Oracle has closed the Micros acquisition and issued a celebratory slide deck from which I’ve extracted one chart.
Micros brings Oracle over 100.000 sites across the world running one of the large variety of EPOS applications rolled up by Micros in the US and Torex in Europe. Key UK customers include Selfridges and Monsoon. As far as retail is concerned, the strategy looks like a straight cross-sell initiative. Sell Oracle HR, financials, merchandising and marketing software to the Micros base. Sell EPOS, workforce management and loss prevention the other way.
This is going to be challenging, on this side of the Atlantic at least. Micros Retail in Europe is primarily the old Torex business which was strong in mid-market fashion and general merchandise. These clients, with one or two exceptions, simply won’t pay Oracle prices.
There’s also a set of integration challenges ahead. Customers will expect all the new Oracle products to work together but (so I was told) Torex had 98 different software products and versions alone. This will present a few roadmap dilemmas if costs are not to be loaded onto the customers.
The Logic Group (TLG) is the go-to brand for payments for Tier 1 retail and is well respected for its technical expertise. Customers include Tesco, Primark, WH Smith’s and many others. But turnover has been stuck c. £18m for years and the business has never been profitable. Indeed, it’s made an operating loss most years. Barclays hasn’t bought the business for the cash. It’s the capability that counts. Barclays is ambitious in payments and wants to be able to offer a full service to its customers. Right now, it’s too reliant on partners for delivery of many products. TLG brings it most of the capability it will need to succeed.
PSP and terminal management capability – Barclays and many other acquirers are worrying reliant on 3rd parties to manage their large estate of payment terminals. TLG gives Barclays what it needs to take control of its own business. Moreover, connecting the card machines through TLG’s payment gateway makes it much easier to integrate additional 3rd party services – China Union Pay cards, gift cards or loyalty schemes for example.
EPOS integration – a major gap in Barclays capability was that (until now) was that couldn’t connect a payment terminal to a till. This is a standard requirement for many retailers.
Online payment gateway – Its customers increasingly want to take money online but Barclays has only been able to offer a white label solution from Ogone (for SMEs) and a partner arrangement with Adeyn for larger ones. TLG brings a scalable, robust online payment gateway (albeit weak on alternative payments types) which allows Barclays to insource this critical capability.
Omni-channel – TLG have probably the most mature Omni-channel payment service available in the UK with a single MI portal and a single tokenisation engine. This will play very well with Barclay’s large customers.
Loyalty and insight – Barclays has made a big play around loyalty – Bespoke Offers – but also in its ability to derive insight from payment data. TLG brings it an experienced team that knows what retailers want.
TLG will remain independent, trading under its own brand and continuing to be acquirer agnostic. However, the deal does give Barclays a strong competitive differentiator with its larger customers. TLG conforms to the latest PCI standards (P2PE) and many retailers will find the proposition of encryption all the way from card machine to acquirer a very attractive one. It’s also unique in the market. WorldPay bought YESpay last year for similar reasons but don’t yet have the P2PE certification What could go wrong? Well, not too much. This is a low risk purchase. TLG is an established business and shouldn’t have too much difficulty fitting in culturally.
One observation, though. The announcement indicates that the deal probably includes an earn-out. In my experience, having been on the wrong end of a couple of these, this is will cause unnecessary delay. Large companies that acquire small ones for the capability are best served by integrating the business from day one. Whether TLG makes money next year or not is tangential to delivering the much larger strategy of which it is surely part of.
UPDATE: I understand that there is no earn-out on this deal. Smart move.
Mannequins have long fascinated a certain type of artistic individual. For example, nobody alive in the 1970s will forget the Kids from Fame and this forensic exploration of the links between the human and material worlds.
But what if mannequins could really talk? A London-based manufacturer of retail furniture has given them the power of speech. Well, sort of.
Iconeme (a spin off from Universal Display) has attached iBeacons to manniquins in three stores – Hawes & Curtis in Jermyn Street, House of Fraser, Aberdeen and Bentalls in Kingston. The beacons broadcast a unique number via Bluetooth. If you’ve downloaded the Iconeme app, then once you’re in range, your phone pings with a message of some sort.
Future of retail? Or another opportunity for spam? I’ve written about the theory and pitfalls of iBeacons before. So, I was excited to try the service out at Hawes & Curtis (my favourite shirt shop) and here’s what happened.
About ten yards from the store (see below), my phone vibrated with a message.
Okay, the message was a bit long but I understood the sentiment and clicked on it and was taken to a screen within the Iconeme app. This highlighted the four outfits on display in the shop window.
Clicking on the outfits, gives the opportunity to “shop the look.” The squiggles on the right of the price tag are options to (1) ping to the product page on the Hawes & Curtis website….
(2) discover where in store the product can be found….
(3) share the product with friends via a 188 (??) character tweet.
That’s it. The dialogue is one-way and there’s no opportunity to speak back to the mannequin or to Hawes & Curtis. But then, I was in a shop and could very easily speak to the shop staff. And I’ve never shared Leroy’s obsession.
Of course, the service only worked because I’d signed up for Iconeme earlier and given permission for it to send me location-based notifications.
The download and registration were pretty straight-forward. The app only asked for my age, sex and measurements.
I’d expect future versions of the app to request more detailed personal information including post code and any loyalty scheme info for participating stores.
The app then gives you a chance to control the spam.
The T’s and C’s need some work. Try reading this on an iPhone.
This is a novelty right now but, used wisely, this technology could be of great benefit to shoppers. I love Hawes & Curtis shirts. If I’m walking past a store, there has to be something useful the brand can say to me. Especially if they’ve managed to tie in my previous purchase history. I also like the idea of having a single app that I can use to control messaging from a number of different retailers.
It’s interesting that it’s a mannequin manufacturer that is commercialising the service. Universal Display has relationships with most brands on the high street and the incremental cost of the iBeacon is negligible. Their challenge will be to quickly gain credibility with their clients’ digital marketing teams. Nevertheless, Iconeme has give the user experience some thought and have produced something that is both low touch and engaging.
There remains, of course, a risk that the technology will not be used wisely. Sending notifications is costless and marketers may very well abuse the privilege by sending large numbers of irrelevant messages. Just as they do with email.
WorldPay’s 2013 annual report reveals a hefty £23.2m price tag for its acquisition of YESpay – a UK based payment service provider specialising in providing managed services for retailers.
WorldPay bought YESpay primarily as a core technology platform to power WorldPay Total – a payment service that integrates card machines into its customers EPOS software and WorldPay Zinc, its m-POS product. YESpay was acquired in March 2013 but would have contributed £4.9m revenue and £0.1m PBT if it had been part of the group for the full 12 months.
WorldPay paid £17.6m cash and estimates a further £5.6m in deferred payments to YESpay’s founders– Chandra and Rohit Patni. This puts a value of 4.7x sales and 232x PBT on YESpay although the earnings multiple falls to “just” 46 if you calculate it on EBITDA. That’s because within that £23.2 purchase price there is a chunky figure of £22m for goodwill.
This hefty valuation is good news for owners of the few remaining independent payment service providers left in the UK. The Logic Group (£18m revenue), to name but one.
A new cloud-based iPad EPOS business called Shopwave is raising money on CrowdCube.
Shopwave claims just 50 locations live but is 45% of the way to raising £200K for just 6.7% of the business. This gives a valuation of £3m.
In stark contrast, K3 bought Retail Technology Ltd last month for just £800K. This was for a solidly profitable EPOS business that’s been trading for years and has 180 customers.
Shopwave is currently burning £5.5K per month and reckons it will need another £1.5m cash in 2015. With this investment, it forecasts 2016 revenues of £8m with net profit of £1.6m.
Let me share some more numbers with you.
Cybertill was first into the cloud EPOS market in the UK. It’s an exceptionally well run company with solid technology and wide distribution. In ten years, it’s got to £6m turnover and £380K operating profit.
There are solid profits to be add in this corner of the retail technology market but it moves slowly. The customers are very conservative and most already have a functioning EPOS of some kind. Churn is low.
To Shopwave’s credit, it is bringing a very open approach to EPOS and highlights its ability to easily integrate any 3rd party applications its customers may desire. Retailers will like this just as much as they dislike the stiff development fees charged by Micros and friends. But it’s not unique. Clover is building a retail app store (see earlier post) and has First Data’s millions behind it.
Beyond Clover, there’s a multitude of well funded competitors coming over the hill with similar pitches about transforming retail with iPad EPOS. How about Vend ($30m in the bank and just setting up in the UK), Lavu or Revel? Then, there are the e-com guys building EPOS on the back of Magento like Ebizmarts which will likely hoover up the small but ambitious multi-channel retailers.
It’s interesting to see K3 make another acquisition in its apparent quest to corner the UK market for Microsoft-based point of sales software.
K3 has bought Somerset based Retail Technology Ltd for £610K, a multiple of 0.8x sales and 4x prospective 2014 pre-tax profits. It will add an underwhelming 2% to K3’s retail turnover, which was £39m last year.
On the positive, RTL does build its solution on Microsoft just as K3 does. There is clear synergy here and RTL may have developed some proprietary code that has wider market use, For example it has the necessary integrations to Clarks for vendor-managed inventory.
And there looks to be plenty of scope for cost cutting too. K3 generates £100K sales per employee while RTL produces just £22K; indicating both a certain lack of process automation and remarkably low salary levels.
So, the purchase should be earnings enhancing but it does also pose some questions.
Firstly, you have to wonder about the strategic fit of the new business. K3 has done well moving upmarket and has announced wins with Charles Tyrwhitt and Ted Baker. Yet, with RTL it has bought 180 independent retail customers generating an average of just £4400 revenue each. These customers risk becoming an annoying distraction from the core strategy.
Secondly, the acquisition will also bring some partner challenges. RTL has a well-developed network including Shopify for e-commerce and bLoyal for loyalty. K3 will need to keep these relationships going (existing RTL clients will insist on this) but has its own solutions.
Maybe the plan is to cross-sell K3’s e-commerce and CRM tools to the RTL base. Maybe not. Either way, this acquisition adds complexity for very little top line benefit.
Tesco, Marks & Spencer and John Lewis have all announced the creation of technology laboratories. From the technology vendor perspective, here’s my ten recommendations to retailers to ensure success.
Be clear on your rationale. Are you looking to for a place to pilot new ideas you’ve already decided to roll-out? Or a demonstration facility to help convince senior management to invest more in technology? Or even skunk works for your own technology teams to showcase new ideas? Whichever, make sure you know what success looks like and wrap this up in a Charter which you can share with suppliers, technology vendors and your own staff.
Build your own use cases. You know your customers better than anyone else so get your teams to set challenges for the lab, such as improving certain processes or finding cheaper or more exciting ways of reaching customers. Resist the temptation to ask your vendors for new ideas or you may just get recycled innovation from their other customers.
Give your existing suppliers first crack. There are plenty of sexy start-ups in retail technology but your own vendors know you best. Give them first chance to show you what they can do.
Don’t be greedy. You’re probably asking vendors into your lab and expecting them to work for free so as to make you (and them) look good. There’s a temptation to charge an additional fee for access to your brand and customers. One retailer even once asked me for a royalty on all future sales. Don’t give in. Make sure you’re working with the right vendors, not jut the ones prepared to pay.
The value of investments can go down as well as up. The vendors you bring into the lab may pitch you an opportunity to buy equity. Just say no. You’re expert in buying technology. Investing in it is quite a different game and best left to the professionals.
Spread the love. Labs are hard work and suck up resource from your vendors as well as other teams in your own business. Be generous with praise and reflected glory. Put videos on YouTube with name checks for the people involved, enter awards and give testimonials. You want the best and brightest to work with you rather than your competitors so show them you care.
Get a high traffic location. The lab needs a wide audience so it’s best located at head office or a major store near a railway station. If PR is what it’s about, then London has overwhelming advantages.
Be clear what you’re testing. However tempting it may be to replicate a fully functional store, think carefully about integrating demonstrations to your live systems. Often, there’ll be a cheaper, quicker and less risky way of proving the same point.
Local tech support. Wherever you put it, the lab will need onsite support from technicians that know what they’re doing. Innovative stuff goes wrong more often and your integrations will be pretty basic and unreliable. You don’t want everything failing when the CEO comes to visit. It’s happened to me and it’s not pretty.
Guard your staff. Technology vendors pay better than retailers. Make sure your best people are happy or in the heady and innovative laboratory mix of business and technology, your suppliers may pinch them.
An edited version of this blog first appeared in Retail Week (££).
B2B strategy, marketing and propositions consultancy. Focused on retail technology and payments. London