July 21, 2005

Canadian Clothier Gets Personal

By Evan Schuman, Ziff Davis Internet

The CIO of Reitmans needs sales associates to know a customer's history before the sale starts. Given that most customers use loyalty cards at the end of shopping, that's a tough sweater to pull on.

In the retail world, selling clothing is mostly about convincing customers what looks good on them. And it certainly helps if the salesperson already knows what's in that customer's closet, what her favorite colors are, her price range and her size.

That's why Douglas Deruchie, the CIO of Canada's largest retail clothing chain, is spending a good chunk of his IT budget on outfitting some 900 stores with new Point of Sale (POS) systems. Making purchases easier is a small goal, but making those purchases more likely is a much bigger one.

"We're putting in place a CRM program that would (make sales associates) be virtually online. A sales associate could immediately see the vital statistics of that customer," said Deruchie, who also serves the $912 million Reitmans Canada Ltd. chain as its' Chief Financial Officer.

Reitmans stores operate under various names, including Smart-Set/Dalmys, RW & Co., Penningtons Superstore, Thyme Maternity and Addition-Elle, on top of some 343 stores that simply call themselves Reitmans.

Although it's becoming a retail cliché that customer service is critical, for the Reitmans chain, it's more true than for most. The chief market at Penningtons, for example, is plus-size women. Not only is that a substantial and growing retail segment, but it's also a very much neglected one, with plus-size women often having few stores that offer a lot of appropriate options.

"These women are incredibly loyal customers, as long as you give them the proper fit," he said. "We have a very loyal customer base."

Part of that customer service is for new associates to not have to ask sizes and to steer the customers toward styles and color that would be the most complimentary. Deruchie wanted that to be done as discreetly as possible and as early in the shopping experience as possible.

With that goal in mind, Reitmans has been deploying a true CRM program, with customized coupons being e-mailed and prospects being called on the telephone. "With our customer database, we are continually analyzing, looking for a way to drive the customer to the store," he said.

This helps because the customers "are often coming into the store with something in their hand," typically one of those customized coupons. Those customized documents—perhaps a printout of an e-mail—are the keys to unlock the CRM database, as customers present it when they arrive and by entering it into the system, the customer's history is quickly displayed. "It's far from perfect, but that's the way we approach it," Deruchie said.

But as someone who also holds the CFO title, he wanted to keep operational and maintenance costs as low as practical during the transition to 1,200 new POS systems. To do that, he decided to replace the chain's current mixture of Dell and IBM units with new units from IBM only.

Deruchie stressed that he had no complaints about Dell, but he wanted to have all units be identical so that, when one remote store had a problem, no one had to worry about whether that location had Dell or IBM equipment.

"When you need hardware replaced or fixed, it becomes a thing that we don't want to have to manage," he said. "From a simplicity point of view, we opted for nothing but IBM machines."

The POS rollout will begin in late August, but will be suspended in late October as the chain focuses all efforts on the holiday buying season, Deruchie said. The POS rollout will then resume in January.

Some retailers are nervous about having too much equipment or software from any one vendor because it makes them vulnerable to unreasonable price increases or sudden changes in licensing terms because it would be so painful to change vendors. Deruchie said that he had no such worries.

He said he's not worried about IBM because his company is a very large retailer in Canada, and he would be a big fish for IBM Canada, and he's had a very long-term good relationship with IBM's people in Canada.

But Deruchie also said trying to force undesirable conditions on Reitmans would do more than jeopardize the business coming from Reitmans. "There aren't that many national retailers in Canada," he said. "If you get bad rep, it's going to ripple its way across the Canadian scene."

That single-vendor strategy is critical for Reitmans because—inadvertently—they are also finding a very large portion of their software coming from Oracle.

Reitmans had purchased strategic software from Retek about 11 years ago, PeopleSoft software nine years ago and ProfitLogic software about six months ago, all before Oracle showed any interest in acquiring those companies, Deruchie said. Oracle has recently purchased those three firms.

Having just made the decision to have a heavily IBM hardware operation, how comfortable is the CIO with—however inadvertent—having an equally heavy Oracle software operation?

"That's something that we have to live with," he said, but he added that they cautiously—and happily—chose each of those packages on their own merits, so the fact that they are all owned by Oracle shouldn't be a cause for concern.

"We ended up being best-of-breed buyers. We think Oracle, we think Mr. (Lawrence) Ellison is a pretty smart guy," Deruchie said. "To get what we would consider the primo products, which is what he's got now," and his voice trailed off before adding a tongue-in-cheek comment: "Well, we think he got smart watching us."

Given that the company pieced these applications together on their own, they are hoping it should have little near-term impact. "From our perspective, we've just been integrating packages," he said.

Deruchie spoke often about using IT investments to position the company to make its next acquisition integrations (or simple expansions) as smooth and undisruptive as possible. "We open 50 to 80 stores a year," he said.

He sees the Oracle acquisitions as potentially aiding that goal. "Now that they're all under one roof, it's going to be a lot easier for us with our next acquisition," Deruchie said.

But he has one large fear about Oracle's intentions. He liked the idea of "Oracle having all those high-powered entrepreneurs sitting in its corner," but entrepreneurs tend to not be easily absorbed into a large enterprise such as Oracle, which has its own way of doing things.

"These are pretty entrepreneurial people. Mr. Ellison will have to encourage them to maintain and expand their entrepreneurial spirit so that they don't get woven into a large corporate culture," Deruchie said. "That's the kind of thing we're going to be watching for."

He doesn't fear Oracle trying to impose unfair licensing or pricing pressures on Reitmans any more than he fears IBM doing it. "I think they would be very foolish to do that, but fools are made every day," Deruchie said.

Beyond Oracle and IBM, Reitmans is also making a stronger commitment to Microsoft and will be using Microsoft's .Net as the basis for the new POS systems.

From a philosophy perspective, count Deruchie—who has been with Reitmans for 11 years—as a recent convert to the "do not customize" camp.

"We learned our lesson with customization, but we didn't learn it fast enough 11 years ago," he said, when the chain found itself heavily relying on third-party software companies—including Triversity—to maintain systems that had been seriously rewritten.

"The Retek system that we bought, we now call it Reitek. The Reitmans version of Retek," he said. "We still have the Retek 4 system, but no one would ever recognize it."

With their newest software—ProfitLogic for assortment planning—the policy will be more hands-off.

"With ProfitLogic, we're not touching the code in that stuff. And with PeopleSoft, we don't touch that code," Deruchie said. "We don't fiddle with the code anymore because you get off the upgrade track."

Those tweaks here and there make the transition to a new version—or even handling some patches—"a vastly more complicated issue" and he commented on what happened when his team tried deploying an upgrade that was supposed to be a simple plug-and-play installation.

"You plug and you play and then you plug and you replay and then replay again and then you try plugging again," Deruchie said.

The vastness of Canada had made disaster recovery another important issue for the CIO. Although the chain has a formal disaster recovery plan, one inadvertent part of that plan is based on the fact that many of their stores are comparatively small (between 4,000 and 5,000 square feet) so they have relatively little inventory on site.

But they also have minimal inventory in any centralized location. There is no huge warehouse. Only one large headquarters location and a distribution center about seven kilometers away.

That forces the vast majority of all inventory to be in the supply chain—on trucks, planes and ships—at any one point in time. So if a disaster struck, most of the chain's inventory would be safely spread out in the supply chain.

The stores do keep on hand about eight weeks of inventory, meaning even a six-to-eight week cutoff of shipments could be tolerated before the stores are theoretically unable to function, he said.

But Deruchie's fears are more from fashion gurus and teenage trendsetters than tidal waves or terrorists: "Clothes are like bananas," he said. "They go bad fast."