Updating for Growth

By  Debbie Hauss — July 27, 2006

IT investment fuels Anchor Blue turnaround strategy

With the goal of growing the business from 170 stores to 500 and potentially going public in 2007, Anchor Blue CEO Michael Bush has made a commitment to improving operations through a significant investment in IT. The company spent between $2.5 million and $5 million on an Oracle/Retek implementation with the expectation of at least a one percent increase in revenue as a result.

Without being too revealing, we spent something more than $2.5 million but less than $5 million on this project, says Bush. We are carrying something on the order of $30 million to $40 million in inventory at any point in time. We are doing roughly $400 million in revenue so I think about return on investment in terms of the fact that I need to have better merchandising and better systems capabilities to give me a one percent increase in my revenue. That would be a pretty sweet thing and I think the probability is pretty high.

Anchor Blue, which operates 170 Anchor Blue youth clothing stores and 84 Levis and Dockers outlets under the Most name, purchased the entire suite of Oracle Retail products in December 2004, after the retailer was purchased in a buyout from Sun Capital the previous December. We wanted to have a fully integrated system, says Richard Space, CIO of Anchor Blue. In the first phase, in November of 2005, we rolled out the merchandising system. The second suite, including POS, demand forecasting and ProfitLogics product lifecycle, was purchased in November of 2005 and will be rolling out in July or August of this year.

Bush expects to see full results from the implementations within two to four years. Im pretty convinced that if we get to the things we want to do and the systems enable them we will have a very high return on this investment, he predicts.

Stabilizing the Patient

Upon joining Anchor Blue in 2003, Bush says his first job was to assess the business and plan the turnaround. My first job was to stabilize the patient, he notes. That was what we spent most of our time doing for the first months into 2004. The business was suffering, Bush explains, because it had lost its focus. It wasnt sure if it should be upscale or moderate. It was a little bit of everything and was not serving any one group very well. After bringing Space into the mix in March of 2004, he and Space began talks about upgrading IT. As early as the spring of 2004 we began discussing the need to upgrade the systems at Anchor Blue, Bush explains, noting that at the time obtaining company information was frustrating at best. I would ask for a report and if it wasnt written they would tell me that it was going to take 15 to 20 man-weeks to produce. We said that we wanted to change the fiscal calendar and they said that would be 237 man-weeks. We knew we needed to change the system.

The system at the time was a proprietary system built in 1995 off a mainframe written in Cobal, explains Space. It really didnt give us any flexibility. The reports we received on Monday told us what happened in the previous week. We knew we needed more information in a timelier fashion. We were looking to move from receiving information about what happened to what is happening right now, then move on to being able to project what is going to happen down the line.

Moving off the mainframe

also allowed Space to get a better handle on inventory: We had a 35 to 40 percent gross variance in our stores at any given time and we knew we were missing sales as a result. The new system improves our view of inventory and stocking and provides real-time reports.

Bush explains the companys new focus around a single point of entry for data. We were putting data into the system 15 to 30 times and every entry is an opportunity for a mistake. Secondly, he notes, we need to link all of the various parts of the value chain together through the information system, from product development to merchandising, ordering, purchase order creation, logistics, physical movement through the distribution centers (DCs) and receiving at the stores. Our goal is to leverage all of that information into knowledge and insight.

For example, Bush points to two nearby stores that cater to two distinct consumer bases. While they are both located in the San Francisco Bay area, one primarily serves Filipino Asian-Americans while the other caters to Pacific Islanders two very different groups in terms of clothing sizes. Having the capability to use the new system to allocate the correct products to the correct locations is invaluable, he notes.

To facilitate the improved allocation system, We need to get our vendors used to sending EDI transmissions and advanced shipping notices in the appropriate format, Bush explains.

We also are implementing Store Inventory Management (SIM) to eliminate time spent tracking down items. Once we get the supply chain worked out we can reduce our inventories which will make us much more flexible so we can be more refined in holding back inventory in the DC and allocate it in real time where it will actually sell.

Vanilla is Flavor of Choice

Oracles product suite made sense to Bush and his team because he didnt want to create customized software. We wanted an out-of-the-box solution, he notes. Customization means you are in charge of your own system maintenance and that means you are going to own a bunch of programmers and IT professionals. I love IT but I dont want to do IT.

Two other elements combined to convince Bush that vanilla was the right flavor for Anchor Blue: compliance and upgradeability.

I didnt want to be concerned with the complication of documenting systems for Sarbanes-Oxley compliance, which can be a real problem for companies because a lot of systems are so complicated and antiquated. Also, Customization means that you are essentially upgrading on your own or with a new implementation in your own shop.

Bush and Space stand by their choice in the name of long-term success, even though the out-of-the-box system arrived with a few bugs. Some of the problems weve had to work out Im surprised hadnt been worked out before, notes Bush, like the ability to get the different systems to talk to each other.

Were still having some difficulties retrieving data, adds Space, but Oracle has worked with Anchor Blue to build temporary workarounds until final fixes are completed.

Organizational Buy-In

One of the key elements of a successful implementation is buy-in from employee groups, agree Bush and Space. Dont go ahead and do this type of project without the organization behind it, warns Space. This was not going to be an IT department project, it was an Anchor Blue retail group project. We made sure the user community was involved in the decision-making process. We set up steering committees that met on a weekly basis and walked the members of the organization through the implementation step by step.

Because we were moving from the proprietary system to a more sophisticated system one of our biggest concerns was ensuring that the proper hierarchies, processes and procedures were in place, so the user community would be ready to handle the new system, Space explains.

Part of the process involved restructuring some jobs and reducing staff. Most employees were retained but the company no longer needed Cobal writers. Program writers became what the company now calls Business Analysts (BAs) who help the divisions move forward with their projects, including the supply chain, allocation, report writing and merchandising divisions, explains Space. Most of the BAs have computing background skills and have worked within the various groups.

Future Growth

With the IT department aligned as an enabler of company objectives, Anchor Blue is banking on growth in size and revenue. We opened 10 new stores last year and were opening 20 this year, notes Bush. We also are taking our first shot on the East coast with a new store in Florida. In addition, the company will focus on multi-channel initiatives, Bush says, including e-commerce and direct-to-consumer selling, to help fuel the growth.

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