SAP conversion causing retail headaches for fabric chain

Jo-Ann Stores Inc., a $1.4 billion chain of fabric and craft stores, today reported its third-quarter financial results had a cross-stitch put in them by two technology-related issues: continuing start-up problems with a retail version of SAP AG's R/3 software that was turned on last spring and a loss stemming from the company's involvement in an e-commerce venture.

The Hudson, Ohio, company is still in the middle of a $30 million conversion to SAP's back-office applications for retailers, a system that went live in April (see story). But Jo-Ann said it is having trouble keeping enough products in stock while processing restocking orders through the SAP Retail software, contributing to lower-than-expected earnings in the third quarter.

"It's just been a very painful systems conversion," said Brian Carney, Jo-Ann's chief financial officer. "It's not necessarily the software's fault, and we're happy that our business will be running on SAP. But it hasn't been easy."

Carney confirmed that the conversion has taken longer than the company expected and said Jo-Ann still expects to experience out-of-stock glitches in its crafts business during the current fourth quarter. In its third-quarter financial report, the company said it hopes to resolve the problems "as quickly as possible," but offered no specific timetable.

Jo-Ann's business operations are a difficult proposition for any retail software to handle, Carney said, with 100,000 active product items needing to be tracked at more than 1,000 stores. "We're a very large implementation for SAP," he said. "There's a constant trade-off in performance between needing speedy run times and delivering the kind of detail it takes to place our orders."

Despite the out-of-stock problems, William Wohl, a spokesman at SAP America Inc. in Newtown Square, Pa., said the German vendor still intends to use Jo-Ann as a customer reference for SAP Retail. Such installations are a difficult science at best for users, he added.

"Since every customer is unique, once you get into these projects is when you start realizing [that] you need to change business processes," Wohl said. "Or you head off in directions that were unexpected."

And retail-industry users such as Jo-Ann pose an especially difficult challenge for enterprise resource planning (ERP) applications, according to Wohl. "We are one of the very few solutions that can tackle these kinds of problems and the scalability these retailers need," he said. "That's why you see our name connected with these complex jobs."

David Dobrin, an analyst at Surgency Inc. in Cambridge, Mass., said he's not surprised to hear that a retailer such as