SPS Commerce, the Minneapolis-based maker of business software, gave itself an edge about a decade ago by letting customers access its programs remotely, on what’s become known as the cloud. It soon found itself in the midst of a transformation that its customers, primarily retailers and their suppliers, didn’t anticipate. The arrival of smartphones changed the way people shop, letting them walk down the aisle of a store and make price comparisons with other sellers. Today, SPS is pushing out software to turn retailers into “omnichannel” distributors of whatever the shopper wants at the moment. Peter Zaballos, vice president of marketing at SPS, talks about the change:
Q: In general terms, would you describe what SPS is doing for retailers?
A: More than $1 trillion in orders pass through our cloud service each year. For instance, when you buy something on your phone, when the order shows up at that retailer, they have to figure out how to get that individual single product to you. They do that a lot of times by having their supplier, or the people that make the products, ship directly to you. There’s a whole lot of magic that we provide for that, right down to the packing slip that shows up with the brand of the retailer on it.
Q: Is the arrival of the smartphone the reason the thinking changed in retail?
A: Everybody is using their phone now to research something before they buy it, or compare something before they buy it. The big disruptive event was when the iPhone was introduced and the Android phones were introduced. Everybody’s behavior totally changed. We are the highest maintenance shoppers ever invented now because of these phones.
We’d be still living in a world where you either shopped online or you shopped in a store if we were still just using desktop or laptop computers. It was absolutely the advent of smartphones and just the ridiculous embrace of them that shifted shopping behavior so much. It’s taking time for the industry to catch up.
Q: Where exactly did this first create a challenge for retailers?
A: The first adjustment for them was how to satisfy the demands from the consumer for this rapid fulfillment without having to carry a bunch of inventory. They were afraid inventory would rise. And their warehouses and distribution centers were all sized to fit their stores. So they started working with brand suppliers to get them to be able to ship directly to consumers. And the suppliers had to make a bunch of adjustments because a lot of them are not set up to ship individual items to customers. And there’s a whole category of firms called third-party logistics firms that stepped up and said, ‘We’ll hold the inventory for you and we’ll basically be the middleman between the retailer and supplier.’ It created an interesting side effect. Now, some of the most technologically sophisticated companies in retailing are these third-party logistics firms.
Q: Were there other constraints that retailers needed to get over?
A: One is the systems they run their businesses with were never connected. Wal-Mart.com, for instance, is a separate legal entity from Wal-Mart, and it’s in San Francisco, not Bentonville. That made all the sense in the world before smartphones showed up. But they have to get those systems to work together because a shopper wants to know if a product is in a store. There’s an enormous amount of re-engineering of information and systems in these companies.
The cultural change is just as big. For 100 years, the relationship between retailers and their brands was fairly hierarchical. Now, the only way to be sure you get that sale with that finicky consumer on the phone is if the retailer and supplier are working together because the product may need to be shipped by the supplier. That kind of cultural change is just as daunting as getting all the systems together.
Q: How did this become an opportunity for SPS?
A: We were the first company to take the traditional supply chain technology, called electronic data interchange, which historically had been run on dedicated computers inside companies, and move it into the cloud. By doing that, we could just charge subscriptions, instead of people buying expensive servers and license fees. We also reduced the “time to usefulness” for the retailer and the suppliers. In weeks, they could be up and running, instead of months or years the old way. That put us in the middle of the conversation with retailers to help understand more of their problems.
Q: How far along do you think the retail industry is in adapting to the changed behavior of consumers?
A: We do a survey every year and we ask, ‘Do you feel like you’re executing an omnichannel strategy?’ Last year, 4 percent said yes. We think there’s 10 or more years ahead of us for the industry to make all the changes they need to do.