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Especially during ski season, travelers flying in and out of Salt Lake City International Airport love to buy Utah T-shirts. Before switching to a hosted retail software solution, the Air Terminal Gifts (ATG) stores frequently ran out of stock, thereby losing sales. "It was either feast or famine," says Chan Crismon, vice president of Technical Operations for the 16-store chain.

No more. Now Crismon can be in any store or at headquarters and log on to the Internet to see how the shirts are selling. Today the warehouse delivers stock to stores running low before they run out, thanks to outsourcing.

The 40-year-old chain has been using Tomax retail software for 20 years. For the last 10 it utilized Tomax's legacy Unix-based system with its classic distributed architecture. It had a server at every retail store as well as a server in its office. Each night every store used a dial-up modem to report its sales to the corporate office. Then corporate would download updates and new prices to the stores.

"It was pretty chaotic," says Crismon, especially since the chain has six different concepts in the airport. In addition to the stereotypical airport stores, it also operates an upscale women's clothing store, a Southwestern gifts store, and an environmentally-friendly store.

ATG wanted to take advantage of Tomax's current generation of retail software, Retail.net, which has an Oracle database. ATG, however, didn't have an Oracle expert on staff and couldn't afford to hire one. So it decided to allow Tomax to host ATG's operations.

Managing Inventory

Small retailers "have to get a lot done with fewer resources," says Steve Klingler, senior vice president for Business Development for Tomax. Tomax's hosted solution allows ATG to have a good handle on inventory with just three buyers "because the system gives them such detailed data. It tells them when products need attention." And it allows three people to deal with dozens of merchants and thousands of products.

Keeping up with inventory has an added challenge for ATG because airport stores are typically small without a lot of storage for stock. "The inventory for the store is what's on the shelf," says Crismon. ATG has to move stock from its central warehouse when items run low, sometimes multiple times a day.

"Now we can react in real time before we actually run out of things travelers want to buy," Crismon says. He couldn't do that before because he would not be aware of a shortage until the next day when he looked over his updates.

The hosted solution has extensive business analytics. "We have multiple vendors for bottled water and candy bars," says Crismon. He can also tell which products sell better at which stores to optimize the product mix. "No more spreadsheets," he adds.

Business benefits of hosting

Hosting had other advantages. It eliminated both the corporate and store servers. "Now the only database that exists is in our data center," says Klingler. Adds Crismon, "This eliminated a lot of IT overhead."

It also removed the need for any IT staff. Currently Crismon is the company's only IT employee. Before outsourcing, he says IT was his only job. "Now I have time for other tasks," he reports. And he doesn't have to train his retail supervisors how to run sales reports. "They don't have to be IT gurus. They can just log into the portal. The software automatically supplies the sales per store."

ATG executives can also monitor sales in real time over a high-speed Internet connection. "Now we have a lot more visibility into our operations," says Crismon.

Employee theft prevention is another plus. "We are keen to make sure our cashiers are not getting into our cash drawers more than they need to," explains the retailing executive. The software e-mails ATG executives if a cashier opens the drawer more than five times an hour with no sales. "After that, we watch them," he says.

The new software counts the money; the cashiers just put their cash in a bag and bring it to the money room. "We do the reconciliation for them," says Crismon.

Crismon says the best benefit is his supervisors can concentrate on improving customer service instead of dealing with IT.

How outsourcing helps smaller retail chains

Klingler says the hosted solution provides "sophisticated technology that's equal to what many of the much larger retail chains use." Operating it also requires "more specialized employees than many small and medium-sized retailers can justify." Tomax currently has 28 Oracle database managers and 12 system network administrators on staff. "Not having these people on the payroll but knowing they are available if we need them is a huge value for us," says Crismon.

Klingler says retailers like ATG couldn't use this software if they didn't outsource it; "they would have to settle for a simpler system," he says.

Tomax also meets the payment card industry's security standards. It's also compliant with Sarbanes-Oxley because some of its outsourcing customers are publicly traded companies. "We support our smaller customers to the same standards as our large publicly traded customers," says Klingler.

Tomax operates 24/7 "with live bodies" to monitor the system and intervene if something looks amiss. "Smaller retailers don't have the bandwidth to be proactive like we are. They can only be reactive," he says. Adds Crismon, "I couldn't afford this availability if I didn't outsource."

Hosting also makes it easy to open other stores. "We don't have to put in a lot of expensive hardware. All we need is a cash register and a network connection," says Crismon.

The retailer says the hosted solution "allows me to concentrate on being a retailer. I can now put my effort into what pays the bills."

Lessons from the Outsourcing Journal:

• Smaller retailers can compete with bigger chains by outsourcing, which gives them access to sophisticated software that requires specialized IT staff to run.
• Sophisticated programs can help prevent employee theft. They are also helpful in inventory control because they operate in real time.
• Airport stores have a small footprint, so outsourcing helps them stay stocked with popular items.
• Service providers typically have big retailers as buyers too. So small chains benefit from the heightened security standards.

Publish Date: June 2008

Copyright © 2008 - Everest Partners, L.P.

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