The Changing Software Vendor Landscape
For a long time, many prospective buyers of direct and retail systems have complained that there were not very many choices in terms of vendors and their offerings. The good news is that over the last couple of years, some truly new and good competitors have emerged for the multichannel industry. Some of this change stems from acquisitions; more is based on the competitive need to expand offerings to provide more functionality to customers.
Some e-commerce platform providers are expanding offerings into order management. Enterprise-wide systems are starting to be installed more widely in this market niche. There are multiple choices to manage the warehouse and supply chain. Would a service offering fit your requirements better than an in-house licensed implementation? These are just some of the trends we see emerging that give you, the software buyer, many realistic choices. Drawing from our multichannel consulting practice, we present what we see as those choices.
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MICROS Acquisition of Fry Moves Multichannel Applications Ahead
Last month, MICROS Systems, Inc., whose MICROS-Retail group provides point-of-sale, loss prevention, and cross-channel functionality to more than 90,000 retail stores worldwide, announced the acquisition of Fry, Inc., which has been designing and developing e-commerce applications since 1994.
I think the industry has a real potential powerhouse in the MICROS-Retail and Fry merger, and I am excited about the possibilities, both for clients and for the combined companies. Fry is one of the most respected e-commerce solution providers, and MICROS-Retail (the former CommercialWare) is one of the strongest direct systems. MICROS made a significant step in the past year with the acquisition of eOne, which in my opinion answers small to mid-size company needs. While we all know integrations between providers are never easy, it lays a great foundation for the future.
In the longer term, this means one huge potential step further for clients looking to get an order management and e-commerce solution that is a Tier 1 application from a single provider. Over time I wouldn’t be surprised to see a hosted option for the combined solutions.
Jane Cannon, Chief Technology Officer for MICROS-Retail, and David Fry, Founder, President, and CEO of Fry, are two of the people I most respect in this industry. Jane was the COO of CommercialWare and has been leading the transformation of Datavantage/CommercialWare/eOne into an integrated MICROS-Retail suite. David was a respected teacher and consultant who returned to his family’s printing business and, in 1994, recognizing the impact the Internet would have on the company and its clients, launched a subsidiary to help those clients successfully compete in the e-commerce marketplace.
I had a chance to talk to David Fry, and asked him why the acquisition was important to him. David talked about how fluid the e-commerce industry and its solutions had to be. He sees this merger as a way to bring additional capital and innovation to bear as new applications are developed. How much capital? MICROS Systems had over $785 million in revenues in 2007, and total company revenue for the fiscal year ending June 30, 2008 was $954.2 million, an increase of $168.5 million, or 21.4% over the same period last year.
Step back and look at the combined businesses of MICROS as the retail industry leader. I see the potential for tangible data resources being exchanged between retail, catalog, and e-commerce applications. It brings a whole new dimension to multichannel solutions.
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Non-Profits Hurt By BlueSky Brands / AB&C Group Closing
“The products in the National Wildlife Catalog are being sold by National Wildlife Direct, a subsidiary of BlueSky Brands, Inc. National Wildlife Federation has licensed its name and logo to BlueSky Brands and receives a 5% royalty fee for the sale of each catalog item. National Wildlife Direct contributes a minimum of $1 million a year to National Wildlife Federation.†As stated on National Wildlife Federation’s website at www.nwf.org/shopping/
If you are a non-profit, would you consider this to be a great deal? A 5% royalty from each item sold and a commitment to contribute $1 million a year to your cause. Just think, no longer do you have to worry about marketing to your customers, selecting and sourcing merchandise, maintaining an e-commerce site, and running operations with a call center and warehouse. For many non-profit companies you’d be silly to walk away from a deal like this. But as Howie Mandel on NBC’s Deal or No Deal says, “Did you make a good deal?â€
What happens to your business when the parent company of the service provider, in this case BlueSky Brands, closes the doors? The monies that were budgeted and expected in the fiscal year won’t be available, not only for this year but possibly future years as well. For many non-profits, this type of loss directly impacts their bottom line which in turn impacts their ability to support their programs. The purpose behind direct-to-consumer sales for many non-profits is to generate revenue; in most cases unrestricted revenue which can be used within the non-profit organization in any manner they prefer. Losing revenue, particularly in the case of National Wildlife Federation, of $1 million a year, has to be devastating. A similar situation has happened with Winterthur except the revenue impact is unknown.
Not only is the money lost, what happens to future business? BlueSky Brands and AB&C Group are shut down at this time. Customers can’t place orders, the website has a message posted that it can not process orders at this time and to please check back for updates. Essentially, National Wildlife Catalog is at least temporarily out of business until further notice. Will customers hang around for National Wildlife Catalog to recover? In today’s economy and given the competition for consumer dollars it is not likely.
If you are a non-profit, is this a path you would have taken? It certainly looked good, a company willing to pay royalties and contribute $1 million a year, take over your whole catalog and operation while your company focuses on its core competencies. In an article in Catalog Success dated 11/17/06 by our good friend Larry West:
“Although payment terms were undisclosed, expect a lot of money flowing from BlueSky to the nonprofits. For such organizations, a fairly predictable cash flow without real investment risk is a Godsend, especially since it has become tougher for both nonprofits and for-profits to generate respectable profits and ROI in recent yearsâ€.
The article referred to the licensing deals of Winterthur and NWF catalogs to BlueSky Brands. In 2006, all indications were this was a great deal.
Does this mean that all licensing and third party fulfillment deals are doomed for failure? Absolutely not. In fact a number of our clients use third party providers successfully, particularly non-profits. The rule of thumb here is regardless of a great deal in place, you still must be on top of your business and service provider.
What do you think? Deal or No Deal.
Tocky Lawrence a Vice President of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at: http://www.fcbco.com.
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Dydacomp is sold – and is one of the buyers
Milestone Partners and co-investor Continental Investors announced on January 15 that they had completed the acquisition of D.A. Kopp and Associates and certain affiliated entities, together doing business as “Dydacomp.†The following day, investment bank Berkery Noyes announced that it represented D.A. Kopp & Associates, Inc., Card Management Services, LLC, and Card Financial Services, LLC (Dydacomp) in its sale to Dydacomp Holdings Corporation and Milestone Partners. The bottom line, it seems, is that this is basically a cash infusion to help Dydacomp fund growth, through an equity partner.
Like CommercialWare being acquired by MICROS Systems/DataVantage (now known as MICROS-Retail) and Ecometry being acquired by Golden Gate and merged with GERS and Blue Martini to form Escalate Retail, this is one more major software provider that has sought venture capital. The order management marketplace has become really competitive, between acquisitions and the enterprise wide system vendors attempting to penetrate the multichannel market.
Dydacomp has been around a long time, and they have thousands of customers, which are largely startups and small companies. We hope that this new capital will lead to Dydacomp redesigning its system to be more effective for moderate sized companies. The multichannel business world needs some new effective competitors.
Check back on this blog for more updates on this topic, as we plan to get an interview with Berkery Noyes.
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Gander Mountain Announces Acquisition of Overton’s, Inc.
Online and catalog operations accelerate multi-channel strategy
ST. PAUL, Minn., Dec. 6 /PRNewswire-FirstCall/ — Gander Mountain Company (Nasdaq: GMTN), the nation’s largest retail network of stores for outdoor lifestyle products and services, today announced that it has acquired Overton’s, Inc., a leading Internet and catalog marketing company targeting recreational boaters, from Linsalata Capital Partners, a Cleveland-based private equity firm.
With 2006 revenues in excess of $90 million and over 15 million catalogs distributed annually, Overton’s is an established Internet and catalog marketer with a strong, trusted brand name. Headquartered in Greenville, N.C., Overton’s operations include a fulfillment center and call center offering available capacity to support new Gander Mountain Internet and catalog marketing opportunities.
“The acquisition of Overton’s enables Gander Mountain to greatly accelerate our strategy to be an integrated, multi-channel retailer featuring Internet, catalogs and retail stores,” said Mark Baker, Gander Mountain president and CEO. “Overton’s is a unique opportunity for Gander Mountain, providing an excellent management team, a proven platform and infrastructure, and the capacity to handle substantial additional volume with minimal incremental investment.”
“Gander Mountain was the first major catalog company in our industry,” Baker continued. “Moving back into the catalog and Internet marketing arena will leverage our retail network of 115 stores across 23 states, and create national awareness for our brand as we grow into new retail areas. It also should provide better balance to our seasonal sales profile with the majority of Overton’s sales in the first half of the year, and help us to improve our margins and lower our selling costs.”
Mark Metcalfe, CEO of Overton’s, said, “The entire Overton’s team is tremendously excited by the opportunities this new ownership brings. We believe we can significantly contribute to the growth of Gander Mountain’s Internet and catalog efforts, as well as increase the distribution of Overton’s catalogs and drive sales of Overton’s products in Gander Mountain’s retail stores.”
The purchase price for the acquisition was approximately $70 million in cash which included the repayment of Overton’s existing indebtedness at closing. The purchase price was financed through the issuance of $24 million in Gander Mountain common stock at a purchase price of $5.90 per share, a $40 million term loan from Bank of America and borrowings under the company’s revolving credit facility. The common stock was purchased by GRATCO LLC, an affiliate of David Pratt, Gander Mountain’s chairman, and Holiday Stationstores, Inc., which is an affiliate of both Ronald Erickson, Gander Mountain’s vice chairman, and Gerald Erickson, a director of the company.
Overton’s will continue to operate under the “Overton’s(R)” brand and as a wholly-owned subsidiary of Gander Mountain. Between Gander Mountain’s and Overton’s capabilities and resources Gander Mountain will be able to feature a full complement of Internet and catalog offerings.
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What’s Going On at Macy’s?
Last month’s rumors of a potential buyout of Macy’s by investor Edward Lampert and Vornado Realty Trust have apparently died down, but there’s a lot of activity being reported within the organization, some of it strategic and proactive, and some of it amounting to damage control. As we mentioned a couple of weeks ago, Macy’s marketing division has had to withstand a couple of senior management resignations this year. Nevertheless, a major ($100 million) celebrity-based ad campaign is under way, part of an effort to make Macy’s more upscale. With the holiday season upon us, it remains to be seen how well the campaign works.
For one thing, Macy’s is spending relatively little on ads related to e-commerce—$4.5 million for “Internet spending,” but not including “spending on online search marketing or rich media ads that include video,” according to a TNS Media Intelligence report. That’s interesting. We would hope that the media not included in that TNS figure amounts to significant ad expenditures elsewhere that will grow with more experimentation and use to support Macy’s e-commerce channel.
Meanwhile, the brick-and-mortar Macy’s is weathering another storm. A front-page New York Times article this past week pronounces that Macy’s CEO Terry Lundgren has been forced to backtrack on at least some of the strategy to reinvent the brand and revitalize the 800+ department stores that now bear the Macy’s name. Supposedly, a move to reduce the number of shopping coupons stores issued to customers (for stores in some regions the reduction was around 60%) and to eliminate midprice brands (the article cites Levi’s and Dockers) has left customers unimpressed. In fact, they have been downright unwilling to shop. Macy’s is actually blaming its coupon cuts for “four consecutive months of falling store sales this spring.” Although comparable discounts are still available for customers who use a Macy’s charge card, the results have been nowhere near as positive as coupons have been historically.
And don’t forget Marshall Field’s, now the State Street Macy’s store in Chicago. Feelings there run high about the change in name, the quality of goods sold, and many say, in service. Macy’s Chicago store announced last month that toy store FAO Schwarz will open a 4,000-sq.-ft. store inside the Macy’s store for the holiday season (Schwarz closed its Chicago store in 2003 as part of a bankruptcy filing). But even that news has failed to impress some diehard Field’s customers. One observer sums it up thus: “[Macy's] has run the stores straight into the ground and most certainly will end up selling the Field’s name and the State Street store to a quality retailer like Neiman-Marcus or Harrod’s. Most Chicagoans will never shop at Macy’s. Never.”
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Curt Barry is president of F. Curtis Barry & Co., a multichannel operations consulting firm� with expertise in the selection and implementation of warehouse management systems. Learn more at: http://www.fcbco.com.
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Macy’s to Join Ranks of Retailers Going Private?
Here’s something interesting to consider: Mergers and acquisitions were up $33 billion in the first half of this year, according to a July 9 article in DM News. A recurrent hot topic in the retail sector is the rumored possibility that various venture capital firms (Kohlberg Kravis Roberts & Co. earlier this summer; Vornado Realty Trust and ESL Investments Inc. last week) are is considering whether to buy Macy’s, formerly Federated Department Stores. As the second-largest department store chain in the U.S., Macy’s sale would rank among the largest acquisitions of retailers in history, right up there with the 2005 buyout of K-Mart and Sears/Lands’ End, which was led by the same person, investor Edward Lampert, who runs ESL Investments Inc. Other private equity purchases in the last few years have included retailers such as Lord & Taylor, Neiman Marcus, and Linens ’n Things. Istithmar, the investment arm of the government of Dhubai, has won a bidding against Japan’s Fast Retailing for Barneys New York.
What would such an acquisition mean for a retailer the size of Macy’s? Will there be a breakup and sell-off of some of the assets and stores that are not performing? Closing non-profitable stores?
Meanwhile, Macy’s has launched a major new ad campaign based on celebrities—Martha Stewart, Sean Combs, Jessica Simpson—in an attempt to develop a coherent image for the giant Macy’s family of department stores created by the acquisition of May Co. The going has been rough. Macy’s sales were down 77% for the second quarter this year (although same-store sales were up 2.4% in August); and protesters showed up earlier this month at Macy’s Chicago State Street store demanding that the store be returned to its historical identity of Marshall Field’s. To make the new ad campaign more interesting behind the scenes, two senior marketing executives have jumped ship this year, Macy’s Chief Marketing Officer Anne MacDonald, who left in June, and just last week, Brad Jakeman, the executive vice president of marketing.
Extrapolate all this activity to the direct-to-customer, multichannel business world—does this kind of venture capital acquisition/consolidation represent the wave of the future for catalogers to become profitable? We’re thinking here of recent acquisitions by such VC firms as Golden Gate Capital, which owns Haband, Catalog Holdings (which owns Spiegel, Newport News, Carabella, AB Lambdin, Norm Thompson, Solutions, Sahalie, Appleseed’s, Draper’s & Damon’s, and The Tog Shop), and Sun Capital Partners (which owns Lillian Vernon, Sharper Image, and Hickory Farms). What are the implications of this kind of ownership? How long will the VC companies hold on to these catalog titles, and just what does it mean for the companies that have been acquired?
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Consulting Services for Private Equity or Venture Capital Acquisitions and Investments Part 2
By Bob Betke
As I discussed in Part 1 of this article, it is important that you find a company that suits your needs. A company that provides due diligence services in the multichannel retail arena will help you investigate the feasibility of, or provide support for, mergers, acquisitions, and/or investment opportunities. My firm, F. Curtis Barry & Company, helps potential investors conduct multichannel acquisition due diligence evaluations of the operational areas related to warehouses and contact centers and their related facilities, systems, staffing and processes.
Improving Portfolio Companies: Post-acquisition Due Diligence
Once an investment has been made, issues similar to those covered in the Pre-acquisition Due Diligence stage need to be addressed. Unless the investor intends to keep the business running just as it did before the investment, it will be necessary to develop plans for change and improvement. F. Curtis Barry & Company helps clients maximize the value of their portfolio companies by conducting an operational audit that will help them discover potential problems and implement improvements.
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Consulting Services for Private Equity or Venture Capital Acquisitions and Investments Part 1
By Bob Betke
Begin by finding a company that provides due diligence services to potential investors in the multichannel retail arena to investigate the feasibility of, or provide support for, mergers, acquisitions, and/or investment opportunities. My firm, F. Curtis Barry & Company, has been working in this market for many years. Our perspective is one of operational consultants for multichannel retail businesses —companies that operate some combination of direct-to-customer sales (catalog and e-commerce), retail (brick-and-mortar), and/or wholesale channels.
Investment decisions should be based on the best information available. A mistake in the initial evaluation process can be costly in the long run, even fatal, to successful investment. Most investment activity is based on the belief that improvements can be made to a business that will warrant the expenses incurred. An operational assessment evaluates a business’s potential, pinpoints ways to reduce current operating costs, identifies inherent risks, and estimates the costs that would be required to make improvements.