As Published In July/August 2006

Oracle Helps Retail Businesses Grow
By Alan Joch

Detail-driven retailers are gaining competitive advantages with a new focus on customer data.

When consumers go online and buy a book, or walk into a store and buy a pair of jeans, most of them are unaware of an important fact: Complex software has ensured that the retailer has the merchandise—either available to ship, or in that store in that size, at a particular price. Retailers have increasingly turned to software solutions to satisfy their customers and manage and grow their businesses. And Oracle's retail applications, coupled with its database capabilities, offer companies the tools they need to give them a competitive edge.

One company that wanted to grow faster than its old software could handle was Parelli Natural Horsemanship, an equestrian education and equipment company, which had built a thriving business around a simple philosophy: Parelli customers achieve successful results when they develop a common language with their horses. Ironically, an outdated and piecemeal IT system kept the Pagosa Springs, Colorado, company from developing similar insights and bonds with its customers.

Not only was Parelli unable to identify its most-profitable retail customers; mounds of dirty data thwarted efforts to conduct sophisticated marketing campaigns based on information it had in-house. At one point more than 40 percent of its customer records were duplicates. "We had information spread around too many systems because of these different technological pieces," recalls Chris Dollar, IT director at Parelli. "We knew that system wouldn't serve us much longer."

That all changed in 2005 when Parelli opted for a single, enterprise-class relational database and a strategy for assuring that essential business and customer data remained available and trustworthy. "I can't say enough how great it is for us to have that one repository of accurate information," Dollar says.

In a world where retail businesses live or die from having the right information at the right time, data assurance is a strategic key to success. Obsession with information predates computers, to when merchants were famous for staying close to their operations. "They used to touch the merchandise; now they like to touch the data," says Paula Rosenblum, vice president, retail research, for technology research and consulting firm Aberdeen Group. "But [rather than] generic data," Rosenblum adds, "they want detailed information focused to their particular issues."

Data-centric retailers are making information integrity the backbone of their operations to ensure that every manager has the same views of inventory, pricing, and performance from every point in the delivery system.

Snapshots MercadoLibre www.mercadolibre.com Location: Buenos Aires, Argentina Industry: Retail Oracle Products: Oracle9i Database Release 9.2.05, Oracle9i Real Application Clusters Parelli Natural Horsemanship www.parelli.com Location: Pagosa Springs, Colorado Industry: Retail and education Oracle Products: Oracle9i Database, Oracle E-Business Suite Release 11.5.10, Oracle SQL Developer, Oracle XML Publisher, Oracle Discoverer Tomax www.tomax.com Location: Salt Lake City, Utah Industry: Information technology Oracle Products: Oracle Database 10g, Oracle Application Server 10g, Oracle Developer Suite 10g, Oracle Real Application Clusters 10g, Oracle E-Business Suite, Oracle Discoverer

"Retail is detail," says David Boyce, vice president of global marketing for Oracle Retail. "Retailers learn that every single detail of the business matters. The trick is [to think]: How do I get my share of the spending dollars in each market by offering merchandise that speaks to the local customer?"

The answer is a technology foundation built for reliability, easy integration, and accuracy, teamed with applications that let retailers "localize their offerings without giving up central control," Boyce adds. "Merchandising decisions, such as managing traffic flow, are still made by local store managers. Decisions about what products show up on the shelves and how they are staged throughout the supply chain, however, are made centrally. If you've got 1,000 stores and 200,000 products, the number of decisions that [central planners] have to make if you treat each store as a unique unit is unwieldy—that's more than a billion numbers to track across four seasons and across actuals, plan, and historicals."

Although automated systems are the obvious answer in managing and analyzing data, launching the technology isn't always that easy. The retail industry has special needs, created in part by the size of many chain stores and the amount of products that flow through the supply chain. Applications must be able to accommodate this quantity (see the sidebar, "Retail Applications Promote Collaboration").

The database, application servers, and middleware technologies must operate comfortably in this kind of high-volume, high-growth environment. Scalability and assuring the accuracy of data are essential.

Retailing also requires the ability to integrate all sales channels, ranging from stores to Web sites to catalogs. "There's a very short list of retailers who've done it right," says Boyce. Consumer frustration and lost sales for retailers can be the result. Finally, retailers need a reliable single version of the truth. The underlying database technology must be sophisticated enough to give an accurate central source of data even when volumes reach hundreds of thousands of products.

Manageable Power

MercadoLibre.com provides an online trading platform where more than 12.5 million registered users in Latin America carry out more than 1 million transactions per month. The company requires sophisticated data assurance systems to keep this volume of buying and selling flowing smoothly. "What's very important is the performance, stability, and availability of our platform," says Edgardo Sokolowicz, chief technology officer (CTO) at MercadoLibre.

Retail Applications Promote Collaboration Widespread use of commercial enterprise applications among retailers is a relatively new phenomenon. Unlike manufacturers, who adopted off-the-shelf enterprise resource planning 20 years ago, retailers in the last decade gradually loosened their tenacious hold on custom programs, believing that the size of their retail businesses and their unique product volumes presented needs that only proprietary applications could adequately address. Now that those attitudes have started to change, retailers have an additional weapon: the rise of tightly integrated retail applications suites that handle everything from supply chain and merchandise planning to promotions and markdowns, customer relationship management, and trend analyses. Oracle Retail solutions model this trend. Oracle Retail Merchandising System was built on Oracle database technology and developed to manage merchandise, supply chain, and store planning activities. "It provides the backbone for running a retailing operation," says David Boyce, vice president of global marketing for Oracle Retail. Retailers use Oracle Retail Merchandising System to manage master records of products, prices, vendors, and inventory levels, including in-transit merchandise. Oracle Retail Profit Optimization helps retailers customize individual store offerings for local customer desires and manage promotions and markdown strategies for maximum profits. Oracle's retail store solutions offer a set of applications to enhance customer service activities at point-of-sale and in cross-channel environments consisting of store, Web, and catalog transactions. Combining Oracle technology with retail applications relieves retailers from having to maintain custom code and integration interfaces among various best-of-breed products; concerns about consolidation have so far been unfounded. In-house integration projects at some of the nation's largest retailers have already successfully linked these formerly separate components, Boyce says. "And the companies that accomplished this aren't software companies. Integration is imminently doable, and Oracle is now doing that work on behalf of the retailers." Continuing on this evolutionary path, Oracle has plans to certify all its retail applications on Oracle Fusion Middleware, to be completed in phases. This is a significant step that helps more tightly tie and integrate the applications across the Oracle Retail suite, Boyce says. Other projects within Oracle enhance the abilities of retailers and suppliers to coordinate activities around promotions. "We have a number of assets that allow manufacturers and retailers to collaborate on trade promotions, including payment variability, estimates on how much of the product will get sold, or how much the retailer should buy," says Jeff Wexler, senior director of industry strategy for Oracle. Closer collaboration among suppliers and retailers will help in a crucial balancing act, he adds. "The retailers want to have as little inventory on hand as they can, but they also don't want to have the customer come in and not have a product on the shelf."

In the past, MercadoLibre relied on single, high-performance servers, including one with 24 CPUs. But last year, the company opted for a new strategy when it implemented an 11-node Oracle9i Database Release 9.2.5 cluster using Oracle Real Application Clusters (Oracle RAC) technology. Return-on-investment (ROI) estimates before the switchover predicted an eventual US$2.4 million return on the Oracle RAC investment, a rate that Sokolowicz says is borne out in practice. Instead of buying the two multi-CPU servers for US$800,000, Sokolowicz invested less than 10 percent of that for his commodity-PC cluster. "Now, as we continue to grow the business, we don't need to have more servers—we can just add new server nodes," he says. "We kill three birds—performance, growth management, and availability—with one stone, all while achieving our cost savings."

Scalability and dependability in a high-volume environment are also critical for Tomax, an IT hosting services company and creator of the Retail.net suite of applications for managing retail chains. Tomax relies on Oracle RAC and runs Oracle Application Server 10g Release 2 in a clustered implementation, which allows for load balancing to level out spikes in demand.

"When you become dependent on real-time data for understanding the business, you need to move in the direction of a clustered implementation," says Virgil Fernandez, CTO of the Salt Lake City, Utah-based company. "Using [Oracle] RAC for retail customers offers complete hardware availability and failover that's transparent to the application suite." So when one node crashes, the remaining nodes take over before end users notice performance problems. "Two months after one of our customers went live on [an Oracle] RAC implementation, a motherboard failed," Fernandez says. "The hardware provider took two days to get that figured out and repaired. Meanwhile, the entire enterprise ran on the other node and people didn't even know that a node had gone down."

The "hot snapshot" capability of Oracle Database maintains accurate data for any Tomax retailer. The snapshot is a copy of the production database, and the customer's data waits there in a standby mode and updates near real-time through archive log processing. "If there were a complete failure of the primary database, we can bring the standby to primary status in less than five minutes," Fernandez says.

Integration Challenges

A strong middleware layer can help retailers with a problem that vexes many operations that combine a chain of stores with Web sales and catalog business. The problem: A customer goes to the Web site to evaluate and choose a product, then arrives at the store to buy—only to learn that the product in question is sold only through the Web site or that the price is different from what's advertised online. "Even the best-in-class retailers are proving to be vulnerable in this area," says Aberdeen's Rosenblum.

Oracle Fusion Middleware is an example of technology that's "making it easier for the customer to integrate all of this," says Rosenblum. Besides efficiency, this integration may provide a business advantage, especially for new or small retailers whose sales now lag behind larger competitors. These firms understand that technological "leapfrogging" is a way to catch up, she says, adding that according to Aberdeen's research, over the next 12 to 24 months, there will be "a significant increase" in spending for multichannel integration.

Integration and scalability were priorities for Parelli last year when it went live with an Oracle E-Business Suite installation running with Oracle9i Database in an environment hosted by Darc, an IT services and management company based in Chicago. Parelli's growing business, with ranches at its Pagosa Springs headquarters and in Florida, offers classes, self-study teaching materials, and equestrian gear. Nearly 60 percent of its retail sales come through an online store.

Parelli's old IT infrastructure lacked a common data dictionary to facilitate information sharing among its applications, so the company had to maintain separate databases for its old enterprise resource planning (ERP) application, Web customers, and top customers. For example, a full-time employee was charged with rekeying Web orders into the ERP and accounting systems to complete the transaction. "We needed a way to integrate those systems before growth became too fast for us to keep up with," Parelli's Dollar says.

"Now we use [Oracle] Order Management for most of our retail orders and course enrollments—not only through the standard applications, but we use the open APIs [application-programming interfaces] that Oracle has to interface in our Web shop," Dollar adds. In addition, the Oracle iPayment module lets the company leverage its longtime relationship with its credit card merchant company while harnessing Oracle integration. "We're planning to sell gift cards, and we can write that code right into iPayment," adds Dollar. "So, any of our customers that want to [can] use that [gift card] on a phone sale that we do through the [Oracle] Order Management system. The APIs in iPayment are there so that we can write our custom payment servlet so that we can interface Mercury Payment Systems directly into Oracle."

Next Steps READ more about Oracle Retail applications Oracle Retail Merchandise Operations Management Oracle Retail Profit Optimization Oracle Retail Point-of-Service

The Oracle-based hosted system lets Parelli keep pace with demand. Even as sales rose 30 percent last year, the company saved money by decreasing its call center staff, and it no longer needed to rekey orders, thanks to productivity gained from integrating enterprise applications with a central database. "Whenever you've got information spread out in so many places, there's no real way to aggregate that to see who your best customers are," Dollar says. "Oracle lets you merge customers and identify duplicates and create that clean master."

When executives expanded Parelli's international sales earlier this year, the company handled the additional business without upgrading its IT resources. "This initiative would not have been possible with the old system," Dollar explains. "With Oracle, we can do the international currencies painlessly, and we get the stability we need from Oracle Database. Even though we hadn't planned for our international push to come so soon, the Oracle system was ready to handle it, which contributed to extra ROI."

Now that Parelli has customer information in a central spot, it's using the data for better marketing. For example, the company conducts road shows across the country to demonstrate its training techniques. With better customer data, it can pinpoint geographical areas where its best customers are concentrated and schedule events accordingly. Dollar says, "This year has been the best tour in terms of revenue per person attending that we've ever had." Getting closer to customers by riding on the back of data has never been easier.