Retail Exchanges Forge Ahead Amid Doubts

Skeptics cite other issues besides price

San Diego

The retail industry's two most prominent electronic marketplaces are readying plans to go beyond the auction stage to the sort of hard-core business-to-business transactions they hope will lead to significant cost reductions in their supply chains.

But the enthusiasm of early movers in the WorldWide Retail Exchange and GlobalNetXchange, along with various multibillion-dollar estimates of the money that will flow through marketplaces, has yet to entice all the players.

During a panel discussion at the National Retail Federation's recent conference here, John Corrigan, CIO at New York-based The Estee Lauder Cos., said his company passed on an opportunity to join an exchange and is taking a "prudent" approach.

"We feel price isn't the only issue in an exchange," Corrigan said. He said the critical issue is price/performance - "getting the product at the best price that allows the relationship between us and the suppliers to be solid." Corrigan also cited the importance of "accurate on-time delivery to meet a forecast, to meet a schedule, to allow us to take the raw materials and the components and assemble it."

Corrigan's position underscores the fact that many companies involved in the retail industry aren't rushing to join their competitors, even though a report from Forrester Research Inc. in Cambridge, Mass., indicated that more than 1,000 B2B exchanges have sprung into existence during the past 12 months.

"While the biggest retailers are engaged in creating exchanges, much of the rest of the industry is sitting and waiting to see how it shakes out," said Cathy Hotka, vice president of information technology at the NRF, commenting on the behavior in her industry, which traditionally has been slow to adopt new technology.

"There's still a big gap between the reality and the vision," acknowledged Herb Kleinberger, a consultant at PricewaterhouseCoopers in New York. Kleinberger said many suppliers remain skeptical of the benefits for them and wonder whether the exchanges are "just another way for the retailers to take out a hammer and beat the living daylights" out of them.

But he added that the retail industry is "ripe for some improvement" in its "very inefficient" supply chain. Ultimately, he said, B2B exchanges will provide value for all participants, particularly in keeping merchandise in stock, promoting more reliable forecasts and reducing supply-chain costs.

Advantages Over EDI

Jerry Miller, CIO at Sears, Roebuck and Co. in Hoffman Estates, Ill., said GlobalNetXchange, which his company is backing, will go live with its hub this month, running supply-chain transactions.

Some of those will be via electronic data interchange (EDI), and others increasingly will be based on the more flexible XML for tagging the data. Sears hopes to see $5 billion to $7 billion in transactions running through the exchange by year's end, and the exchange expects to process as much as $20 billion by year's end, Miller said.

Miller said the skepticism about exchanges reminds him of the early days of EDI, which had early adopters as well as naysayers. "But I do think that we're going to see adoption of [XML-based] technology a lot faster than we saw with EDI because it's so much easier," he said. "It's so much simpler. It's so much less expensive." Miller added that several suppliers in his exchange are "champing at the bit" to get online.

In a recent interview, Gerald Storch, president of financial services and new businesses at Target Corp. in Minneapolis, said he expects the WorldWide Retail Exchange's digital supply chain to be fully operational early next year. He said the exchange, which also includes Best Buy Co., J. C. Penney Co., Kmart Corp. and Safeway Inc., expects to handle $600 billion in sales annually.


Copyright © 2000 IDG Communications, Inc.

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