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BOSTON -- SAP used the recent massive SAPPHIRE '05 event in Boston to showcase The Home Depot as the newest company signing on to the SAP for Retail suite, adding major momentum to what was already a series of important retail wins in recent months, including The Limited, Wawa, and Fossil. SAPPHIRE '05 afforded us the chance to further assess SAP's position in the retail software market and hear from retailers themselves as to why they chose SAP.
The Bottom Line: Recent retail success clearly puts SAP into a growing industry leadership position, but functionality challenges and development timelines could hinder the transition from contract signing to successful deployment. What It Means: SAP has been struggling to penetrate the North American retail market over the past five years during the aftermath of the troubled Jo-Ann Stores and PETsMART implementations. The wins at The Home Depot and Limited Brands provide a much-needed opportunity for SAP to overcome perceptions created by those early deployments. Conversations at SAPPHIRE '05 with retailers such as Brookshires, Indigo, The Home Depot, Wawa, and Wickes Furniture revealed the following thoughts on SAP's commitment to retail. Retailers plan to expand deployment as the SAP enterprise retail suite matures Most described SAP implementations that start with core Enterprise Resource Planning (ERP) elements, such as financials, follow with more retail-specific functionality during subsequent phases. Enthusiasm was tempered with the understanding that it will take time for SAP's retail-specific product vision to fully manifest itself while it fills in important application portfolio gaps in areas such as demand intelligence, merchandising, replenishment, and store operations. For example, the official Home Depot announcement was tempered by a statement that SAP's retail applications would be used wherever possible. The AMR Research Alert article "Dear SAP: How to Spend $25M (or $500M) on Your Retail Software Suite" offers details about where SAP's weaknesses are most evident and where development efforts are needed. Detailed research, such as the AMR Research Report "Advanced Retail Planning: Achieving Effective Demand and Merchandise Synchronization," January 2005, further illustrates the gaps in SAP's planning abilities. Surprisingly, Workforce Deployment (WFD), SAP's Web-based workforce management application, wasn't cited by these retailers as part of their rollout strategy. With this product being more mature than some of its merchandising applications, SAP must do a better job highlighting it during the overall enterprise sell. If done right, retailers will gain tactical value from WFD while other retail planning and optimization functionality matures. The Takeaway: Retailers must not compromise their specific retail software requirements simply because SAP strategically claims that eventually it will have it all. Ensure that application functionality is measured against other clear SAP benefits like architecture, scalability, company strength, and core process management. Retailers consider SAP a platform for growth Having just selected SAP, these North American retailers share a common view of SAP as the center of a long-term business platform to support future business growth. This perception was drilled into them by their SAP sales team as being centered on SAP's financial strength, global presence, strong international functionality, and, in some cases, the need for capabilities that extend beyond retail. As retailers move beyond traditional selling activities, they look to SAP's multi-industry software platform to aid nimble movement in new business models such as services, manufacturing, and design. Tight integration among retail applications was also appealing to participants as they strive to lower Total Cost of Ownership (TCO) by avoiding the need to maintain myriad integration interfaces among disparate technologies. The Takeaway: SAP for Retail has all the makings of a broad, foundational software platform that can help support retailer short- and long-term goals for corporate administration and strategic merchandising from supplier to the shelf. Conclusion: The Home Depot and Limited Brands wins show that retailers are willing to pursue long-term partnerships with vendors they believe can provide the enterprise platform necessary to sustain and grow their businesses. With significant functionality gaps, SAP has been targeting the CIO or CFO for its retail wins on the basis of technical architecture, lower TCO, and future vision. All of the senior executives interviewed came from one of these two functional areas. SAP will be hard pressed to win business users until it fills these gaps. One CIO admitted that his business users actually preferred the functionality of other retail application vendors over SAP, and another acknowledged that there was still work to be done in achieving business benefit targets a year after rollout. Retailers considering SAP should probe references regarding progress against development timelines to confirm the likelihood of timely vision realization. With its financial strength, SAP has the ability to further change the game in enterprise retail software by investing in accelerated development or seeking out acquisitions. Expect more activities that will accelerate the closure of SAP's retail functionality gaps. All materials copyright & copy; 2005 of the AMR Research Inc. AMR Research, Inc. is a source of analysis and advice for executives responsible for delivering performance enhancement and cost savings aided by technology. AMR Research aggregates best practices from leading global companies and provides tailored, actionable advice and research reports to every client. More information is available at www.amrresearch.com.
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