RedPrairie, one of the perennial cross-industry supply chain execution software leaders, is buying BlueCube Software, a provider of store operation systems for the retail and hospitality industries.

BlueCube?s retail-specific inventory management, workforce optimization, and business intelligence expands RedPrairie?s footprint into uncharted territory: the store. But it should help RedPrairie get closer to its newly articulated ?consumer-driven end-to-end? vision.

The retail software market continues to consolidate
RedPrairie?s acquisition of BlueCube further demonstrates that retail is a huge financial opportunity for software vendors regardless of their traditional functional focus. RedPrairie is jumping on the tremendous addressable retail software market, which is projected to grow by nearly $3.0B to $9.3B in 2009, according to a recent AMR Research report. This now allows RedPrairie to capitalize on the 44% of retailers that cited store technology as their most important technology investment in 2006.

Traditional standards for retail vendor consolidation no longer apply. Like the acquisition of CRS Retail by manufacturing-focused Epicor earlier this year, the fact that RedPrairie, a software company with a supply chain focus, has made a significant investment in store technology continues to change the game.

With independent retail software vendors getting scooped up by larger players from myriad angles, options to acquire valuable retail-specific functionality (and established retail clients) will be limited for those that wait to take advantage of the consolidation trend.

A plus for BlueCube customers
BlueCube customers should not feel any disruption in service or product development from the acquisition. RedPrairie plans to retain the approximately 185 BlueCube employees, including its sizable research and development organization. And, with no product overlap, RedPrairie will continue to enhance current BlueCube products. Other encouraging outcomes from the acquisition include the following:

* Financial viability?Having been spun off from Radiant Systems in August 2003, the question of financial viability has always shadowed the relatively small software vendor. With 2006 estimated revenue of approximately $200M, the combined organizations provide the stability most retailers want from their software partners.
* Enhanced workforce management?With a robust functional footprint in retail workforce management, BlueCube has competed successfully here. The addition of RedPrairie?s DLx Labor product, which includes labor standards, engineering, and consulting services, will distinguish it in the market (see the AMR Research Alert article ?WorkPlace Systems Acquires LSI, Credibility in U.S. Retail Market? for an example of a similar combination). As this productivity measurement function expands into the store, we?ll be watching closely to see if BlueCube?s existing relationship with Maynard, a consultancy targeting workforce performance and waste elimination, is strained.
* Global support?To effectively manage global expansion, retailers will need to partner with technology vendors that can offer global services. Besides single instance of software, built on a common platform and data model, international retailers require support for localized language, currency, and regulatory mandates. One-fifth of BlueCube?s revenue is generated internationally, primarily from the EU. Although it will take time to build out a local presence focused on service, support, and technology for BlueCube products, this will be a nice bonus over time.

Opportunities for RedPrairie
RedPrairie?s vision is to have retailers run any process that encompasses inventory management on its application. While RedPrairie customers?primarily retail suppliers?certainly have controlled much of the inventory as it moved through the supply chain to the retailer?s distribution center (DC), RedPrairie?s software have never reached into store management. With this acquisition, RedPrairie can now control inventory information from the shelf back through the supply chain to the consumer product manufacturer and its suppliers.

RedPrairie also plans to integrate BlueCube?s workforce scheduling into its warehouse labor management products to include specific capabilities that never existed in its current application. The warehouse manager?s scheduling job may finally get easier with this automation, but anticipate development time for BlueCube?s workforce management product to move from its store-centric heritage to the warehouse environment.

BlueCube also provides an array of store operations functionality, including inventory management, receiving, price and promotion execution, perishable management, and cash management. Such inventory synchronization should help retail clients capture demand signals at the point of interaction to aid demand-driven retailing. For more on how retailers are making a fundamental shift in the way they do business by implementing a demand-driven model, and coordinating processes and technologies to understand and respond to customer expectations while developing customer-centric products and services, see the AMR Research Report ?The Retail Handbook for Becoming Demand Driven,? May 2006).

But opportunities bring challenges
RedPrairie and BlueCube both risk confusing the buyer with a brand identity crisis. RedPrairie must build a name and credibility with store operations executives who aren?t used to purchasing software from a supply chain vendor and who don?t always think supply chain has much relevancy. And BlueCube has weathered five different name changes in the past six years: its workforce management product has gone from TimeCorp, to VeriFone, to Radiant, to BlueCube, and now to RedPrairie.

RedPrairie will also need to expand the limited vertical reach of BlueCube?s store operations products. Aside from workforce management, which is strong across retail segments, the other applications target quick-serve restaurant, fuel, convenience stores, and hospitality. Although grocery is already on the horizon, development efforts should include expanding functionality for general merchandise and specialty apparel (where managing size, style, and color contain inherent complexity).

Conclusion
The benchmark has been set that no vendor is off limits from acquisition, no matter the heritage of the suitor. But on the surface, it seems more logical and intuitive for BlueCube to get acquired by a store operations vendor such as CRS/Epicor, Fujitsu, and NSB; a retail backbone vendor such as Retalix, SofTechnics, and Aldata; or possibly even Manhattan Associates, which has so much more penetration in retail today (even for an supply chain execution vendor).

RedPrairie needs to expand its new consumer-driven end-to-end vision quickly, and set a roadmap to show the clear intersection of the pieces to capitalize upon any momentum from this acquisition. We also expect RedPrairie to make further acquisitions in order to help connect the dots from this deal.

Source: AMR Research

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