September 2, 2014, 12:07 PM

Going for growth

Mid-market and smaller retailers that want to upgrade their e-retail technology enjoy more attention from vendors that previously focused on the biggest retailers in the land.

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About two years ago, executives at PureFormulas.com, a Miami-based online seller of vitamins, supplements and related products, realized they needed to shed the retailer’s Yahoo e-commerce small business platform for something more robust.

The mid-market web-only retailer, which expects to take in about $44 million in revenue this year, wanted to add SKUs and expand into such product categories as sports nutrition, pet health and cosmetics, while also making other improvements, including getting software patches more quickly. Yahoo had worked fine enough, but its platform made it hard for the retailer to grow and add third-party extensions to boost the retailer’s technology back end, says William Perez, the e-retailer’s chief information officer.

So PureFormulas.com went shopping. Perez says that with the aid of a consultant, company employees spent an estimated 1,000 hours meeting with or investigating several of the major e-commerce platform vendors—including Demandware Inc., hybris AG, eBay Inc.-owned Magento—before buying from Oracle Corp. The retailer signed a contract with Oracle in May 2013, downloading Oracle Commerce software on its own servers with help from Vachio Solutions Group, which helps e-retailers deploy such technology. The implementation required in-house design work and coding in advance of the full launch in August of the new platform.

“It’s like buying a very expensive car,” says Daniel Moure, the retailer’s chief marketing officer, using a phrase often voiced by retailers of roughly the same size, or smaller, when describing similar technology shopping experiences. (For this article, Internet Retailer defines the mid-market as e-retailers earning between $20 million and $75 million in annual revenue). No doubt more e-retailers will use the same words in the coming years. That’s because an exclusive Internet Retailer survey from June showed that nearly 62% of respondents put “e-commerce platform” at the top of their technology shopping list. Of those that planned to replace their platforms, 60.5% planned to do so within the year.

Smaller web merchants looking to gain sales and better serve so-called “omnichannel” shoppers are finding more options from vendors hoping to gain mid-market share. Some of those options are new, while many are repackaged or revised versions of technology designed for the biggest e-retailers. Those upgrades, though, often require new funding and new hiring before those smaller retailers can enjoy more e-commerce horsepower.

Though the percentage of Internet Retailer Top 1000 retailers that report having in-house e-commerce platforms has increased slightly since 2011, from 34.0% to 37.4% in 2013, several top-tier vendors have increased their share of the mid-market. According to Internet Retailer’s Top500Guide.com, eBay-owned Magento had 27 mid-market clients among the Top 1000 in 2013, up from 11 in 2012. Oracle had 21 Top 1000 retailers, up from 17 in 2012. Yahoo stood steady at 12, while Demandware grew to 17 retailers from 13. Meanwhile, eBay Enterprise had 11 mid-market Top 1000 clients, down from 12 in 2012, when it was doing business as GSI Commerce.

IBM Corp. serves 12 midsized e-retailers ranked in the 2014 edition of the Top 500 Guide. Those 12 mid-market retailers had combined 2013 e-commerce sales of approximately $638.67 million. That represents about 6% of the web sales from IBM’s largest e-commerce platform client in the Top 500, Staples Inc., which recorded 2013 web sales of $10.4 billion. Traditionally thought of as a vendor of enterprise platforms that large retailers license and run from their own servers, IBM is marketing IBM WebSphere Commerce, a web-hosted software-as-a-service version of its platform, to smaller retailers. IBM says it introduced that version about two years ago, in response to demand from mid-market and smaller retailers.

As big retailers boosted their technology investments to unify shopping across the web, stores and mobile—and in the process got to know their customers better—smaller retailers followed suit, says Pete Wharton, an IBM product manager. “We have seen mid-market retailers respond by wanting these critical omnichannel capabilities so they can compete with the bigger retailers.” Mid-market e-retailers using IBM WebSphere Commerce include hhgregg Appliances Inc., which had Internet Retailer-estimated 2013 web sales of $50.0 million. It moved from an in-house e-commerce platform to the IBM platform in 2013. 

IBM is positioning itself to compete with software-as-a-service, or SaaS, e-commerce technology providers, such as Demandware, NetSuite or Commerce Guys, which cater to midsize retailers and divisions of large retailers, says Gene Alvarez, vice president and information technology analyst at Gartner Inc. A retailer using a SaaS platform pays a monthly or yearly fee to access Internet-hosted technology, rather than pay what is usually a much higher upfront licensing fee for software that it then runs through its own data center. In some cases, a retailer may use licensed software as its main technology platform, while using SaaS or cloud-based technology for sister sites or specific applications, such as product recommendations or ratings and reviews.

To gain more mid-market retail clients—which IBM defines as those with at least $10 million in annual revenue—IBM has begun working with companies such as telecommunications provider AT&T Inc. to deploy and co-market WebSphere Commerce, Wharton says. The program with AT&T launched last year. IBM also markets to retailers its Commerce on Cloud services, which include order management, personalized offers and promotions, analytics and other capabilities initially meant for larger clients—or, in Wharton’s telling, the technology designed for Formula One race cars that is now filtering “down to the masses.” He adds that IBM views the mid-market opportunity as “huge,” and that the e-commerce technology provider will be better positioned to gain more midsized clients the more it expands the number of global data centers it has that host WebSphere Commerce and Commerce on Cloud services from 15 today to 40 in the near future.

Oracle, meanwhile, recently boosted its own wooing of mid-market e-retailers. The vendor’s Oracle Commerce e-commerce platform is mainly used by larger e-commerce companies, including Kohl’s Corp., a retail chain that took in $1.76 billion in web sales in 2013, according to Top500Guide.com, and which deployed the technology last year. Oracle has 44 web merchants with more than $75 million in 2013 web sales using its platform, up from 30 in 2012, according to Top500Guide.com data. It also gained in the mid-market, from 17 clients in 2012 to 21 in 2013.

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