IBM Buys Retail Forecasting And Merchandising Software Company

IBM has made a major purchase today in the commerce and retail world—DemandTec, a retail marketing and merchandising software company. IBM is acquiring DemandTec (which listed on the Nasdaq) in an all cash transaction at a price of $13.20 per share, or approximately $440 million.

DemandTec provides retailers and e-commerce companies with tools to transact, interact, and collaborate on core merchandising and marketing activities. DemandTec’s cloud-based analytics software allows businesses to examine different customer buying scenarios, both online and in-store, so retailers can spot trends and shopper insights to make better price, promotion, and assortment decisions that increase revenue and profitability.

For example, retailers can predict how consumers will respond to a price change before making the change. Or a merchant and supplier can work together to understand how one shopper segment differs from another to create a targeted merchandise plan.

DemandTec’s use of cloud-based price, promotion and other merchandising and marketing analytics helps companies better define the best price points and product mix based on customer buying trends. Essentially, DemandTec uses data analysis and forecasting to make the retail world smarter.

DemandTec customers include Best Buy, ConAgra Foods, Delhaize America, General Mills, H-E-B Grocery Co., The Home Depot, Hormel Foods, Monoprix, PETCO, Safeway, Sara Lee, Target, Walmart, and WH Smith. DemandTec also has a portfolio of 31 patents in the areas of pricing, response analysis, and promotion analysis.

For IBM, the acquisition is all about its smarter commerce initiative. IBM estimates the market opportunity for Smarter Commerce at $20 billion in software alone.

IBM’s recent acquisitions include Algorithmics, and Tririga.

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Retail’s next big thing

The imminent opening of pet superstore Pets at Home at Melbourne’s retail mecca, Chadstone shopping centre, is a significant milestone in the life of the retailer in Australia.

And in the aftermath of Starbucks’ drastic downsizing, it is also a big contra-statement about the viability of foreign retail formats on Australian soil.

It is actually the third Australian store for the 200-unit British chain, but the first to be located in one of our genuinely iconic shopping centres. As the retailer’s proud Australian MD, David Herman, thinks of it, Pets at Home is ”going mainstream.”

Can Pets at Home beat the odds and become a durably successful foreign retail concept in Australia? Small pet supplies retailers and the established larger chains will be watching with interest.

If the newcomer does succeed, it will be a slap in the face to our nation’s choir of retail ockers, who have been in fine voice since Starbucks hacked off three quarters of its Australian store fleet a few weeks ago.

Starbucks’ actions elicited nothing short of glee in some quarters: another foreign retailer bombs!

The coffee beans aren’t as good as the ones at competing coffee outlets! The barristas don’t know how to brew the stuff! The management doesn’t understand our culture!

And then there was the unmistakable whiff of Tall Poppyism: We won’t be told which coffee to drink by a big-shot multinational!

If you think you’ve heard this kind of claptrap before you’re not wrong.

Every time a foreign retailer or business of any kind begins to struggle in the Australian market – and make no mistake about it, there have been many – the pie-and-chips crowd moves in to gloat over the remains.

The sad thing about this kind of xenophobia is that Australian retail is in some respects in a wretched state, falling further and further behind the world’s best, and desperately in need of foreign investment and innovation in the sector.

Sure, we’ve got a genuinely world class department store chain and some powerful brands like Billabong that have gone forth and conquered.

But retailers like David Jones, Billabong and a small handful of others are not enough. Retail has its own gene pool that constantly needs to be reinvigorated from outside, or it becomes weak and sickly.

Indeed, foreign investment is probably the only thing that can genuinely improve Australia’s standing in the retail world over the long haul, and may be one of the few obstacles to the gradual exodus of consumers to the internet where they can easily obtain global brands outside of this country.

This exodus is already occurring. After all, if the brands don’t come here then it’s only to be expected that consumers will go to the brands at the first opportunity.

In the year through June 2008 sales by US retailers over the internet totalled a formidable $US 134.1 billion.

Although data isn’t available on how much of this total was attributable to foreigners, the retailers themselves make no secret of the fact that it is one of their most effective and fastest-growing global marketing and sales channels.

The problem for our retailers in Australia is that people travel too much these days and get too much information over the internet. They know what’s out there and they will increasingly gravitate to it. This may not be immediately noticeable in the form of a dramatic sales fall-off for local retailers.

It happens over time, insidiously, under the radar, like the ageing of the population. International retailers that come to Australia with physical stores can help stop some of the leakage.

They can infuse our retail scene with new products, formats and service models that Aussie retailers can be maddingly slow to adopt. (e.g. where was unit pricing until Aldi, a foreign retailer, arrived?)

Pets at home, a superstore format that incorporates the usual pet food and ancillary products with a number of associated services, such as pet grooming, veterinary services and pet adoption, is the latest incarnation of a concept that has been around in the UK, through Pets at home’s parent company, and the US, in the form of retailers such as Petco and PetSmart, for a number of years.

But in Australia it was virtually unknown until David Herman came along.

The pet services/merchandise convergence gives the store terrific destination appeal and enables the retailer to capture crossover product sales from the grooming and vet operations.

For example, animals examined by the vet can get their prescribed medicines a few paces away at the in-store pharmacy.

Pets at home is not the lone ranger of foreign retail in Australia.

Canada’s high-end technical sportswear concept Lululemon Athletica is slowly getting traction through its stores in Melbourne and Sydney, while Lush, an upscale health and beauty retailer from the UK, is already well established.

Germany’s Aldi is snapping at the heels of the supermarket majors, a phenomenon that was well documented during the recent ACCC inquiry into food prices.

Costco, the US warehouse club retailer, may soon enter the fray as well and has the potential to make a significant impact on the existing players in a number of merchandise categories.

Pets at home, Lululemon Athletica, Lush, Aldi and Costco are five worldbeaters. Australia’s small retailers should watch closely because there is a lot to learn about just about every aspect of the retailing arts.

And the retail ockers can stop thumping their chests and sit down.

International retail entrants will not stop the inexorable appeal of shopping on the internet for exotic foreign brands, but they will help us keep up with the best that store-based retailing has to offer.

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