Manhattan Associates, Inc. (MANH) Earnings Call Transcript & Summary

There's always more work that seems. Shirley, what does omnichannel or unified commerce mean in the world of PacSun? And why is it so challenging?

I think we're all customers. Unified commerce, really, it's simple. You can buy anywhere, you can return anywhere. It's seamless, right? So as the technologies, the CIOs, ideally, if you can just abandon all the technology you used to have and move on to the -- into a new house, everything is ready, that you can run your business, that's perfect. But unfortunately, reality is not like that. You have legacy systems, and you have everything you have to live with and how do you make it work to adapt to the new customer behavior? I like to -- I think the people talk a lot about -- as a consumer, the entire world, the other retailers, they set expectations, the bottom line, the level of expectations. We all shop on Amazon. So now we all expect the type of return that Amazon has offered for everyone. So this makes it even more challenging for retailers to run omnichannel to unified commerce. I think what we have done, we started -- I think everybody likes to say that we crawl, walk and run. So you start with what you can do. At the beginning of pandemic, we spent a lot of time on digital fulfillment. And while everybody was ordering from home, and then we had inventory locked in the 300 stores while we used a DC for fulfillment. So we implemented this OMS technology, the Manhattan technology that leveraged the inventory from the 300 stores and the labor so to fulfill across the country. And then moving on to that, we worked on stabilization, optimization, and then we expanded the system integration to cross platform, including marketplace. Now I talk about social commerce. So in addition to all the channels and also the other things that's important such as you've got to have a single payment gateway. At the beginning, during pandemic, the touchless, right? So now -- so we have implemented a new cloud-based gateway so that you have a unified gateway, you have a single token vault so that where you can handle returns in the stores. You need a unified inventory visibility, then so when your customers come into your store, buy it versus your people buy online to reduce your rejection, reduce your split shipment and a unified fraud protection. And not only unified among your own channels, also the [ Fraud Act ] protection going to have this reputation sharing. If the protection program identify if Roger that has done something or has the bad reputation such as either from Macy's or from the SPARC Group, that we got to know so that order should have been checked thoroughly, right? So fraud protection, what else, return we talk about. So with all this together and CDP, a customer data platform. So for your business to have a full visibility, 360 degrees of the customer profile, the customer shopping behavior. Then you have a full understanding, and then you can run your digital marketing, the targeted personalization, individualization. So with all those together, it's been challenging, but we are getting there.

It sounds challenging, right? There's a lot of technology. You have end users who you're constantly trying to think about how do we incentivize them to get the right behavior. You've got a customer base that's constantly evolving. So it really is a very complex juggling act. And it sounds like one that the sooner you get on, the better because ultimately, you're going to learn as you go. And to Todd's earlier point, it's an evolution. Todd, Shirley mentioned some of the emerging technologies they're seeing in their kind of omnichannel or unified journey. What are some of the things that you're seeing that have made things a little bit easier that maybe weren't possible or available or feasible maybe 5 or 10 years ago?

I'm really excited about RFID. When we acquired Reebok, all of their product was already source tagged. So as we've rolled out Manhattan's point-of-sale and order management system, there's native RFID integration capability with that, and we're in the process of rolling that out. I really -- I see RFID as kind of the holy grail of the omnichannel scenario, right? At the end of the day, it's about inventory and having a high level of inventory accuracy. And with the brands that we have today, your inventory is as good as your last cycle count. And traditionally, retail, you cycle count once a year and the inventory levels start to separate from reality over time. And that's what drives the rejection rates and the cancel rates of orders. So we're really excited about being able to go live in the next quarter with RFID where we're going to be able to cycle count those 60 stores whenever we want to. We're going to be able to use the Geiger counter to figure out very quickly if that unit is in that store or not, right, which is going to help us gain back labor productivity within the store. And we're equally excited about integrating RFID at the cash wrap, where you basically can bring all your items to the cash wrap, drop them on a counter and that card is automatically built with all the promos from an easy checkout perspective, right? So we're really excited about this. It's finally to the point where the cost per tags makes it something that's affordable. We're looking this year at Brooks Brothers beginning the source tagging process so that everything that will come into the supply chain will have the tag on it. And by the time we roll out the new point of sale in a year or 2, we'll have that tagging there. And then it's a matter of integrating and bringing in the right scanners and devices in the store to make it a reality. And we're -- we're in a very interesting place with Reebok because we have all the tech already. We have all the devices. So there's not a huge capital uplift to go get it done, and we're excited to learn about that in the first half of this year.

And Shirley, if I'm not mistaken, you guys are also on an RFID journey. Can you share a little bit about how you're thinking about that? What metrics you're looking at as you're kind of beginning that process?

Yes. We did 3 stores pilot with RFID in the fall last year. So we have been running those 3 stores, fully tagged. We are waiting for manufacturer-tagged merchandise to arrive in the spring, and we are going to roll out to 50 stores first and then to the rest of the retail. That's the one of the focus this year. The other initiative that we're working on is really to unify the point of sale and digital fulfillment into a single system, single database. So now in probably 6 months time, so we will be able to have the optimal solution. That's a single database to have store inventory, digital inventory, digital fulfillment and point of sale and even promotions, store brick-and-mortar and digital promotions together so that customers really can shop seamlessly, either you buy online, pick up in store or your inquiry online, go to stores to pick it up or to buy it or return either drop off at store, mail to the DC or go to the partner that we worked with a solution that's 9,000 locations throughout the country. So by this coming holiday season, I really expect that we have a modern system, a single database which serves the single source of the truth across platforms, including social media, including our pick up store or Instagram store, Amazon Fulfillment, et cetera. So I think that will bring us to the next level in terms of unified commerce will provide a great experience improvement, ultimately improve the conversion rate and reduce the friction.

So it sounds like really the effort, a lot of what you're focused on is ultimately consolidation of some of those core data points like inventory and customers so that you can be more nimble with some of your peripheral technologies, which leads nicely into my next question. As you have these extended road maps and these capital-intensive long-term projects and evolutions, how do you maintain some level of agility within your business for the changes that you see out there? So a bit of a theoretical question or a philosophical one, but curious, how you think about agility on top of executing against a fairly committed road map? Todd, we can start with you.

Yes, it's a great question, and it's an interesting challenge, right? So what I think allows us to play in both the short game and the long game is that we've got teams that are focused as a center of excellence that kind of manage the order management and the point-of-sale platform as one technology stack. And the fact that it's cloud native and releases are coming, right, on a periodic basis, every quarter a new release comes out, that gives us the ability to side while we're in flight with a new brand and a rollout, are there things that we want to light up for the brands that are already live so that we can get some newness and some new features and capabilities in parallel with these bigger rollouts. So I think that's one of the things that -- it's just the architecture of these platforms today is so different than it was. 10 years ago, if you wanted to get a new change, it was custom code and it was a lot of waterfall testing to get it into the environment, where now it's a little bit more plug-and-play. You can decide if you want to turn on those features or not turn on those features. And then that allows us to be a little bit nimble with the brands that are already on the tech stack while new brands are coming on.

Makes a lot of sense. I mean, certainly, from a technology vendor side, I think seeing the transition with kind of the modern cloud architecture as it pertains to holiday has been a big change for us. We used to have to really staff up and make sure that we were supporting every environment. And today, with the way things are structured, there's a lot more consistency and auto scaling happening that allows us to sleep at night. I'm sure that happens for you as well. So holiday is very different than what it used to be at retail, which has been encouraging. Shirley, I'm curious how you kind of maintain some of that agility against your long-term road map at PacSun.

Yes. Every company has an IT road map, either 3 or 5 years. At the beginning of the year or end of last year, you maintained it, you planned it. I think my experience, at end of the year, if I look back, I'm lucky if I can get 50% of the original planned project done, the other 50% or more than 50% are unexpected or unprecedented. You never know there is a pandemic. Everybody moved to work from home. All of a sudden, you have to figure out how to enable everybody working from home, right? And then with the customer behavior changing and technology evolving. So it's really, I think, a forward thinking mindset of adaptability is essential. And also with this adaptive planning and your commitment to innovation, I think it's a company's entire leadership alignment is also important. You need to get the support from the leadership, from every business holders. There's no more project is IT. I guess you can consider security or device, those are IT solely, but every -- every other initiative systems, now especially, we move on to cloud-based. You don't need the developers anymore, at least I don't, as a small brand. We work with established technology, like large technology leaders or even the start-ups. But at least I don't see it's feasible for our size to have a big R&D. I would rather -- Manhattan has invested a lot. So again, we have -- IT has changed from coding, developing, now move on to more business analysis and system integration. So again, agility, adaptability is really essential to empower the technology and business growth.

So it's almost cultural, it sounds like, right? Like as an organization and as a leadership team, understanding that innovation can really only be fostered with a certain type of culture, and that's critical towards kind of maintaining that balance. I think when we start talking about innovation, there's a lot of innovation happening here, right? And you could kind of go booth to booth, and almost every vendor, you're going to find something that would help your business. But at some point, innovation for the sake of innovation kind of loses it shine. And so another kind of balancing act that I'm always curious about, Shirley, and I'm keen on your opinion here is kind of balancing innovation against results. How do you make sure that as you're innovating, you're also thinking about the results that you're trying to drive and kind of keeping an eye on the prize, if you will?

We do a lot of experimentation or exploration. We have done things that customers asked for it, we launched it. And then it started and it didn't work out, you take it off, right? But again, nowadays with technology, we can do AB testing. So I'm lucky, I've also found start-up companies that innovation technology that they are willing to invest with us, so we work together. So especially now, we haven't mentioned this buzzword, AI, today.

No. I was trying to avoid it, but here we go.

Really, especially in the last half year, I've worked with multiple start-up companies that they are really good at it. And I don't have the bandwidth. Also, it's inexpensive. It's feasible. And then we work together, we partnered together. Something worked well, something didn't. But again, this is the fun part of my job that I got to explore all these opportunities.

That's awesome. And so it sounds like really just using a test and learn strategy, finding ways to be quick to pilot or proof of concept, a new technology, see if there's value and being kind of having the capacity to continuously do that as you go. Todd, we mentioned AI. We've got 1.5 minutes left. Have you seen anything interesting out there as it pertains to AI for retailers?

I think it's -- again, we're at the tip of the iceberg, right? But I think there's some interesting plays around customer information and being able to serve up customer information in real time to support assisted selling, clienteling features, being able to help our store associates create more meaningful relationships with those customers when they come into stores. I also think that there's going to be some interesting evolutions with AI around inventory management, right, and really understanding what's going on with your inventory to drive not just what you're doing from an execution perspective around omnichannel, but also back upstream around planning and allocation to make sure that you're not overbuying, under buying, but really understanding what's going on out there a little bit more broadly. So excited to see how that plays out over time.

Early days of AI, for sure. So just to summarize, I think listening to the 2 you talk here in the last 30 seconds. What jumps off the page to me is, one, as technology executives, you both have a deep understanding of your customer. So anyone out there, I think it's pretty clear that if you want a road map, make sure that you don't lose sight of customer first. And then from there, really applying a culture and a methodology that allows you to be nimble, test different things and ultimately, maintaining some balance towards results. And if you can do that, omnichannel is a journey, unifying your technology stack is iterative, and one that the sooner you start the better, it sounds like. Well, thank you both for your time. That was awesome, and we'll see you around.

Thank you, everyone.