Infrastructures that help sales

Source: Technology Digital

Date :29/05/2007 11:17:09

SAP’s UK Retail Director talks about emerging European markets, flexible ‘plug and play’ software solutions and future challenges for the industry

By James Hurley

The retail technology market is experiencing unprecedented growth. It’s a global market that has recently been valued at more than £35 billion, and it’s anticipated that it will grow dramatically over the next few years. Founded in 1972 in Mannheim, Germany as Systems Applications and Products in Data Processing, SAP is a recognised global leader in providing collaborative business solutions for all types of industries and for every major market. As the world's third-largest third party independent software provider, and the single largest business software company in the world, SAP delivers business solutions to more than 36,200 customers in more than 120 countries around the world. The company had a turnover of €9.4 billion in 2006 and employs over 39,000 people.

Richard Mills has experienced a host of changes in his four years at the company, but he believes the size and nature of the company protects it from potential downturns without compromising the level of specialist expertise that it offers. “When I joined, I wondered how you could be a retail specialist when retail is only one of 26 business units operated by the company,” he says. “The interesting thing is that retail is set up as a separate business unit. You get the power of SAP technology across the whole footprint, including all that technology expertise and all that stability, but retail remains a separate business unit. You get the best of both worlds.”

SAP’s global operations are divided into three regions; EMEA NEWS, America and Asia-Pac. It speaks volumes that the company has 600 retail specialists offering services across a range of industries in the EMEA region. Along with its SME (small and medium enterprise) and financial services operations, retail forms a central focus for SAP.

Consistent growth in a competitive sector

SAP now works with 33 of the top 50 global retailers.

Mills says that significant growth in the retail solutions industry is no longer coming solely from established markets such as the UK. “If you look at where the growth is, in EMEA it’s still coming out of established countries but in terms of new names and numbers of new names, it’s coming out of the emerging markets. In revenue terms, the UK was the second largest country in the EMEA region, but in new name count, the emerging markets were more significant.

“We’re getting more of the new names in percentage terms from Russia, Eastern Europe and that sort of area. What’s happening there is we’re seeing a big uptake and a lot of people investing in retail in those countries as people have more money to spend in the shops.”

While the competitiveness of the retail sector encourages companies to invest in SAP’s solutions, it’s a double edged sword for the company, as Mills explains. “The major challenges for us are external factors in the market place, which essentially means the challenge of getting money from retailers. It hasn’t been the easiest couple of years for retailers, with the minimum wage being enforced, landlords demanding higher rents, interest rates going up and retail spending slowing down. That’s about to hit companies’ bottom lines, so it’s a big, market wide challenge. For us, market forces can mean they find the money for things like increased rents from the investment pots, which is where we are usually placed.”

Technology designed for customers

Technology forms the cornerstone of what SAP is about in terms of integrated solutions and developing infrastructures to support the customer. While Oracle, SAP’s main rival, essentially established from scratch its core retail application offerings in 2005 from its acquisitions of both Retek and ProfitLogic, SAP has been more focused on finding incremental capabilities that will enhance its existing SAP for Retail footprint; the company is almost seen as having a semi-official policy of not acquiring other software firms. Where there are gaps in SAP’s portfolio however, the company is not averse to making purchases to fill them.

When SAP saw an opportunity to improve its integrated software for retail distribution in 1998, the company took over Dacoss in Germany for its Dispos 2 software. The Dispos 2 product was replaced by an enhanced SAP Retail solution, built from scratch using Dacoss's expertise. “Dacoss had a retail solution. SAP re-engineered it and took it back out to market in 2000. The whole purpose of that was to bring in their retail expertise and capability. A lot of those people are still there now,” says Mills.

Diversification

As competition in the sector intensifies, so the trend for retail diversification follows suit. “A lot of retailers are diversifying not only into different product ranges but also into different lines of business,” says Mills. “They’re getting into areas like insurance, banking and fuel. They’re also moving into different sales methods, from the internet to wholesale and kiosks. The UK is probably closer to the US in terms of how retailers operate.”

As retailers move into different areas, demand for flexible solutions increases. SAP has developed its technology and services to reflect this. “We’re not arrogant enough to say that if you go SAP, you’ve got to go SAP wall to wall. We’ve been developing our enterprise services orientated architecture, which takes it onto a level of being a plug and play solution.”

While new markets are opening up all the time, Mills still sees plenty of challenges and opportunities to address at home. “In the UK, we’re still not seen as the de facto solution for retail,” he acknowledges. “People often don’t realise what we can do in retail so that’s a massive opportunity for us. We have a 14 percent market share in the UK, and we really haven’t tapped into the market as much as we should have done in my view. We have a great customer base and exploiting that is something that we need to do, but it’s also a case of opening up new opportunities.”