the same. Not only do their formats vary, but there's usually a degree of localization that makes them even more unique. So often the corporate PoG is treated as advice only and compliance is low. The answer is more collaboration between headquarters and the store. An increase of 10% in compliance can decrease stock-outs by 1%, and that leads to higher sales.

AVT's software enables leading retail companies such as Tesco, SuperValu, The Container Store and The Carphone Warehouse to plan and execute their retail floor space, including collaboration between HQ, stores, and vendors as well as compliance checking.

Want to know more? For ORUG members, there's a "Shop Talk" session scheduled for January 8th on this very topic. For those that plan to attend NRF, information about AVT will be available in the Oracle booth. And for existing AVT customers, there will be a welcome breakfast at NRF Monday morning.

Anne Thomas Manes' comment SOA is Dead; Long Live Services is spot on if taken in context. Taken out of context, it can be quite shocking. But here's the important part of her blog posting:

Although the word “SOA” is dead, the requirement for service-oriented architecture is stronger than ever. But perhaps that’s the challenge: The acronym got in the way. People forgot what SOA stands for. They were too wrapped up in silly technology debates (e.g., “what’s the best ESB?” or “WS-* vs. REST”), and they missed the important stuff: architecture and services.

Maybe I should make a new year's resolution not to use the term "SOA" anymore. I do believe in the SOA tenets (oops, that resolution didn't last long), but by itself SOA is not a solution. Oracle Retail is taking a different approach. We're defining the business processes first, down to the BPEL detail level. Then we are able to more accurately define the data objects and services that are required to support the processes in a flexible and reusable manner. All of this is independent of technology and is driven by the needs of retailers, not their IT departments.

Services are what connect planning to execution, and for retail that's one of the golden rings. The retail version of Deming's Cycle is something like analyze-plan-execute-monitor, and services are what make the connections in an agile manner. Retailers know that consumer tastes change, and they need to roll with the punches -- that translates to agility.

Services are especially valuable when considering multi-channel, since much of the common functionality (e.g. price, tax, tender) can be encapsulated and reused. Why have separate tax engines for different channels? I've been there, and its mess on the back-end. It's so much easier to have a single tax service that handles tax calculations for all channels. In this case, consistency is a good thing.

Don't get me wrong -- services are not THE solution. There's still a prominent place for traditional applications and integration patterns. At least in retail, if you create too many services you run the risk of impacting scalability and performance. ETL still the best way to move large amounts of data, and MDM is a great way to keep data consistent. You have to apply the right tools to the right situations.

So I for one will try to tone down the use of "SOA" and all its baggage and instead put more focus on services.

More on this from Justin Kestelyn and David Chappell.

There were lots of press releases germane to the retail industry this week, principally to mark retail’s yearly conference, NRF. Oracle had its share, which you can review here. One jumped out at me because it was related to my previous post on the topic of SOA. New Look is a 600 store fashion chain based in the UK. They own several Oracle Retail products as well as non-Oracle products, so they aren’t much different than most retailers. The press release touts yet another SOA success story, so there’s nothing notable there.

But if you dig a little deeper and ask why they were successful, the story gets a little more interesting. As I’ve said previously, successful projects are about delivering what the business needs, and that’s the focus on New Look’s “Darwin Project.” They do not look upon their SOA transformation as an IT project. Rather, it’s an “evolution through innovation” that is led by the business with IT’s help. From the press release:

As one of the first retailers globally to deploy SOA to achieve process excellence, New Look has championed a business-led approach, in contrast to other organisations adopting a technology or integration approach. By focusing on the business objectives, SOA has quickly gained momentum across New Look’s trading floor.

The first two areas they tackled were markdowns and purchase order management. For each area, they started by defining the “as is” and “to be” business processes. Knowing they couldn’t deliver everything at once, they divided the processes into phases that could be delivered over time. For each phase they defined the portlets, BPEL processes, services, and BAM dashboards/alerts necessary to support the business.

Their approach should serve as model for other retailers that follow.

Now that I'm back from NRF, retail's "big show" in NYC, here are my impressions of the event.

1. The only gadget that caught my attention was Microsoft's Tag. Its basically a barcode created to work well with mobile phones, so it incorporates color and shapes to encode information. Recall my experiments with the iPhone's camera were not very successful in recognizing standard barcodes, so this approach might work better.

2. Microsoft also announced the release of Windows Embedded POSReady 2009, formerly known as WEPOS. While still based on Windows XP, the next version will be based on Windows 7 (skipping Vista altogether).

3. I expected snow storms, but the weather wasn't bad at all. The temperature dropped significantly on Wednesday but I was already on my way out. One more year in NYC, then we're switching venues to Washington D.C. The change is welcomed.

4. Several former 360Commerce employees started a new company called Starmount Systems that's focused on digital signage. They showed an interactive kiosk that displayed advertising (so retailers don't need to tape circulars on a bulletin board at the store's entrance), was a product locator, and could be configured to take orders.

5. Its always good to see customers be recognized. Michael S. Jeffries, Chairman and CEO of Abercrombie & Fitch, accepted NRF’s Gold Medal Award. Read some about their recent POS implementation here.

6. Over in the ARTS booth, I briefly spoke with David Taylor, who runs the PCI Knowledge Base. Working with the NRF, they just released the Best Practices for PCI, a collection of 25 recommendations for retailers regarding security of credit card data.

7. JDA's booth babes were a bit much. So were the green faeries, the gal in the wedding dress, and the pink ladies. Don't these companies have any products to sell?

I had an interesting conversation with an executive from a large grocery chain. This person came from telecom, an industry with which I have a little experience. Anyway, he made the comment that telecom would not stand for some of the slow processes in retail, and he didn't understand why retail wasn't more real-time. Its a fair point. The technology certainly exists, the problem is one of legacy. Telecom is a relatively young industry, whereas retail doesn't have the luxury of starting greenfield. Every retailer carries around legacy systems that weigh the enterprise down. Replacing those with a focus on the overall enterprise architecture should be a priority for all retailers, but I'm just not sure how much progress we'll make with this strained economy.

UPDATE: Joe Skorupa of RIS News has a creative account of his NRF experience that's a great read.

As a former Circuit City employee, I was saddened to hear that CC will be liquidating after not securing a buyer interested in preserving the retail chain. All remaining 567 stores will be liquidated in order to settle its substantial debts, as reported by the AP. These are tough times in retail. As reported by the Wall Street Journal:

Tight credit has limited retailers' ability to reorganize. No major retailers that have filed for creditor protection since January 2008 have remained in operation. Among those to liquidate are Linens 'n Things, Bombay Co., Mervyn's LLC and Sharper Image Corp. Steve & Barry's LLC and Goody's Family Clothing Inc. were among the rare retailers to exit bankruptcy last year -- but both are now liquidating, too.

The article goes on to assign some blame:

Retail experts have cited the 2005 overhaul of the U.S. bankruptcy code as one reason so many chains are closing their doors. One such change shortened the period in which a retailer may accept or reject store leases. Retailers used to get a year or more to make those decisions. Now they are given 210 days. Once they accept a lease, the landlord then has an administrative claim against the bankrupt company.

CC was a leader in the multi-channel space. They were one of the first retailers to offer buy-on-the-web, pick-up-in-the-store in a repeatable process. Their web site was built in 9 months and was fully integrated with their store systems. In fact, behind the web site were actual store servers (CC-130s for those that know) so the e-commerce sales looked just like store sales. This allowed mixed channel transactions and provided very accurate inventory tracking. In the 1990s their infrastructure and software systems led the industry, but they were slow to upgrade and began to loose their competitive edge.

Starting around 2002 Best Buy, Amazon.com, and Walmart began to significantly eat into their sales as their out-dated stores were failing to attract customers. It's unfortunate that the remodels and re-locations took so long. Given more time, I think CC could have survived and maybe even thrived. I'm sorry to see CC go.

Update: Below is a timeline I put together using stock prices from Yahoo, the Circuit City investor site, and some news articles. As you can see, CC really peaked and crashed with the dot-coms between 1998 and 2000. They were rebuilding through 2006 at which point problems became apparent and the steady decline began.

View larger image

A while back I decided to buy an air-hockey table for the kids. After some research, I decided to buy online from Sears, and the pickup process was impressive. When I arrived at the pick-up entrance at the back of the store, there was a kiosk where I could scan the barcode from my online order (printed at home). Then my name appeared on a TV monitor over the warehouse door, along with a timer starting at 5 minutes and counting down. In about 3 minutes the doors burst open and an employee had my box on a dolly, ready to take the hockey table to my car.

Short of mailing it to me, it could only be easier if there was a drive-thru, like my favorite Outer Banks, NC convenience store Brew-Thru. Well, it looks like Sears was thinking the same thing. The Chicago Tribune reports that Sears is converting a K-Mart location in Joliet, Illinois into a new concept called MyGofer.

MyGofer is 80% warehouse, 20% showroom and geared specifically for buy-on-the-web, pick-up-in-the-store orders. This sounds reminiscent of Best Products and Service Merchandise, both of which went bankrupt long before e-commerce went mainstream.

Van Baker's blog posting at Gartner's Retail Blog, "Sears Makes a Smart Move in a Down Economy", seems to indicate its a good idea, but the opinions vary quite a bit over at RetailWire.

From my perspective, Sears has a pretty good system already so their objective must be solely to reduce operational costs. As a customer, I'd rather they offer free shipping -- there's nothing better than front-door delivery. But I guess there's a segment of the population that wants their stuff right away, and those may like the convenience of drive-thru. Fast food, banking, dry-cleaning, and lawnmowers -- all in one trip.

I recently bought a very inexpensive router from Newegg, but once it arrived I found that Google reported the manufacture's website was ripe with malware. Google recommended I not visit the site, which makes support a bit tricky. So without even opening the box, I decided to return it.

The return process at Newegg was very easy. I requested a RMA# and was offered a discounted UPS return shipping label for $9. I did that, then found there was a 15% restocking fee. So for a $40 router, I was out $15.

As I almost always do with my purchases at Newegg, I left comments about my purchase. Here's what I said:

Pros:
--To be honest, I didn't even open the box. But for $40, it seemed like a great deal.
Cons:
--Google reports that their website (www.zonetusa.com) is riddled with malware and recommends not visiting. So without access to support (forums, firmware updates, etc), its not the router for me. Returned it unopened. I'll stick with name-brand.
Other Thoughts:
--Newegg charged me $6 restocking plus $9 shipping. I'm giving it 3 eggs to be fair.

The next day I received the following email from Newegg:

Please know that we can only offer a pre-paid UPS return shipping label if the item is defective. Please note that all RMA requests placed online are subject to 15% restocking fee, which is charged automatically by the system. However, if your item is unopened, please let us know so we may waive the restocking fee out of your RMA.

I'm impressed that Newegg took the time to read the review and act upon it to make me happy. By going the extra mile, they kept me a loyal customer. And I'm not the only one -- their reviews are loaded with kudos from other happy customers, too many to have been faked as Belkin does. Taking care of customers has to be job #1.

Here's a scary statistic: Normally 4% of women surveyed by America's Research Group say they have no plans to purchase new clothing in the coming year. For 2009, one third of women say they will purchase no new clothing. Yikes! That can't be good for retailers. Many fashion retailers like Charming Shoppes (Lane Bryant, Fashion Bug, Catherine's), Gap, Eddie Bauer, Timberland, and Ann Taylor have already closed a significant number of locations, and I have to assume there's more to come in 2009. So what else can they do?

At NRF I asked a large fashion retailer if they were investing in software this year, and they basically said that they had reduced the budget but were still investing in the things that directly touch the customer, like POS. A slowdown is a great time to invest in stores so that when the economy turns around, they are well positioned.

Another area to consider is price optimization. Setting the right initial price, sale price, and eventually mark-down cadence are crucial to maximizing margins. This is an area where retailers can realize an immediate payback by relying more on science and less on "the way its always been done."

At NRF, Oracle Retail announced the Fashion Bundle, a collection of integrated products to support the fashion industry. It includes demand forecasting, item life-cycle planning, assortment planning, size profile optimization, and in-season optimization to name a few areas. These can be implemented incrementally, each providing its own distinct value, culminating in a comprehensive solution that helps retailers make better, more profitable buying decisions.

Instead of strictly playing defense, now might be the right time for fashion retailers to go on the offense and differentiate themselves in the market.

Realizing that the Web is becoming more social, Best Buy made a great move by exposing their on-line product catalog to developers on the Web. Now website developers can include pictures, prices, searches, and reviews from www.BestBuy.com in their own sites. This program, called Remix, is similar to what Amazon and E-Bay have been doing for a while and even includes some revenue sharing.

Now that Circuit City is out of the picture, Best Buy must focus on their next biggest competitors, Walmart and Amazon. This move attacks both, and when combined with the ability to pick-up in the store and receive technical assistance from Geek Squad, really differentiates Best Buy in the electronics market. This, of course, is in addition to Best Buy's Community site which I discussed in this earlier posting.

This is exactly the type of innovation and use of technology that retailers should be considering. Oracle has been focusing on Web 2.0 technologies for the enterprise, including Oracle Mix.

Customers are treating shopping differently than in the past, with much more emphasis on the social aspects. Retailers must find a new perspective where the traditional boundaries aren't as well defined, and they must be ready to embrace the supporting technologies.

I logged into my bank account this evening and saw a message about reissuing certain cards that may have been breached. It turns out that Heartland Payment Systems, a payment processor, discovered a sniffer hidden in an unallocated disk partition. That's a pretty sneaky place to hide such malware, and if it wasn't for some extraneous temp files, it would not have been found. Evan Schuman has been tracking in his blog, so I won't repeat the information here.

Breaches have been a pretty common occurrence, but the alarming trend is that its occuring even to those merchants and processors that are deemed PCI compliant, as was the case with Heartland. I don't think PCI compliance is worthless, because it certainly does thwart most of the amature attacks. But in order to be truly secure, we must employ end-to-end encryption that ensures safe delivery of information from the point of purchase across the entire payment network. However, Visa and MasterCard have refused to do this, presumably because of the increased CPU power required (encryption and decryption require complex math that is very computationally expensive).

Does anyone else think that forcing compliance solely on merchants and processors is not only unfair, but also insecure?

PS- This is my first posting using IE8 running on Windows 7 beta. So far, so good.

While commenting on a story over at RetailWire, I started thinking about the story of Amazon. Its no secret their competitive edge is innovation. When I think of innovation in retail, Amazon is always high on the list. They constantly make shopping more convenient, combining the right mix of products, technology, customer service, and marketing. Here's a mini-timeline of Amazon's retail innovations:

1994 Company incorporated.
1996 Launches Associates Program, allowing third-parties to market products on Amazon.com
1997 1-Click Shopping. Its amazing they got a patent on that.
1998 Begins selling music and movies, which was pretty new at the time
1999 Adds auctions
2000 Super Saving Shipping, always gets to me add one more item.
2001 Look Inside The Book
2002 Launches Amazon Web Services, exposing some of their features to the Web.
2003 A9.com, a powerful search engine used within the site.
2004 Exposes product data to developers on the Web.
2005 Amazon Prime, a club that offers fast, cheap shipping.
2006 Amazon Unbox, streaming movies.
2007 Amazon MP3, music downloads without DRM.

These innovations marked the mainstream acceptance of what might seem commonplace today. Certainly not everything was "invented" by Amazon, as many ideas came from acquisitions. But Amazon smoothed out the rough edges and put the entire package together.

Some of the more interesting advances aren't really related to retail at all. The Mechanical Turk, released in 2005. allows simple human tasks to be outsourced. For example, if you use the Amazon iPhone application to take a picture of a product (as described here), a job is submitted to the Mechanical Turk to match the picture to the product in Amazon's catalog, a task better suited to human than computers.

In order to keep up with demand at peak times, Amazon had to invest in a huge computer infrastructure that was underutilized most of the year. So they decided to sell excess computing resources to the public. Thus the Simple Queue Service (SQS), Simple Storage Service (S3), and Elastic Compute Cloud (EC2) were offered in 2006 as hosted technology. This has become very popular with start-ups that can't afford huge capital investments.

Oracle has partnered with Amazon to offer Oracle technology in Amazon's cloud. See Oracle's Cloud Computing Center for more information. Need a high-powered database, but can't afford the server and the DBA? -- just put your data in the cloud.

The next disruptive release from Amazon will be the Kindle2, expected to be announced next week. And watch for Amazon to take market share away from Apple in the area of digital downloads.