Build or Buy? Retailers Rethink Packaged Applications

The software applications at clothing retailer J. Crew don't look that different from those at other IT shops: SAP running on an Oracle database, and Sun hardware. But only three years ago, J. Crew was running almost entirely home-grown applications.

That makes the New York City-based clothing chain pretty typical of the retail world. IT shops in the retail industry, which for years have tended to write applications in-house, are in the midst of a migration away from home-grown custom applications and toward commercial software packages.

J. Crew sells its clothes through catalogs, its Web site and at over 175 stores nationwide. Until the move to SAP, which the company began using in 1999, J. Crew ran on a traditional mainframe environment, with applications written in COBOL running under CICS on an IBM 3090 mainframe.

As the company began expanding overseas -- it has 60 stores in Japan -- and adding a Web site and ecommerce operations, it found that "bolting together all the homegrown systems was becoming more and more of a problem," says Paul Fusco, J. Crew's CIO.

That seems to be true for much of the retail industry, according to Harvey Braun, a partner at Deloitte Consulting and former head of that firm's retail group. "The systems that retailers have lived with for years have become very cumbersome," he says. "There's no more room for wire and chewing gum to keep them going."

J. Crew, along with the rest of the retail world, wasn't necessarily writing its own application by choice. Until recently, says Greg Buzek, president of retail analyst firm IHL Consulting, in Boynton Beach, Fla., retailers had to write their own applications because commercial software packages weren't available or were still maturing. Today, applications designed specifically for retail are available from a number of vendors, including SAP, Minneapolis, Minn.-based Retek Inc., and Scottsdale, Arizona's JDA Software Group.

Cuffed or Hemmed?

The lack of commercial packages is due in part to the challenges of writing software that meets the specific needs of the retail industry. A clothing retailer and an auto parts maker both might need to track tens of thousands of different products. When a clothing store, sells a pair of pants to customer, however, it has to track not only the product number, but that the pants have a 36-inch waist and 32-inch inseam, are dark brown, made of cotton, and whether they are cuffed or hemmed.

While software packages for retailers that can handle this complexity are now becoming available, old habits die hard. Retailers are moving towards packaged applications, says Buzek, but they still tend to customize what they buy. "The specialty hard goods players -- stores like Home Depot, Circuit City and Best Buy -- are for the most part buying off-the-shelf products that give them 75% or 80% of the finished product, and then customizing the tail end of it," he says.

That can lead to its own problems, however. "One of the lingering issues is that many people are still inclined to over-modify the packages," says Braun. "Some of these packages are difficult to maintain once they've been modified extensively."

Other pressures, including simple economics, are pushing the retail world towards packaged applications as well. Department stores, for example, "have traditionally done a lot of their own development," says Buzek. "That's changing because of the overhead involved. They have to start acting more like the discounters, and they can't afford to have a huge staff writing code."

That is true for the rest of the retail world as well, says Fusco. "J. Crew is running with probably ten percent fewer people than we had two years ago," he says. "And we're not alone. The whole retail industry is running with less people now than we had 10 or 12 years ago."

Find the right people is also more of challenge today. In the past, says Fusco, J. Crew's had a "monolithic" development environment. "We used one programming language," he says, "and everybody could do everything, so the only issue was who was going to write the inventory module and who would do purchasing. Today you've got Java, you've got XML, you've got Windows 98 and 2000, NT, Unix... Finding people trained in all the different technologies is much more complex."