Old-school retailer learns new Net ways

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Sears, Roebuck and Co., among the most traditional retailers, is intent on transforming its procurement function this year into a dynamic online exchange that will revolutionize retailing. It’s a revolution Sears’ top brass says will be relatively easy to win.

But to capitalize on the b-to-b opportunity, the Chicago-based retailing giant must sell the concept both to its own employees as well as to its supply base. And that will require a cultural shift, company executives concede.

In many respects, Sears’ move to an online b-to-b Web marketplace resembles its adoption of electronic data interchange seven years ago. The company was one of the first retailers to fully embrace that technology and was steadfast in its commitment to it—so much so that suppliers who failed to adopt EDI were trimmed from Sears’ vendor ranks.

Now the company is promoting GlobalNetXchange, the online marketplace it formed with French retailer Carrefour and Oracle Corp. 11 months ago. Today, the number of participants in GNX has grown to seven equity retail partners and eight early-adopter retailers. Most of the activity has been in the form of marketplace auctions. Through the end of October, transactions exceeded $300 million, said a spokeswoman for San Francisco-based GNX.

GNX will not be a redux of its Draconian approach to suppliers during the EDI days, said Jerry Miller, Sears’ senior VP-CIO. Rather, Miller thinks the rate of adoption of GNX will be much quicker because of the Web’s ease of use. Indeed, Sears is not building a major marketing outreach program to promote GNX.

GNX, having filled out its marketing team, now is contemplating strategy and a marketing effort is expected in the "near future," a spokesman said. Details of any marketing program have not been developed, he said.

All the right moves

"We have a lot of our smaller manufacturers asking us for the past couple years to engage in Web transactions," Miller said. "Most of the suppliers see this as the right move, the inevitable move. Not only is it a cheaper transaction, but they see the benefits internally because this is going to enable them to better manage their own supply chain."

Nevertheless, suppliers have concerns. The Sauder Co., an Archbold, Ohio-based furniture manufacturer, considers Sears one of its key strategic partners, and it’s pleased with the duo’s collaborative efforts and use of EDI. However, Sauder has not yet committed to participating in GNX.

In part, company president Kevin Sauder doesn’t think the exchange auction platform is the venue for sourcing goods headed for store sales floors. Also, Sauder questions the cost of trying to interface with the different exchanges being formed. "That’s one of the difficulties in going in this direction," Sauder said. "EDI, while it didn’t solve all the world’s problems, was a unified standard. Now we’re seeing different standards from Lowe’s and Wal-Mart coming our way, and while they all mean well, they’re not consistent."

By year-end, Sears would like to see 30% to 50% of its transactions cross over the GNX hub, accounting for $5 billion to $12 billion; part of that will come from the gradual conversion of EDI traffic to GNX. Within three years, Miller predicts, up to 95% of Sears’ transactions will be via GNX.

That doesn’t mean that using GNX and adopting extensible markup language-based transactions is as simple as flipping a switch and writing a few memos.

"It’s a cultural change, it’s not really a technological change," Miller said. "I think most people realize that for us to be a successful company going forward, we need to do some things differently. To leverage opportunities, we have to change our business processes."

Indeed, retail analysts aren’t sure purchasing Goliaths of Sears’ ilk will be the biggest beneficiaries of online b-to-b marketplaces. And they aren’t sure that retailers, notoriously closed-mouth about their sales data, will effectively use the technology.

Aside from Sears’ effort, the other major contender is the WorldWide Retail Exchange, which was launched in March with the backing of companies such as Minneapolis-based Target Corp., Pleasanton, Calif.-based Safeway Inc. and Dutch retailer Royal Ahold NV.

Getting closer takes time

 "All these technologies take some time to take hold in an organization," said George Whalin, president of Retail Management Consultants in San Marcos, Calif. "If you look at Sears or anybody like that who’s been an old, staid company, they can’t get their stores remodeled. To assume that all of the sudden they adopt some cutting edge technology and it’s going to be a great part of their business is a little foolhardy."

Early this year, Sears will initiate pilots within specific merchandise categories, most likely major appliances and product services, to perform outright transactions on GNX for the Hoffman Estates, Ill.-based chain. Buyers in those areas will be among the first to switch their relationships with vendors from the telephone to the Web. Equally important, they will be the first to share real-time information on forecasting, raw materials planning, promotion and logistics. In major appliances, for example, vendors will be able to see daily sales activity and help Sears plan upcoming promotions.

"We’re going to be a lot closer to our vendors," Miller said. "We’re going to have access into their production lines. When you’re virtually linked with your supplier, we’re going to be able to take inventory out of the pipeline."

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