January 05, 2001, 2:20 PM — An installation of SAP AG's retail software completed last year by Petsmart Inc. created problems that were "far more than we anticipated" and that continue to affect the pet-supply retailer's business performance, according to Petsmart's top executive.
Phoenix-based Petsmart this week warned that the financial results for its fiscal third quarter ended Oct. 29 will be below expectations due partly to lingering problems related to the SAP Retail installation. In a follow-up interview, Phil Francis, Petsmart's chairman, president and CEO, said implementation delays and other difficulties stemming from the project "hurt us substantially."
Francis wouldn't comment directly on whether there were problems with the SAP applications themselves. But he said the most difficult part of the project involved what he described as getting SAP Retail to "play with other children" -- meaning the process of integrating the SAP software with other systems that Petsmart uses.
"I'd say we had problems with the connectivity to other software for about a year or so," Francis said. "We were in pretty rough shape [on application integration]." As a result, he added, Petsmart limped through 12 to 15 months of delays in implementing the SAP Retail applications before finally turning them on last year.
After the system went live, Petsmart experienced higher-than-expected "shrink levels" that affected its product inventories -- a reference to losses due to shoplifting and damaged items. In this week's announcement, the company said "residual effects" resulting from the implementation problems on the SAP project continued to contribute to above-normal shrink levels in the third quarter.
Francis said Petsmart, which expects to record a total of $2.2 billion in revenue during its current fiscal year, was significantly larger than the other U.S. retailers that were already using the SAP Retail software. At the time the decision was made to install SAP Retail, he noted, Petsmart faced the need to replace aging systems that weren't Y2K-compatible.
The company had the choice of buying older retail applications or going with newer and more modern software such as SAP Retail, Francis said. He wouldn't say whether, in hindsight, he would still make the latter choice if Petsmart had to do it again. But the company said in this week's announcement that the SAP system "is now providing sound data."
Petsmart was the second SAP Retail user to disclose in a matter of days that its earnings are being affected by issues surrounding an implementation of the software. Last Friday, fabric retailer Jo-Ann Stores Inc. said out-of-stock problems related to its use of SAP Retail played a role in reducing the company's third-quarter earnings below the original expectations.