July 6, 2012, 4:44 PM

Retailers devote more bucks to e-commerce technology

Nordstrom’s investment in menswear retailer Bonobos illustrates the trend, as does Bonobos’ own development plans.

In 2007, Andy Dunn set out to see if he could not only start a web-only business, but build an entire brand of menswear online. He started with pants.

Since then his online store, Bonobos.com, has sold hundreds of thousands of pairs of khakis, trousers and slacks, known for their bright colors and energetic prints, and moved into other clothing categories aimed at fashion-conscious hip young men such as suits, shirts, sweaters and swimwear. Investors were taking notice, and Bonobos itself was ready for a change—a move toward a more physical type of retailing.

“What we realized was people want to touch and feel clothes in person,” Dunn says. But building boutiques is a daunting task. Bonobos experimented with two standalone shops out of its New York and Boston offices, offering 45-minute try-on sessions in makeshift storefronts, an effort that quickly generated $2 million in sales. Dunn realized he was on to something.

“Just because we were able to launch web-only we didn’t need to [stay there],” he says. “If you acknowledge that e-commerce is the biggest part of your store, it doesn’t preclude your finding more offline channels.”

So, he asked, “If we had one national existing partner, who would that be?” The answer for him was the store he most respects because of its emphasis on customer service: Nordstrom Inc.

Nordstrom has a history of investing in up-and-coming small businesses as part of the upmarket chain’s growth strategy. In 2011 it bought flash-sales site HauteLook and has since launched a membership-based online store from that business called Sole Society.

In April, Nordstrom led a $16 million dollar investment round in Bonobos. The deal enables Bonobos to sell its clothing on Nordstrom.com and in 20 Nordstrom department stores. The move fits into Nordstrom’s grand scheme for spending $140 million on e-commerce in 2012 and nearly $1 billion over five years. In fact, Nordstrom plans to devote roughly 30% of its capital budget to web-related expenditures.

Bonobos is also investing in e-commerce as it continues to expand its multichannel selling, Dunn says. The company founded an e-commerce technology research office in Palo Alto, Calif.—that is, amid the thumping heart of Silicon Valley—where it is working to create new tools to serve its customers, including a new e-commerce platform for its web store. “If you’re really serious about doing e-commerce well, you’ve got to own your infrastructure and, if you want to innovate, you have to drive that innovation yourself or work with partners,” Dunn says

The ambitions of Bonobos and Nordstrom reflect a larger trend: Merchants large and small are increasing the dollars they devote to e-commerce technology. For further evidence, look at the rising revenue figures on the financial reports of e-commerce technology vendors, and the growing trend of such technology giants as IBM Corp. and Oracle Corp. buying up major e-commerce vendors so that they can provide top-notch e-commerce software and services to their large retail clients.  

The July issue of Internet Retailer magazine takes a long look at the companies making these big investments and reports on what they plan to do with their new technological capabilities. Examples range from building e-commerce innovation centers to developing mobile point of sale systems to more futuristic devices, like digital mannequin displays—all of it meant to better engage with today’s anytime, anywhere customer.

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