Doubling down in the retail industry

- Friday, January 21, 2011

About two years ago, software giant SAP placed the retail market at the center of its Latin American growth strategy. Still, tectonic shifts brought on by industry consolidation, advanced integration needs, mobility and the cloud mean that business today isn't the same as before.

To understand the changes occurring in the Latin American retail industry, how they are transforming IT expenditures and what SAP is doing to keep up, BNamericas spoke with the company's senior VP for large industries in Latin America, Felix Feddersen.

BNamericas: Which are SAP's largest retail markets in Latin America?

Feddersen: Retail represents one of SAP's strategic markets from a global standpoint. It's an area that has continued growth potential, and Latin America is not an exception. The year 2011 will represent our third year with a dedicated focus specifically on retail.

The countries where we currently have the strongest retail presence are, in order, Brazil, Mexico, Chile and Argentina. In terms of growth markets, we see Peru and Colombia.

BNamericas: SAP recently launched in the US a new solution called SAP Promotion Management for Retail. Will the solution also be introduced in Latin America?

Feddersen: Yes, it will also be launched in Latin America. This software is an updated version of another solution that we already had.

Our retail offering isn't only focused on specific solutions; we try to look at retail companies with a holistic approach. Retail organizations have the same needs as many other types of companies, such as accounting, controlled finances, governance, risk, security and compliance. We see retail organizations as companies with a lot of logistics risks. Consequently, many of the solutions within the SAP retail offering have to do with this area.

We have solutions for wholesalers that also fit in well with retailers. We have purchase management solutions related to areas such as e-procurement, and we also have more retail-specific solutions such as trade promotion management and store management. Finally, we have solutions related to statistical information management, such as BI and EPM solutions.

BNamericas: When will SAP Promotion Management for Retail be available in Latin America?

Feddersen: It's already out.

BNamericas: How much interest is there among Latin American retailers for cloud-based solutions?

Feddersen: We've perceived some interest and knowledge regarding those types of solutions, and companies are beginning to consider the possibilities. We see an interest in areas such as, for example, procurement. We also see a little bit of interest in human resource management.

But, today, there are two factors moving the Latin American retail industry - and also driving technology investments. The first is the dramatic increase of the population that consumes retail goods. There are various countries with populations that are becoming more consumer-focused, with new segments entering the middle class. This trend brings implications such as a greater number of stores and also presence outside of large cities.

The other trend is consolidation among different retailers. You see companies in countries such as Chile and Mexico acquiring companies in other countries, and thus consolidating their brands. Within Brazil, you also see a lot of consolidation. Company sizes are growing dramatically.

Regarding new models such as the cloud, yes, there is some interest. But it's for solutions in what I would describe as the periphery of the business, and not the heart of store management.

BNamericas: Why is that?

Feddersen: They need to leverage investments that they've already made. When you talk about scaling up significantly, the more simple and reasonable route to take would be through acquiring on premise. Still, SAP continues to monitor this sector. An area where we're starting to see interest is business intelligence on demand.

BNamericas: And how much interest is there among Latin American retailers for applications on mobile devices?

Feddersen: In the last six months, I've seen growing interest in in-store data. The other day, I spoke with the president of a large retailer, who told me how important it is to be able to have information in his hands within a store. That way, he doesn't have to go to the back office for tasks such as verifying the inventory of a certain item. Another important area is client information. The Holy Grail is to be able to have client information when you enter the store.

BNamericas: And, to confirm, you've seen interest in this rise particularly during the last six months?

Feddersen: Interest in projects and ideas. I think this is an area that you should keep an eye on this year. There is a lot of creativity in retail company marketing departments. They're looking around to see what exactly could be done, but they don't have a clear vision just yet. There you have on-device software that can help with new ideas.

The technological backbone already exists. Now it's just a question of establishing synergies between the creativity of marketing departments and IT organizations.

BNamericas: What information management challenges are Latin American retailers facing at this time?

Feddersen: SAP sees Latin American retailers as being very advanced and very quick in terms of technology adoption. They're handling their retail application projects in a very advanced way in comparison to other regions.

BNamericas: How are they doing that?

Feddersen: They're considering integration with ERP. They've already realized that this presents a significant advantage. Imagine retailers as big boxes with inventory on one side and the stores on the other. They are looking for integration between warehouse management and distribution-to-store management. All of this is being integrated with ERP and financial controls.

The vision - and this is a differentiator for Latin American retailers - is one of integration. If you go to other regions, you see only specific solutions. Today, Latin American retailers' CIOs and CEOs are driving this vision.

BNamericas: What is on the horizon in terms of SAP's Latin America retail strategy during the first months of 2011?

Feddersen: We're doubling down; we are maintaining the focus that we've had during the past two years. And we will be strongly incorporating Peru and Colombia into that focus.

What does this mean? We will have more work groups, including sales, pre-sales engineers and architect engineers, dedicated to getting to understand this sector even better. Retail today is already the fourth or fifth largest industry for SAP Latin America - not only in terms of growth, but also in terms of relevancy.

BNamericas: You've mentioned the importance of Colombia and Peru. What is driving retail growth in both of those countries?

Feddersen: Our assessment on Peru is that growth is being driven by the incorporation of a greater number of consumers. Retail growth is also being driven by overall GDP growth and by foreign investment in retail infrastructure. There is clear investment interest by companies, some of which are retailers in other countries, while others are private equity capital firms.

In Colombia, geographical distribution - growth outside the main cities - is the driver.

Additionally, Brazil continues to represent 50% of the market and is seeing significant growth, especially in department stores and durable goods. Consequently, there are also implications for manufacturing. For a company like ours that is focused in various industries, it's interesting to see waves being made in several different economic sectors.

BNamericas: Can you clarify what the 50% figure refers to?

Feddersen: Brazil accounts for roughly 50% of Latin America's IT investments in retail.


AboutFelix Feddersen

Felix Feddersen has nearly two decades of IT industry experience. Before joining SAP last year, he served as HP's Latin American sales vice president for the technology solutions group.

The executive has civil engineering and public and business administration degrees from Brazil's Universidade Federal de Rio Grande do Sul, and also completed an executive studies program at the University of Virginia.


About the company

Founded in 1972, SAP provides business software including ERP, CRM and BI, as well as consulting, maintenance and training services for a variety of industries. Headquartered in Waldorf, Germany, SAP has 105,000 customers in more than 120 nations and employs 52,921 people at locations in more than 50 countries worldwide.