BtoB

Rival retail e-hubs face off

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The b-to-b e-hub frenzy continues to roll across new industries, bringing with it a new wrinkle in the retail industry: competing, high-profile marketplaces.

Details of the newest buyer-driven retail hub began filtering out last week. It's backed by big-name retailers including Kmart, Target, CVS and Safeway.

This so-called Worldwide Retail Exchange, which has not yet picked a technology partner, competes with a similar hub announced earlier by Sears, France's Carrefour and vendor Oracle. The Sears-driven effort is dubbed GlobalNetExchange.

Retailers and industry watchers predict that unlike the auto and perhaps aerospace industries, where a few powerful buyers work closely with key vendors, the retail industry may be fragmented enough to support multiple supply chain hubs.

Indeed, in addition to these new industry-driven hubs, a wide array of independent portals--including Retail.com, Apparelbuy.com, Tradeweave.com and Fasturn.com, among others--have emerged focusing on core retail business processes, such as merchandise planning, product replenishment, surplus liquidation and more.

The retail and grocery industry will also likely increase its dependence on such exchanges slowly, given an industry structure where retailers see exclusive or preferred relationships with manufacturers as a key competitive advantage--both in terms of cost savings and the ability to merchandise exclusive products.

"We will continue to buy key national brands directly," said a Safeway spokeswoman, who like many of the other companies contacted said her company was still in the process of identifying executives to lead the new e-hub effort.

"We'll use it more initially where we don't have a relationship with a particular manufacturer, for more commodity, raw materials," she said.

The exchange will also let Safeway work with a broader range of suppliers than previously possible, the spokeswoman said, a sentiment echoed by other players.

"Companies will start with things they've never done before: automating internal purchasing, working with smaller manufacturers. Then they'll move into more direct procurement with key suppliers," said Don Gilbert, senior VP of IT for the National Retail Federation.

"Hopefully things will become more collaborative and less confrontational. Companies will be able to share information that they haven't had access to in the past."

Fast times

Retailers and their suppliers will also have to move much more quickly ever before. Even when using electronic trade mechanisms such as electronic data interchange, or EDI, it has taken years to agree on standards and get even the most rudimentary systems implemented, National Retail Federation's Gilbert said.

"They'll have to move more rapidly. EDI networks and standards changed every five years. Exchanges will change every three to six months," he said.

Executives running existing, independent retail exchanges warn these new, buyer-driven hubs will run into problems if they are too tightly controlled by a few powerful buyers.

"Neutrality is the key. You have to be neutral," said Ariadna Navarro, retail hub brand manager for industry to industry Inc., which is building a series of vertical hubs in retail, chemicals and other industries. "If you expect Wal-Mart to buy from a Sears-driven exchange, don't hold your breath."

Gilbert agrees that while large retailers may be able to support their own hubs, they'll have to integrate with others in the industry to be truly successful.

"It's Metcalfe's Law," he said. "The more nodes on any network, the more successful the network will be."

At least one analyst sees retail following the auto industry and quickly consolidating its two major hubs.

"The Worldwide Retail Exchange has stolen some of the thunder for the GlobalNetExchange," said Janet Suleski, analyst with AMR Research. "I think what will happen is the two exchanges will need to work together. The differences between the two exchanges are rather artificial."

Others see room for many exchanges.

"Consolidation will follow the industry's own consolidation pattern. Retail is much less consolidated in general," said Kevin Jones, CEO of Net Market Makers, which closely tracks the development of vertical hubs and exchanges. "Companies are placing lots of bets, and there will be a need for independent platforms as well as industry coalitions. Marketplaces open up more options than they close down."

Supplier benefits

In the auto industry, large suppliers were credited with convincing Ford, General Motors and eventually DaimlerChrysler to fold their separate exchange efforts into a single hub. The more fragmented retail supply chain may not wield the same power. But suppliers can benefit nonetheless.

Indeed, from the supplier's perspective, automation can also reap rewards, especially with the large national brands. With products from such suppliers as Proctor & Gamble or Coca-Cola Co., negotiations on the way the manufacturer supports and advertises its products are a standard part of any price negotiation.

With these new trading marketplaces, suppliers will be able to track the efficacy of national campaigns from a single store in Topeka, Kansas, or all the stores in Manhattan. That's a powerful formula for maximizing returns on marketing dollars, according to Jeremy Hollows, Carrefour's CIO.

"For big suppliers, we can eliminate costs and radically improve communication by moving a whole load more information than you ever could with EDI," said Hollows, whose Paris-based Carrefour sells mostly grocery items in Europe. "We will be able to help with all phases of their marketing, including product launches."

The full list of participants on the new Worldwide Retail Exchange include: Tesco plc, Marks & Spencer plc and Kingfisher plc of the U.K.; Auchan SA and Casino Guichard Perrachon of France; Royal Ahold of the Netherlands; and Albertson's Inc., CVS Corp., Kmart Corp., Safeway Inc. and Target Corp. of the U.S.

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