Retail Lessons

These days, clicks-and-mortar post-mortems are more widely read than Harry Potter novels. Supply chain management stalwarts such as Wal-Mart are still struggling to reinvent themselves as online frontrunners. And courteous in-store managers have given way to indecipherable online FAQ postings. From unique equity arrangements to customized Web sites, these strategies serve as valuable lessons to those looking to grab a slice of today's trillion-dollar B2B e-commerce pie.

Take Sears, Roebuck and Co., for example. In February 2000, the legendary U.S. retailer inked a deal with Carrefour of France and The Oracle Corp. to create a global online marketplace for the retail industry. Dubbed GlobalNetXchange (GNX), the joint venture enables members to buy, sell, trade or auction all types of retail merchandise over the Internet using standard Web browsers. By electronically linking trading partners, GNX promises to trim retailers' purchasing costs, increase collaboration and enhance supply chain efficiencies. In fact, Sears currently spends roughly $100 an hour on electronic data interchange. Using the Internet could reduce that figure to $1 per hour.

Such grandiose mission statements can be found on the home pages of many of today's highly publicized B2B marketplaces. The difference, however, is that GNX is already up and running. Since its February launch, this global exchange has added a string of new partners including German retailer METRO AG, British retail conglomerate J Sainsbury and Australian retailer Coles Myer. Together, GNX retailers account for approximately $200 billion in purchases from more than 70,000 suppliers, partners and distributors around the world. To date, the company has hosted more than 30 auctions and boasts nearly $100 million in purchase volume. And Fortune Magazine recently ranked GNX one of the premier retail B2B companies.

But ensuring instant operability is not the only lesson companies could stand to learn from GNX. According to Larry Costello, senior manager of communications for Sears and GNX, the equal representation of participants can mean the difference between provoking competitors and luring partners.

"When we initially launched GlobalNetXchange, there was some concern about the [company's] equity set-up and that was being misinterpreted by some of the retailers out there that were considering joining exchanges," says Costello.

It's easy to see why. Originally, Sears and Carrefour shared the majority interest in GNX. A distribution of power that repelled potential participants, the company soon tweaked its partnership structure to ensure that equity is based solely on the amount of volume that a retailer commits to the exchange.

Still, the prospect of relinquishing purchasing power to a collective of archrivals is a bitter pill for many companies toswallow.

Explains Laurie Orlov, an analyst with Forrester Research in Cambridge, Mass.: "Whenever competitors get together to make decisions about anything ... the decision-making process, who's in charge and who's internal business process is used as the ideal model all become issues."

But as automotive, aerospace and agriculture companies scurry to form alliances, industry experts say that it's retailers that could stand to lose the most by participating in exchanges. After all, a seamless procurement strategy is precisely what can separate a multibillion-dollar retailer from a struggling mom-and-pop shop. It's no wonder then that retail behemoth Wal-Mart declined to be interviewed for this article and Walgreens, J.C. Penney and K-Mart all failed to return calls.

Enter MarketMAX Inc. A Massachusetts-based provider of management software and decision support tools, the company recently unveiled Market4Retail.com, a B2B electronic marketplace for retailers. This application not only integrates retailers' and suppliers' planning and operational systems but enables them to work collaboratively on all aspects of merchandising and procurement decisions. But while MarketMAX's enterprise system has lured retailers including Williams-Sonoma, Circuit City and American Greetings, it's the company's decision to focus on the development of private networks that is breaking new ground.

In June 2000, MarketMAX penned an agreement with Amazon.com to create a network that will link the lone retailer with a host of suppliers. Unlike the Big Three automakers' proposed exchange, the project promises to improve Amazon.com's procurement strategies and supplier relations without requiring self-exposure to key competitors, or worse, eliciting the attention of antitrust authorities such as The Federal Trade Commission.

Warns Donald Peck, chief financial officer of MarketMAX: "The model of three automakers all going on to the same exchange -- it may be flawed. I think they're going to be loath to put the resources and the real commitment behind it because they're afraid that they're going to lose competitive advantage to the other."

Not one to be outdone by its competitors, giant apparel retailer Lands' End has also spearheaded a host of strategies that B2B enthusiasts would be wise to examine. The Wisconsin-based company has collaborated with Commerce One and Ariba in order to supply corporate buyers with customized Lands' End merchandise. Rather than flip through countless glossy catalogs, buyers can now gain access to Lands' End corporate products through a global trading portal.

Conscious of the fact that not all buyers can afford to implement sophisticated purchasing procurement software, Lands' End has also developed a less expensive sales channel that caters to today's small and mid-sized companies. Dubbed Online Custom Stores, these customized Web sites enable a company's employees to purchase pre-approved Lands' End merchandise online, within set budgetary limits. Clients currently include Saturn, Bell South and Radio Shack.

Says Mike Grasee, director of e-commerce for Lands' End corporate sales division: "Some of the Fortune 1000 companies are willing to [invest in expensive procurement systems] because of their size and scale ... Other companies are also looking for the same efficiencies of the Web but for them, it's not cost-effective to implement something that sophisticated."

Fulfilling the needs of both multibillion-dollar corporations and mid-sized retailers is a costly and time-consuming proposition, but it's well worth the effort. According to Grasee, the company's corporate sales amounted to $140 million in 1999, 10 percent of Lands' End's overall revenues.

As for Lands' End's own team of nearly 10,000 employees, the company has recently implemented a platform that enables employees to purchase office supplies online. And the development of an online paper procurement process is currently in the works. But satisfying the varying demands of its clients is of utmost importance to Lands' End, a company whose offline procurement processes are as legendary as they are top secret.

"Connecting to Ariba and CommerceOne is what our customers want, but we also know that six to 12 months from now, they are going to want us to be in different places as well," says Grasee. "So we've really tried to architect our whole e-commerce initiatives to make sure that we're very nimble and responsive to our customers' needs."

All of which highlights the retail industry's compelling advantage over manufacturing and industrial companies interested in creating e-commerce exchanges. Having served decades on the frontlines of exorbitant marketing campaigns, fly-by-night fashion trends and endless focus groups, retailers not only know their customers, but they know what is required of their suppliers to meet consumer demands.

Says Kurt Barnard, president of Barnard's Retail Trend Report, a firm that forecasts retail industry and consumer spending trends: "The retail industry is in a very unique position. It deals with you and me -- customers. And we are far more in contact and in touch with what the market wants, needs, can absorb or would reject ... than those companies that do not deal directly with the consumer."

That's not to suggest, however, that retailers don't have their own growing pains to endure. Convincing companies-buyers and suppliers alike-to invest in an exorbitant global exchange calls for a compelling equity arrangement, not unlike that of GNX. And ensuring that an online hub boasts enough products to buy and sell is yet another challenge facing today's B2B retail marketplaces. Issues of power balance and liquidity aside, the retail sector has nevertheless managed to find innovative ways to create trust and forge common business objectives with suppliers. The equal representation of participating companies, the development of private networks, customized Web sites, working with suppliers to anticipate consumer demands-they are all strategies that non-retail B2B marketplace participants should heed.

Whether or not heavy-hitting e-commerce portals such as the automotive industry's AutoXChange.com will be able to facilitate such a psychological shift from competitors to team players remains to be seen. But one thing is for certain: For every doomed dot-com endeavour, the retail industry has a valuable B2B lesson worth learning.

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