Vendor Ratings, VDR Maria Jimenez, Andrew White

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1 Vendor Ratings, Maria Jimenez, Andrew White Research Note 29 October 2003 Vendor Rating: Retek Retek is a recognized retail software vendor with a large customer base, but it faces stronger competition and its newer products are still maturing. It needs to move into profit and expand its international presence. Retek Overall Rating: What You Need to Know: Retek s success in the retail market has been based on its scalable merchandise management solution, adopted by large retailers. management is becoming commoditized, and retailers are seeking more planning and optimization solutions. Retek s response is still maturing and it faces increased competition. But its competitors lack Retek s knowledge of the complex retail environment. Retek s biggest challenge will be its conservative international strategy and its recent plan to address smaller customers on a larger scale at a time when the number of competitors is growing. Retek customers willing to expand their software portfolio should evaluate other modules from Retek. Retailers with high volumes and complex needs should also consider the company. Retailers with lower volumes or less complex requirements in merchandise management should evaluate Retek s solutions against enterprise resource planning or niche products. Analyst Comments: Since 1999, Retek has nearly tripled its revenue from $69 million to $192 million. But in an increasingly competitive environment, it has not been profitable in the same period. Our overall rating is promising. Detailed Rating: Initiative Corporate Viability Strategy Financial Marketing Organization Market Offerings Product/Service Technology/Methodology Pricing Structure Customer Service/Support Sales/Distribution Support/Account Rating Positive Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Corporate Viability: Retek was founded in Australia in 1986 as a merchandise management vendor, and has since expanded its offerings to include supply chain management and point of sale (POS) functionality. It signed its first American customer in Retek s product is seen as a solution for large retailers. It has sold applications to nine of the top 25 retailers worldwide, and its customers include Best Buy, Tesco, Toys R Us and Gap. Yet about a third of Retek s customers have annual revenue of less than $1 billion, and over half of these smaller clients are outside the United States. Retek has only 638 employees worldwide to serve more than 150 customers and relies on partners for most implementation activities. This strategy has enabled it to focus on sales and software development. Its first strategic alliance started in 2000, with IBM. Retek s worldwide strategic relationship with Accenture has been a key element of its success. Accenture has opened doors for Retek on many occasions. Retek plans to seek customers in more retail subsegments and offer special deals for smaller retailers. In future, Retek s strategy is to continue to broaden its installed base and to deploy a special offering for the mid-market. Financial Stability Retek s revenue has increased consistently since 1998, but it has not been profitable during this period (see Table 1 and Table 2). Table 1 Retek s Revenue From 1999 to 2002 (Millions of Dollars) Total revenue Operating income (loss) (7.1) (65.6) (23.3) (46.7) Net income (loss) (5.4) (42.9) (14.3) (123.6) Source: Gartner Research (September 2003) Table 2 Retek s Revenue From First Three Quarters of the Financial Year, 2002 and 2003 (Millions of Dollars) Nine months ending 30 Sept 2003 Nine months ending 30 Sept 2002 Total revenue License and maintenance Services Services as a percentage of the total 47.2% 27.5% Source: Gartner Research (September 2003) Retek has announced better than expected results in 3Q03, especially in contract value, but the reported results for the first nine months of FY03 indicate that its business was slower during this period than during the same period in Reported software revenue has experienced a sharp drop, while services have grown significantly. Retek s consulting partners usually bring it into the selection process, so the partner is sure that it will get the implementation work. Retek will need to be cautious about its strategy of increasing service revenue, as this move could affect its partnerships. 29 October

3 Retek s performance reflects a poor overall market in business applications and stronger competition from a growing number of point solutions in areas like collaborative planning, forecasting and replenishment (CPFR), price optimization and data synchronization, and from enterprise resource planning (ERP) vendors. As vendor viability has become a key issue for customers (see Supply Chain Client Issues for 2004 ), Retek s lack of profitability is a concern. Retek anticipates it will reach operational profitability by end of Growing demand for retail solutions could lead to Retek being acquired its brand name makes it a prime target for any large software vendor wanting to break into retail. The risk of acquisition does not reflect on the management s resolve; it is a characteristic of the market this vendor participates in and of its situation. Users interested in Retek s solution should assess their risk tolerance and balance it against the benefits gained by deploying Retek s, rather than another from a different company. Risk-averse retailers should consider making phased investments that have a rapid positive return on investment. Marketing: In the first six months of 2003, Retek accelerated its announcements of new products, including: An integrated store operations solution, introduced in May 2003 A markdown optimization solution, which helps retailers sell stock more effectively An advanced inventory planning solution A partnership with Blue Martini for in-store configuration and analytics Users will find these extra functions useful additions to their merchandise management. But the applications must be thoroughly evaluated, because most of the components are still maturing. Retek is focusing its technology messages on integration and Linux. Three customers run Retek s Integrated Store on Linux including Mark s Work Warehouse in Canada and The Bombay Company. Retek has decided to offer a simpler solution for retailers with revenue of less than $3 billion Retek Ina-Box. This product is marketed as including everything the retailer needs to get its retail applications in production in approximately six months, but it is not clear what functionality has been excluded, nor what the company plans to charge for it. Retek In-a-Box includes hardware, database, middleware, operating system, implementation and integration (with installation, configuration, integration and training, and a fixed number of custom extensions and interfaces to other applications). The company has yet to prove that it can deliver Retek In-a-Box within six months to many customers simultaneously. To avoid surprises, companies interested in Retek In-a-Box should make sure their contracts include hard deadlines and clauses that clearly state what is included and what is not. Organization: In March 2003, a new President and CEO joined Retek from Accenture. The new management team s strategy is to sell more existing product functionality, rather than the functionality that will be available in the future. This conservative strategy, if fully implemented, should improve customer satisfaction and company profitability. Deployments should be quicker and more efficient, encouraging further investment in Retek applications. This is especially important, because we have 29 October

4 anecdotal evidence that disappointing implementations that require more modifications than initially planned have caused customers to reduce the scope of Retek projects in the past. Retek is still rebuilding its international management team. It has made a promising start by reappointing its interim worldwide international sales vice president, who retired in More recently, Retek promoted a new general manager for Europe. It remains to be seen whether these changes will lead to increased international penetration. Market Offerings: The Retek applications solution is segmented into six areas, as shown in Figure 1. Figure 1 Retek s Enterprise-Ready Point Solutions & & Channel Assort to Space Assortment Customer Item Markdown Visual Space Promotional : -Replenishment : -Replenishment --Item --Promotion --PO Mgmt --Vendor -Price -Markdown -Stock Ledger - Import - Price -Stock Ledger - Sales Audit Invoice Matching Rules Based Pricing Collaborative Design & Source* & Demand Forecasting CPFR* Replenishment VMI Allocation Supply Chain Execution Warehouse Labor Scheduling & & DC Labor Scheduling Integrated Store Point of Sale Store Back Office Order Service Time & Attendance Enterprise Infrastructure Solutions Delivery Data Warehouse Consulting Alerts & Workflow Training Workbench Custom Development Integration Bus Customer Support *Available to existing retail.com customers. New customers will license in a non-asp environment. Available today Service & Solution Under Development Direction Source: Retek (October 2003) Only a few customers have adopted the entire suite, because apart from many of the applications are recent. This situation represents a good opportunity for Retek to sell these newer products to existing customers. When speaking with reference customers, prospective customers should check carefully which products they are using. Table 3 Retek s Solutions Overview 29 October

5 Product line Coverage Customers Our analysis Retek s traditional modules, also called core merchandising 96 customers wordwide (247 applications), including Best Its installed base is a major asset because it provides maintenance revenue and makes it easier for Retek to sell newer solutions Buy and Tesco Merchandize and Eight modules, of which three require modeling services 30 customers (66 applications) including Fnac These products have not been deployed significantly, and prospects should be aware that they will be early adopters. and Gap and Besides demand forecasting, replenishment 65 customers (114 applications) Retek offers CPFR-like functionality but has no live CPFR implementations. planning, allocation planning and vendormanaged inventory, Retek offers an inventory optimization solution that requires modeling services including Family Dollar, Walgreens and WH Smith Supply Chain Execution Primarily warehouse and labor management 56 customers (57 applications) including DeSpar, New Look and Retek s warehouse management system, known as RDM, provides higher value when implemented in conjunction with merchandise management. Tesco Integrated Store One of Retek s most recent additions, it covers POS (following the acquisition of 32 customers (39 applications) including AVA, Retek s aim is to deliver a complete store operations infrastructure. It is an innovative and broad vision. Chelsea POS), cash management, store labor management and store inventory management Best Buy and The Bombay Company Enterprise Infrastructure Mainly made up of data warehouse tools and an integration bus (powered by SeeBeyond). Retek 10 marked the launch of the Retek integration bus (RIB) 80 customers (144 applications) including Femsa, Longs Drug and Nexcom. Six customers have live installations of RIB and 14 more plan to be live by June 2004 Retek s reputation for providing loosely coupled, stand-alone modules came from its previous inconsistent and opportunistic R&D strategy. RIB aims to change this, but it is early days. Source: Gartner Research (October 2003) Services Retek s growth has been closely linked to its strategic partnership with Accenture, which has aided both pre- and post-sales activities. A quarter of Retek s employees work within its services and support team around 150 people to serve more than 150 customers. By contrast, Accenture claims that more than 400 employees work on Retek projects, showing just how vital the Accenture alliance is for Retek. IBM is 29 October

6 Retek s second strategic partner, but it has not made the resource commitments that Accenture has. The relationship focuses on two areas: Providing global implementation services for the food and drug segment of the retail market Providing hardware for many customers The company also has eight partnerships with smaller consulting firms (Active Intelligence, BearingPoint, Deloitte Consulting, Enabler, Online Resources, Peter Hora & Associates, Sedlak and Tata Consultancy Services). Pricing Retek s prices take into account factors like company size (number of locations and users) and how much customization is required. Some solutions include several components or add-on modules. Retek is reputed to be expensive because of the systems integration and configuration work required. The company may reduce license fees to help cautious retailers considering investing in its solutions. But customers should not expect to negotiate discounts on the overall project cost, except when Retek is the prime contractor for the entire project. Customer Service/Support: Sales Distribution Retek s strongest region is North America, from where it draws just over half its revenue. Outside North America, the company has offices in the United Kingdom, France and Germany. Retek considers Southern and Central Europe to be growing markets, but has been very conservative in its investment. Its strategy is to consider opening an office in a country only when it has secured at least one large customer there. This does help to control costs, but will not help the company sustain expansion of its presence and market share. Retek has no direct sales offices in Asia. Retek should change this conservative strategy to stay ahead of SAP, which is targeting retailers more aggressively and has offices in more than 50 countries. Retek could find that conservative expansion is not the best strategy. It has to balance the risks and rewards of this strategy, as it may lose, or not be involved in, key deals. Retek has a well-known brand, but users seeking a retail software solution should compare Retek s functionality with its competitors, especially in countries where it has a limited direct presence. Support/Account Although the organizational changes are promising, the real test is whether Retek can execute its strategy of being more conservative in sales while offering better customer support. Users and prospective customers should monitor the most recent reference customers to ensure that Retek s delivery and commitment to customers is improving. They should also check the company s profitability. Retek is expanding its portfolio of regional partners to improve customer satisfaction. Users should monitor recent implementations where Retek is the prime contractor. They should use Retek, rather than a partner, only if Retek s involvement will mean better service. Retek has limited resources. Related Research and Ratings: SCM Solutions: No One-Size-Fits-All for European Retailers 29 October

7 Vendor Rating: JDA Software Group Answers to Retailers Top 10 Questions on SAP for Retail Rating Definition: Strong Positive Positive Strong Negative Solid provider of strategic products, services or solutions. Customers: Continue investments. Potential customers: Consider this vendor a strong strategic choice. Demonstrates strength in specific areas, but is largely opportunistic. Customers: Continue incremental investments. Potential customers: Put this vendor on a short list of tactical alternatives. Shows potential in specific areas; however, initiative or vendor has not fully evolved or matured. Customers: Watch for a change in status and consider scenarios for short- and long-term impact. Potential customers: Plan for and be aware of issues and opportunities related to the evolution and maturity of this initiative or vendor. Faces challenges in one or more areas. Customers: Understand challenges in relevant areas and begin to assemble contingency exit plans as needed. Potential customers: Note the vendor s challenges as part of due diligence. Difficulty responding to problems in multiple areas. Customers: Exit immediately. Potential customers: Consider this vendor only if there are no alternatives. Core Topic Supply Chain - Strategies, Applications and Technologies ~ ERP II, Supply Chain & Manufacturing Retek Headquarters: Minneapolis, MN Web Location: 29 October