SAP conversion causing retail headaches for fabric chain

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Jo-Ann Stores Inc., a $1.4 billion chain of fabric and craft stores, today reported its third-quarter financial results had a cross-stitch put in them by two technology-related issues: continuing start-up problems with a retail version of SAP AG's R/3 software that was turned on last spring and a loss stemming from the company's involvement in an e-commerce venture.

The Hudson, Ohio, company is still in the middle of a $30 million conversion to SAP's back-office applications for retailers, a system that went live in April. But Jo-Ann said it is having trouble keeping enough products in stock while processing orders through the SAP Retail software, contributing to lower-than-expected earnings in the third quarter.

"It's just been a very painful systems conversion," said Brian Carney, Jo-Ann's chief financial officer. "It's not necessarily the software's fault, and we're happy that our business will be running on SAP. But it hasn't been easy."

Carney confirmed that the conversion has taken longer than the company expected and said Jo-Ann still expects to experience out-of-stock glitches in its crafts business during the current fourth quarter. In its third-quarter financial report, the company said it hopes to resolve the problems "as quickly as possible," but offered no specific timetable.

Jo-Ann's business operations are a difficult proposition for any retail software to handle, Carney said, with 100,000 active product items needing to be tracked at more than 1,000 stores. "We're a very large implementation for SAP," he said. "There's a constant trade-off in performance between needing speedy run times and delivering the kind of detail it takes to place our orders."

Officials at SAP America Inc., the German software vendor's U.S. subsidiary in Newtown Square, Pa., couldn't be reached for comment on the implementation at Jo-Ann Stores this afternoon.

David Dobrin, an analyst at Synergy Inc. in Cambridge, Mass., said he's not surprised to hear that a retailer such as Jo-Ann is having problems installing a back-office and supply chain system.

For SAP in particular, retail "has always been the ugly duckling" of the R/3 line, Dobrin said. And the retail industry in general has proven to be a minefield for application vendors, he added. "What retailers need is very specialized and very difficult to build," Dobrin said.

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