NRFtech 2009: Network-Centric Computing

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Brian Kilcourse, managing partner of Retail Systems Research, led a discussion on the pros and cons of the software-as-a-service (SaaS) approach to retail IT. The panelists were Vicki Cantrell, COO/CIO of Tory Burch; Arde Farbod, CIO of Bare Escentuals; and Dennis Hodgson, senior vice president and CIO of A.C. Moore.

Tory Burch’s high-fashion line is carried by a number of upscale department stores and in a growing chain of its own stores. Bare Escentuals specializes in additive-free cosmetics, and A.C. Moore is an arts and crafts retailer serving the eastern United States. Although these retailers compete in very different verticals, they are all relatively young, medium-sized ($200 million-$600 million) companies with a need to manage rapid growth.

The state of the economy is causing retailers to focus intensely on efficiency and loyalty-building, and the saturation of mature markets is fueling a growing quest for new ones. Sustainability is driving decisions about, among other things, product content, packaging, distribution and resource usage.

There is increased risk, not only from the consequences of failure to comply with increasingly complex regulations, but from market volatility and a lack of capital. Meanwhile, consolidation is intensifying competition among established players and giving rise to new and unplanned-for types of competition.

Virtualization, said Kilcourse, has a potential role to play in dealing with every one of these challenges. With regard to SaaS, “we’re talking about virtualization of the portfolio as a new way of delivering the digital assets we call applications: business rules and metadata delivered where and when they are needed.”

Some reasons a CIO might consider SaaS:
Cost of ownership savings. The elimination of data, application and hardware redundancies typically found in a highly distributed environment like retail.

Rationalization of the code library. Kilcourse illustrated this point with a story from his own past as a CIO. “When we did the Y2K study of our applications library, we discovered that 60 percent of the code was dedicated to either distributing or re-aggregating operational data. We’d love to be able to eliminate most of that.”

Dynamic allocation of resources to reduce the costs associated with over-capacity. “When you buy a new server,” Kilcourse said, “what do you plan for? Forty percent of full capacity, or the day after Thanksgiving?”

Yesterday’s news
“We have to manage to the rate of change in the business,” Kilcourse said, “and the truth is, we don’t do that. We’re slower than our businesses, which is what creates the backlog we deal with every day. We’re unable to get to new value because we spend so much time managing current value. The business needs it, but we don’t get any credit for doing it. We need to change the ratio.”

Tory Burch recently went virtual on the retail side of its business. Its existing systems consisted of “what we’d acquired to get us from point to point, without a lot of strategic thinking,” Cantrell said. “Now we have a significant company, and we needed an infrastructure than could support it.”

Tory Burch also needed to make a major culture change: it began with a boutique in New York, but its main business was supplying product to department stores, It was a wholesaler for a while, and then it was a retailer with a wholesale model.

The company implemented a full merchandising system, a warehouse management system, a POS system, customer relationship management, sales audit and business intelligence — all at the same time. The entire process, from first meeting to system-wide rollout, took five months, and the company expects to add a planning system shortly.

“I didn’t think we could absorb the change it would have taken to do all this in a traditional ‘we-own-the-hardware-and-license-the-software’ model, not to mention that what we needed was maximum speed and minimum disruption,” Cantrell said. “I’m a control freak, so SaaS was scary for me. But when I looked at the culture and what the company needed, I couldn’t see any other way to get from where we were to where we needed to be.”

Newness isn’t enough
Bare Escentuals is turning to SaaS to help gain control of its customer base. “In the beginning,” Farbod said, “80 percent to 90 percent of our sales came through QVC. Then came sales through Nordstrom and Sephora, and then our own stores — plus the online channel, which is very large for us.”

Rather like Tory Burch, Bare Escentuals is scrambling to keep up with its own growth. The company has six channels — all, at the moment, run as separate businesses. “We have strategies by channel, strategies by product,” Farbod said. “The challenge that we think virtual will help us meet is understanding our customers. We have QVC customers, online customers, our customers, but we don’t have a customer book that sees across channels.”

Since 2002, “our model has always been ‘newness,’” Farbod said. “The thing is, we know customer-centricity is vital to survival, and right now we have no visibility into that. I’ve said to the CEO and the board that in the next five years, if we don’t know our customers, newness is not going to do anything for us.”