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VARs assess retail market business opportunities

Although 2009 was a tough year for solution providers, the new year offers hope from e-commerce and hosting.

So, just how difficult are things for channel partners looking for business opportunities in the retail market space?

Don't ask.

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As the holiday buying season ramps up, it's not clear that the health of the retail market for VARs is recovering.

A number of companies contacted to gauge the health of the market for resellers, integrators and solution providers declined to participate. Some executives would only speak anonymously.

Said one: "Retailers are reluctant to spend [on] anything that is not absolutely essential. They will spend if there is a concrete ROI with a short payback or for regulatory reasons. ... Other than that, they will not spend on anything."

It's hardly surprising. Consumer spending has languished during the economic downturn. The trend since mid-2007 has been marginal retail sales growth or a decline. The Commerce Department's October retail sales report showed a better-than-expected 1.4% increase compared with the previous month. But that report followed a 2.3% decline for the August to September period.

When customers don't buy, retailers don't invest as much in IT.

"People have really put projects on the shelf," said Glyn Kirby, executive vice president at OLR, an integrator that focuses on Oracle Retail applications. "They are waiting for capital and positive signs of improvement in the economic picture."

Bright spots in the retail market

But the outlook isn't completely gloom and doom. Kirby noted many of the retailers he works with find themselves in a fairly good cash position. Those companies have cut costs and are now at least starting to think about launching projects, he added.

OLR does much of its work in the core merchandising space, with customers ranging from $200 million to $5 billion in revenue. The company also pursues planning and optimization systems, which retailers use for financial planning and demand forecasting among other functions. Customers for those systems can vary in size, Kirby said.

Dave Boyce, vice president of product strategy for Oracle Retail, said retailers below the $2 billion mark have had to think about capital constraints. But larger retailers, particularly those in the $5 billion-plus category, haven't pulled back on strategic projects.

Large retailers also show a heightened interest in outsourcing. Harvey Gluckman, partner and managing director with TPI's retail practice, said larger retailers have increased their pursuit of outsourcing deals during the recession -- a pattern that began in the second half of 2008. He said those retailers have demonstrated a greater willingness to part with back-office systems, where they resisted outsourcing in the past.

Rich Harmatiuk, vice president and general manager of Escalate Retail, a retail solutions provider, cited another bright spot in a tight market: e-commerce.

"Retailers are still closely guarding their dollars, but we continue to see movement in e-commerce, particularly with smaller and mid-tier retailers. We're seeing an increased amount of RFPs from this sector," he noted.

Open Source Strategies Inc., an open source developer and integrator, cited online retailers among the users of opentaps, an ERP/CRM suite that the company sponsors. The software incorporates open source projects such as Apache Geronimo, Tomcat and OFBiz, according to the opentaps website.

"In general, it has been a difficult market for ERP and CRM software due to the economic downturn, but we have also seen increasing adoption of opentaps during this period," said Si Chen, founder of Open Source Strategies. "I suspect that part of it is due to the lower cost of open source ERP and CRM software such as opentaps."

Hosting goes retail

Hosted software is also making an impact on the retail market.

OLR last year went live with its first hosted and managed retail project -- a deployment of Oracle Retail version 12 for A.C. Moore, the arts and crafts specialty retailer. Kirby said OLR launched its hosted offering in light of the bleak economic situation. The approach aims to decrease the up-front costs associated with core merchandising applications.

On-premises core merchandising applications tend to be expensive and resource-intensive to deploy. To get a project moving, customers must pay for software licenses and maintenance contracts while also absorbing hardware and infrastructure costs. In addition, they have or hire IT personnel with expertise in the retail platform.

"In the first 12 months, you have this huge mountain of cost you have to climb to get to the other side and start to realize value," Kirby explained.

In OLR's hosted model, customers still buy a software license. But they do so over a three- to five-year period, paying a monthly fee. They also pay a monthly fee for OLR's managed services. This approach spreads the cost of implementation and infrastructure over time.

OLR's hosted offering appears to be catching on. Kirby said the retail market "is as robust as I've seen it for the last 24 months. I'm excited for next year."

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