Chomp. chomp. chomp. like a modern-day PacMan, Wal-Mart Stores Inc. is gobbling up the retail toy market. Such former highfliers as Toys “R” Us Inc., KB Stores Inc. and FAO Inc. are on the run, if not already out of the game.
Wal-Marts momentum seems unstoppable. That is, until you consider Electronics Boutique Holdings Corp., a West Chester, Pa., company that operates more than 1,500 video game stores in malls across the United States and abroad.
The growing company is moving at a fast clip and stealing market share from the likes of Toys “R” Us, KB and FAO along the way. Recently, it reported a 24.4 percent increase in year-over-year holiday sales.
But competing against Wal-Mart, based in Bentonville, Ark., in the video game market isnt easy. The secrets to EBs success are a laserlike focus on video game enthusiasts and a business-to-business IT infrastructure that keeps EB stores amply supplied with the latest hit games. Equally critical, the B2B process lets the company sack unpopular games even before they enter the supply chain.
“In the 21st century, companies that dont continuously improve will perish,” said Mike Mauler, EBs vice president of distribution. “For that reason, were driving improvements across many aspects of our supply chain. Its all about reducing costs and increasing speed to market.”
EBs supply chain management system tracks products as they move from the companys warehouses to retail locations. The solution, designed by Atlanta-based Manhattan Associates Inc., includes a WMS (Warehouse Management System) and a TMS (Transportation Management System) that run on an IBM iSeries server.
The system marks the first time Manhattan Associates has fully integrated its custom WMS and TMS software into a single solution. It also links to EBs enterprise resource planning platform from JDA Software Group Inc.
Although EB wont disclose how much it paid for the system, the company praises its performance. Since the supply chain solution went live across three distribution centers last summer, EBs error rate of outbound orders—products shipped from its three U.S. distribution centers to retail locations—has plummeted by 40 percent, according to Mauler.
The supply chain system also has several B2B components, including full integration with tracking systems from FedEx Corp. and United Parcel Service Inc. that allow EB managers to monitor purchases and deliveries as they move from warehouse to retail—or even to a customers doorstep. Those digital features are especially critical as EB competes against online retailers such as Amazon.com Inc. and eBay Inc. and even direct-sales sites operated by Electronic Arts Inc. and other video game publishers.
Leaving a Legacy
Leaving a Legacy
The Manhattan Associates solution wasnt EBs first stab at a supply chain or B2B system. The company built its initial supply chain management system in 1999 and bet on LogPro WMS, a niche supply chain management package from Atlanta-based Intrepa LLC.
When Manhattan Associates acquired Intrepa a year later, EB insiders wondered whether the company had wagered on a dying technology. Concern spread that Manhattan Associates, like so many other solutions providers, would mismanage the software acquisition.
Such concerns, however, were quickly allayed, as Manhattan Associates outlined a strategy for the LogPro product line that merged the products with its own niche software package, then known as PKMS.
In fact, EB had a hand in designing the resulting product, WM for iSeries. The system offered improved online services and supply chain monitoring capabilities—features that EBs retail stores and Web-based customers craved.
“EB worked in partnership with us to converge the two products,” said Jeffrey Gantt, a consultant at Manhattan Associates. Added Angie Payton, Manhattans director of professional services, “As an experienced user of LogPro, EBs guidance was crucial to us.”
With an eye toward future growth, EB soon began charting a course to an integrated supply chain—a tracking system that would follow products as they moved through warehouses and transportation systems.
EB and Manhattan Associates broke ground on the project in August 2002, and all three EB distribution centers were up and running 12 months later. That time frame included a two-month hiatus when EB focused on the holiday season rather than IT upgrades, said Mauler.
EBs supply chain success has surprised many Wall Street skeptics. This past December, U.S. Bancorp Piper Jaffray and J.P. Morgan Securities Inc. warned investors that the video game industry appeared sluggish. J.P. Morgan said half of EB and Wal-Mart stores had too much video game inventory.
Those warnings proved incorrect. In addition to EBs healthy year-over-year holiday sales, comparable store sales rose 2.5 percent during the period, beating the companys most optimistic forecasts. EB benefited from strong demand for PlayStation 2, Nintendo and Xbox video games. But EB also outmaneuvered a few of its rivals: Toys “R” Us delivered disappointing holiday sales results, while FAO and KB filed for bankruptcy protection.
For an even closer performance comparison, consider EB versus KB. During the 2003 holiday season, a third of KBs 1,300 stores abandoned the video game market and some KB stores wound up with stockpiles of unpopular games because of inefficient supply chain management. On Jan. 15 the company filed for bankruptcy protection. In stark contrast, EB recently increased its sales projections for 2004.
Despite positive forecasts, EB cant declare victory. In addition to competition from Wal-Mart, Target Corp. and other retailers, EB must contend with mall-centric rival GameStop Corp., which operates 1,300 retail locations.
Clearly, theres no rest for EBs supply chain.