Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Oracle Retail webinar for investors. At this time, all participants are in listen-only mode. As a reminder, this conference is being recorded. I would now like to introduce our host for today, Shauna O'Boyle from Oracle's Investor Relations. Ma'am, please go ahead.
Thanks, Karen. Hello, everyone, thank you for joining us today as part of our ongoing educational speaker series hosted by Oracle. I am Shauna O'Boyle, senior manager of investor relations, and today is Monday, October 14th, 2013. Joining us today is Oracle executive Senior Vice President Mike Webster and equity research analyst Brent Thill of UBS. Today, Mike will be discussing Oracle's retail business. He will not be discussing any information that is not already publicly available. At the conclusion of Mike's presentation, we will turn the webcast over to Brent, who will moderate the question and answer portion of the webcast. You may submit questions at any time during the presentation by typing your question in the Q&A box in the lower part of your screen. Please keep in mind that we will not comment on business in the current quarter.
As a reminder, the matters we will be discussing today may include forward-looking statements, as such, are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on Form 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in forward-looking statements. You're cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind, we're not obligating ourselves to revise, update, or publicly release the results of any revisions of these forward-looking statements in light of new information or future events. Lastly, unauthorized recording of this conference call is not permitted. I would now like to introduce Mike Webster.
Thanks, Shauna, hello to each of you, thank you very much for joining. For the next 10 to 15 minutes, I will cover three specific topics. First, I'll share with you the Oracle view on what's happening in global retail and why we're so excited to be participating in this segment. I'll share with you the trends that we're monitoring that directly inform and drive our strategy, I will give you an overview around our capabilities and the offers that we are preparing for global retail. Shauna, if you would take us to the first slide around market trends, let me set the scene in terms of what we are seeing. We are, according to market research, looking for a projection of retail sales to be 8% compound annual growth through the end of 2016.
It's interesting when we look at retail sales and its relationship to global GDP, where the IMF has cut the global growth forecast to 2.9%. It's a sixth consecutive diminished revision. We're still seeing fairly strong consumer spending, particularly in the emerging and mature markets. We think we're dealing with a reasonably healthy end market where retail sales will grow at 8%. Without question, what is fueling that is the expansion of online retailing. We think of online retail, we topped $1 trillion of consumer spend online in 2012. The highest business-to-consumer sales growth will take place once again this year in the Asia-Pacific region, where luxury good explosion continues. As consumers increasingly shift their buying profile towards the digital channels, we're projecting a 15% compound annual growth rate of online retail sales.
That is more often than not being completed on a mobile device. The projections, again, according to numerous industry analysts, are that mobile commerce will continue to expand at a very healthy rate, tripling between now and the end of 2016 as consumers use smart devices not only to browse for purchases but to actually conclude those purchases with the online retailers that serve them. We move to the next chart, let's focus on what's happening around retail and what are the forces of change that our customers are dealing with. As mentioned, there are 9 billion internet devices currently connected at the end of 2012, and a simple explosion projected to be 50 billion by 2020.
Consumers are shifting their shopping behavior, and shopping being defined as both pre-purchase, purchase, and post-purchase, they're exploding the number of devices and the data that is captured along that journey. Retail has always been a market that's been around big data. If we think about monitoring product by day, by store, it's always been a market driven by huge volumes of data. The retailers today are coping with the expansion in both the velocity, the rate at which new data is coming into their environment, which is projected to grow by 50X between now and 2020, and then the variety of data. Retail has traditionally dealt with structured data, a purchase order, a sales transaction, and increasingly, we're dealing with unstructured data, looking at consumer browsing behavior, looking at carts that were abandoned but not purchased.
Retailers are having to cope with an explosion of data. They're coping with consumers that are now armed with smart devices, so mobility being a key trend where there are 6 billion mobile devices with 7 billion people on the planet. What that is driving is a change in the relationship between consumers and store associates. Consumers today have more information at their fingertips and have shifted the balance of power firmly in their control against store associates that no longer are the sole source for product, price, performance, and availability in a retailing environment. It's changing their expectations. All of these forces are changing what consumers expect and consumers demand when they visit the retailer of their choice, be that online or in a physical store location.
86% of consumers, according to Oracle study completed last fall, will stop doing business with a retailer after a single bad experience. The cost of delivering against consumer expectations continues to grow. Retail is changing. Not only is it changing and becoming a more global business, but it's changing as industries converge. It was very simple in a world 30 years ago, where manufacturers created products they distributed through retailers, that's no longer the case. Today, manufacturers can come direct to consumers as increasingly they open retail formats to bring their brand experience direct, be it in the high-end luxury space or down in the mid-tier. Retailers have not stood still. They are vertically integrating. Many of the grocers we deal with today have vertically integrated to being their own providers of dairy, their own providers of farm-to-table.
The industries are converging where the lines between retailer and manufacturer are no longer clear. We have many new entrants, online pure-play retailers who are opening stores like a Warby Parker. We also have many of our retail customers that are buying online channels as they try to establish a digital presence. The net is that it's changing the way retailers allocate capital. It's no longer sufficient just to open new stores to get growth. It's no longer sufficient to stay in a constant format. Increasingly, it's no longer acceptable for retailers to deal with legacy IT systems that can't promise or deliver on the brand promise of giving customers a seamless experience.
If we go to the next slide, you'll see a number of different customers who are on the journey, who are responding to these forces of change by transforming their businesses with IT as a hub of that strategy. Whether they're grocers, whether they're apparel and fashion retailers, or they're department store retailers, we're seeing a shift away from point solutions where customers might choose a best-of-breed packaged application or custom application and then try to integrate that back into their legacy architecture. We're seeing companies that are from the very beginning starting to design their IT systems around a single view of customer, a single view of inventory, and a single view of order. These enterprise transformations are accelerating on a global basis as retailers accept the reality that competing today requires a modern IT infrastructure and an integrated set of applications to serve these more demanding consumers.
Like that, Oracle is not standing still. We are investing significantly to try to keep pace with our customers and keep pace with their consumers. On the next chart, we will describe to you very briefly how we're enabling Commerce Anywhere. There's a lot of conversation in the community around multichannel, cross-channel, omnichannel. To us, it misses the mark. The Oracle point of view is that what customers demand today is Commerce Anywhere, where they can buy where they want, how they want, and when they want. We are seeing a market that requires the breadth and depth of not only a complete enterprise suite, but then doesn't force a compromise between best-of-breed functionality. It's no longer an either/or compromise model that we're offering to our customers.
We're unique in our ability because of this breadth and depth of our portfolio to deliver on that promise, where we can help them deliver Commerce Anywhere their customers demand it. We organize our portfolio into seven solution units. We have a planning and optimization suite that drives the strategic and financial framework for the business. In this area is where we shape the assortment, we shape placement, we shape the pricing strategy, we shape promotion strategy, and the lifecycle support for an item. In supply chain, we align those planning decisions to demand. We work with inventory and receipt flow, and in this area, we're focused on driving allocation and replenishment and focusing on order fulfillment. Merchandise operations is the third pillar, and this is where we provide the transaction platform that both executes and informs the planning and supply chain decisions.
Commerce is where we enable the digital experience. We provide solutions that balance customer intent with merchant-inspired tools that deliver search, deliver personalization, and deliver merchandising capabilities for the digital experience. Next is the store solution area, where we are providing our customers the ability to support both shopping and, increasingly relevant, return journeys. point of service, returns management, store inventory management, back office and central office management are all key capabilities that we're delivering to our customers today. The customer solution is where we provide a single view of the customer, marketing, loyalty, and social relationship management capabilities, the focus is on helping our customers to not only acquire, but to retain customers and to increase their conversion in basket sizes.
Finally, we have a retail-specific analytic suite that gives access to reliable and timely information that helps drive better business decisions, whether it's on merchandise analytics or customer analytics, and several other dimensions that are so critical to our customers. This is the Oracle portfolio, and it's highly unique in not only its breadth, but the depth of expertise and experience that underlies each one of these solution units. We think it's a compelling part of our value proposition for customers that are looking to compete in a growingly complex world. On the next slide, I'll just give you a little bit more detail into each of those functions on slide nine.
Here's the retail footprint as viewed from a process standpoint, that this is how we help customers go all the way from how do they plan, make product, buy product, move product, market product, sell product, and fulfill product. I'm not going to take you down into the details, but I simply wanted to illustrate for you that we have a great depth of capability in each one of these areas. Each one of them is becoming more essential as customers try to organize around the new customer reality. The next chart is just to give you a sense of where we're investing behind our vision of delivering on Commerce Anywhere. We're first of all focused on how do we help customers deliver on the customer journeys, buy online, pick up in store, buy online, return in store, buy in store, and ship from vendor.
All of those customer journeys tax a retailer's infrastructure and require more thought-leading IT investments. We're also delivering on targeted assortment offerings that help retailers make the decisions on where to place inventory to derive the maximum margin and revenue flow, giving them visibility to inventory alignment and transparency so they can make better available-to-promise decisions, which is a key in an omnichannel world. They can see backward visibility, they can see reservations of inventory, and a perpetual view of where they are in store or in the warehouse. Finally, we're providing right-time integration capabilities. The integration of our Oracle Retail suite to the Oracle Financials suite. The integration of retail sales, our real-time sales interface between our core merchandising system and store inventory management. More mundane things like giving pick complete indicators in our warehouse management.
Each of these investments is really core to us continuing to support customer journeys wherever they are in the retailer's value chain. Finally, on the next chart, I want to talk to you about how we're maximizing the broader Oracle footprint and Oracle investments. Not only do we have a very purpose-built, best-in-class suite of retail applications, we bring and harness all of the value of Oracle to our customers, whether that's Oracle social marketing capabilities through a series of acquisitions that we've made, or Oracle content and service, or Oracle marketing, or Oracle engineered systems that give the highest performance to our customers as they move to a world that requires near real-time execution of orders, near real-time execution of decision-making.
Our customers get the benefit of a suite of applications that are differentiated, that solve their most acute business problems, but then are engineered to scale on the back of the best database, the best middleware, and the best hardware stack in the industry. Again, allowing our customers to reduce their total cost of ownership and improve their performance. In conclusion, on the following chart, our Commerce Anywhere proposition is really all about helping our customers deliver on their brand promise. We think that drives them towards three very specific agendas. First, how do they deliver connected interactions? How do they help customers seamlessly move through each of the channels that serve them, whether it's online, in a store, or on the call center? Second, how do we deliver their knowledge workers with actionable insight? We don't want to give them more data.
We don't want to give them more reports. We don't want to give them more tools. We want to deliver them actionable insight so they can make more profitable decisions at the speed of retail. Finally, helping our customers to optimize their operations. How do we help them to connect the silos, break down the barriers that prevent them from effectively servicing customers, and drive a level of performance that can help them to win in a growingly complex marketplace? With that, I'll turn it back to Shauna, and we will take your questions.
Thank you, Mike. Before I turn it over to Brent for the question and answer portion of the call, please let me remind our listeners that you can submit questions at any time during the presentation by typing your questions in the Q&A box in the lower part of your screen. Brent?
Thank you, Shauna. Thanks, Mike, for doing the call today. If you want to just start off with talking through the most frequent use cases that you're seeing in your retail base today, and how do you think that's going to change As you mentioned, the shift going online over the next several years, how do you see that changing over time?
Yeah. Thanks, Brent. Really, the way I would describe it is that our use case would be around two things. Number 1, we provide kind of the heart and lungs of a retail operation. If you go back to thinking about planning and you think about a core merchandise system where we hold all of the attributes of the items they sell, it's where we hold inventory, it's where we drive purchase orders. We really are seeing that use case that many of our customers are looking to modernize what has traditionally been a legacy custom system. That's the first use case. The second use case is absolutely supportive of that shift to online consumer behavior and where customers are coming to Oracle for our expertise in creating great digital experiences.
This is an area where we've made a number of different acquisitions, from ATG to Endeca to RightNow to FatWire. Our suite of digital commerce solutions is probably the second area I'd tell you is becoming a common use case.
When you talk about the retail industry, there have been a lot of separate point vendors that have served different needs. Oracle's done a great job of taking multiple pieces of the puzzle, as you mentioned, with some of the acquisitions in your core organic investment to build that out. Maybe if you just talk through how big a catalyst this is in pushing the customers to Oracle and maybe some of the other items that you think are important to get them inside the Oracle Retail family.
Sure. The world's changed, right? I think in the world that we lived in, you could get by with buying point functionality. The trade-off is that many retailers then spent a lot of effort integrating it into their operation. Our proposition is that we're going to try to do the hard work for you to bring not only that best-of-breed functionality, but do so and deliver it through an enterprise strategy. I think oftentimes our customers are coming to Oracle looking for our domain expertise. We've got, I think, a well-earned pedigree of respect in that our folks understand the most difficult issues facing retailers. They come because they can join a very strong and rapidly growing community of customers where they can not solely learn about what's best practice, but they can help to formulate what is next practice in retail.
I think they are attracted to our unique business model. We're a global business unit versus just kind of an industry go-to-market team that's an overlay to the company. I think there's a catalyst around just the full breadth and depth that we bring in the portfolio. Those would probably be the reasons that I think our brand is becoming a trusted part of the retail landscape.
Great. Where do you think, Mike, in terms of the growth will come in the next couple of years if you had to point out where the biggest catalysts are for growth, maybe the fastest areas?
Two things probably come to mind on that. One, we've architected, again, this enterprise suite, but we've done it where you can deploy it in a modular fashion. I think we'll continue to see growth in expansion in cross-sell of our solution. Someone who uses our planning and merchandising moving to our store point-of-sale, someone who uses our e-commerce solution, adding retail analytics. We think we have opportunities to expand on a solution level. There's no question that we see opportunities in different geographies. Our portfolio largely mirrors the kind of the maturity of retailing. If you look at the distribution of all retail sales on a worldwide basis, we largely mirror that. As we look at the formulation or the formation of stronger middle-class economies in China and India and other parts of Asia, we'll see growth opportunities there.
We're already enjoying a fair degree of success in places like the Middle East, Russia, and Latin America. Probably a combination of solution and geographies are the two areas we expect growth.
Your strategy's fairly unique in the fact that you have an application portfolio, but you also go beneath the ground with the engineered system, which gives you the critical infrastructure. Can you maybe walk through how that is having an impact as well to the business?
It's a great luxury to have the strength of Oracle bring again, whether it's database middleware or our hardware solutions to bear. Let's maybe spend a second just about engineered systems and what that really does for our customers. It's not about how much memory and if it's in memory or other. Really, that's interesting, but what really matters to our customers is that when we take our core merchandise system and we run it on our Exadata, which is a database tier, we can give them two times performance improvement in their sales batch upload. They load massive amounts of sales data. We're able to do that in half the time. As we run our commerce suite on our Exalogic solution, which is kind of the middleware tier, we can give them three times the performance or one-third the cost.
When we run our retail analytics suite on Exalytics, we can run those reports 10 times faster, and we can run their load times four times faster. While there's a lot of conversation and hype around the technology, we think we're able to help retailers get more focused around value creation and how that supports their business as they move more towards real-time operations.
You mentioned the explosion of new multichannel/mobile commerce, the ability to buy a shirt or pants on the bus going to work. How do you address that with the solution today? Maybe if you have any examples of some customers that are using you here, it'd be helpful.
I think Oracle was early to recognize the need to have a very strong commerce suite in the portfolio. We were very fortunate we were able to get the best commerce platform on the globe in ATG, the very best search engine on the globe in Endeca. I think if you look to some of our acquisitions that we've made, that was a huge part of delivering on multichannel. Those in isolation are not enough, because if we don't then take those capabilities and integrate them back into the core portfolio, then we're just doing commerce. What we want to do is Commerce Anywhere. The anywhere is really the enterprise enablement of those customer journeys. How do we integrate our commerce suite with point-of-sale so I can have a shared cart?
How do I integrate commerce with store inventory management, so when I tell you that there's six of those shirts that you just bought on the bus to work, I can actually assure you that they're in the store, and I can reserve them with a store associate so you can actually pick them up? We're addressing it in both dimensions. One is building out the depth of capability in that solution unit and then integrating it across the suite.
You talked about a number of acquisitions, I think there are a lot of questions about how tightly integrated those acquisitions are. Are they standalone? How do you think of the workflows today in terms of the integration touch points at this point?
There's always more work to be done. We've got a very detailed integration architecture that we've created for our customers, but there's always more work to be done, and it's a balance between us investing our R&D towards giving them new innovation and the functionality that's required in each of the application units, and then integrating them. It's a balance, but I think we're doing a very effective job of taking some of the complexity and cost out of integration into the retail marketplace. We have more work in front of us as we continue to not only expand the portfolio with new innovations that we're bringing out to market, but as we try to figure out where are the areas that our customers get the most value.
Maybe just going back at a higher level on the target market that you're going after, Oracle's had a very strong presence in the larger enterprise. Can you walk through how you're looking at more of the SMB, if you are, considering a lot of the new brands are emerging that you want to be able to address?
I think that the packaged application market has traditionally gone after the higher tiers in the market. We don't have a finite structure, I would say, but in a general sense, it's fair to say that we're more typically working with retailers that are kind of a half a billion dollars in annual gross revenue. It's not absolute. We've got many customers that are even less than $200 million in revenue, but they're growing at a very fast pace. I think we typically align ourselves with companies that are looking towards long-term success in building out a modern IT architecture that's required. We're looking every year on how do we continue to take out cost and complexity. As we do that, I think that better positions us to move down market, as well as to move into other geographies that maybe were cost-prohibitive years ago.
Those are some kind of loose guidelines in terms of how we segment the retail landscape.
There are a handful of questions from other investors and analysts, and maybe I'll go into that. Just in terms of a question around buying patterns from retailers, it seems like the spending can be somewhat lumpy, at least in a lot of these large retailers. Can you just give us a sense of how that's changing from what you're seeing from, it sounds like with the portfolio, they can start in a lot of different areas then grow over time rather than having to buy the whole suite up front. Maybe what you're seeing in terms of changes over the last couple of years in terms of the spending behavior among your retail clients.
Sure. I think we are seeing two things. Back to the opening comments, I do think we're seeing that retailers are revisiting their capital allocation strategies. Where perhaps the world was, "Hey, next year, we're going to open," let's make up a number, "73 new stores." I think we're seeing companies taking a more thoughtful approach and saying, "Why don't we maybe dial that back and reinvest back into our supply chain, reinvest back into our core merchandise pillar, reinvest back into planning while we extend the digital experience. That capital allocation strategy is coming back, and we are seeing retailers making bigger, bolder bets. It doesn't mean that there are not modular point solution buys. Those are still absolutely out there, and we compete very effectively in that space. I do think the changes, the consumer reality has exposed so many gaps and holes.
Frankly, most of our customers can't see real-time inventory across their enterprise, can't see the customer in a singular view. They might see me one way when I'm online and treat me very differently when I've got my loyalty card in store. Those are the problems that the board level discussion is driving towards bigger, bolder moves. I think those are probably how I'd characterize the change in buying patterns.
Okay. Another question is around how does Oracle help differentiate retailers looking at the consumer data of their most profitable repeat or prospective customers?
Probably would tackle that in a couple of different ways. I'll just go back to kind of that Commerce Anywhere foundation. Again, I emphasize the point where you've got to solve that through an enterprise experience. One way to do that, obviously, is to start on the, if you think of that slide, analytics was a key pillar on the right edge of that slide. There's no doubt that we're providing them with customer analytics that help them to better segment their customers in terms of who's most profitable and who's cherry-picking them on just promotion items. We've obviously got a number of different loyalty solutions and social marketing solutions, be it a Siebel or some of our Fusion applications. We would solve that in the customer solution unit as well.
We would then drive that even all the way back up into how do we create personalization for them online or in the store so that I can treat my best customers the best, and I can recruit customers a lot more creatively. I'd say it touches all of the pillars that we're trying to create in our Commerce Anywhere vision.
Maybe just back to your slide when you talk about the seven solution areas, and the first one on planning and optimization, there's still a lot of big retailers that are using Microsoft Excel to just do basic planning. I guess from your perspective, it seems like it's fairly ripe opportunity to go in and kind of disrupt the whole early stage part of that process and provide an early stage solution. Can you walk through what you're seeing on the early ends of this and maybe what you're seeing as the primary platforms that people are using today at that point?
Probably, again, just a few areas of focus as we think of that planning and optimization solution unit. The first and probably the most important one for us is infusing our applications with science. We've got a very strong science foundation of building algorithms that help retailers optimize things like pricing, optimize the markdown and clearance of an item. Those are capabilities that, again, forgetting the tool, the amount of data that retailers are coping with just overwhelm the knowledge worker. We're going to use science to help bring them an engineered answer so they can make better, faster decisions. The second thing I would tell you is that it's changed in that where before I could only plan by a single channel, I planned for stores.
How do I plan today to know how much when I run a promotion, the demand is going to transfer from store to online or vice versa? How much demand from online to store when I run an in-store promotion? It's a foundation, first and foremost, of science. Again, forgetting how we visually present that to the user, whether they use our suite obviously comes with a very intuitive user interface. Whether they've rendered that to their prior users in Microsoft Excel is not the interesting piece. It's the science and the ability to do that in following that customer all the way through the channels they serve is where we're focused.
Great. Thanks, Mike, for the help on all the questions. I'll turn it back over to Shauna.
Great. Thanks, Brent. To wrap up today, we'd like to thank you for joining us. We'd like to extend a very special thank you to Brent for moderating the Q&A portion of today's call and asking the questions most asked by investors. If you have any follow-up questions, please contact the investor relations team here at Oracle. This concludes our call.
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now log off. Everyone, have a good day.