Target and Toys R Us posted overall sales declines during the holidays.
Internet retailers are running leaner operations and plan to spend only slightly more on new e-commerce technology and services
Internet retailers are running leaner operations these days and that drive for more efficiency is impacting their spending on e-commerce technology. Web retailers are planning to spend only slightly more on e-commerce hardware, software and services this year over last year. Online merchants are also driving harder bargains with vendors and purchasing just the technology applications they believe will generate the most immediate return on investment, according to Internet Retailer’s latest survey.
The survey on e-commerce technology spending intentions finds that 72% of merchants plan to purchase some new application or service this year. But the survey also reveals that 73.6% of retailers will increase their e-commerce technology budget by 15% or less, including 47.2% by no more than 10%. In Internet Retailer’s previous technology spending survey a year ago, only 49.4% of respondents said they would cap their spending on new web technology at 15%. “Our clients report their technology spending hasn’t fallen off dramatically but it is being done with far more due diligence,” says Steve Rowen, analyst with research and advisory company Retail Systems Research. “The investments are being made on technologies they think are critical and will produce the most new business.”
Replacing an outdated e-commerce platform is the top priority for 28% of retailers taking part in the survey, followed by miscellaneous applications at 20.5%, a content management system at 11.9%, web analytics at 11.8%, order management system at 8.2% and site search software at 6.8%. Topping the list of new web site features or applications web retailers plan on implementing are customer reviews and ratings, which 35.5% of retailers list as their most immediate objective. Inventory availability tools are second, cited by 34.2%; blogs, forums or videos third, with 32.9%; followed by streamlined navigation using Web 2.0 technology, 26.3%; and mouse-over tools, 25%.
But even if some retailers are implementing new technology, many other merchants plan to get by with existing platforms and applications. The survey was e-mailed in early June to subscribers of IRNewsLink, the magazine’s e-newsletter, and all responses were collected and analyzed by Vovici Corp., which has partnered with Internet Retailer in a series of surveys of the e-retailing industry. Of the 92 web-only merchants, chain retailers, catalog companies and consumer brand manufacturers taking part in the research, 46% have no plans to swap out their current in-house or third-party platform, while 55.2% aren’t planning to purchase new site search software or service.
Most retailers also aren’t looking to replace other key applications, including order management, content management, rich media and web analytics software. The survey finds that 67.1% have no intention of swapping out their existing rich media applications and 61.7% do not plan to replace their web analytics software. 55.2% will also keep using the same content management system, while 52.6% will stick with their existing order management system.
“For many retail companies, particularly those where the e-commerce unit is part of a bigger organization with flat or declining store sales, this may not be the year for implementing the big end-to-end platform project,” Rowen says. “Retailers are investing their money and development time in more one-off projects that they think will improve holiday sales or generate more multi-channel opportunity.”
At more than two-thirds of the retail organizations taking part in the research-67.1%-the main decision maker with final say over technology purchasing is the CEO followed by the chief information officer at 9.2% and the chief marketing officer at 6.6%. At 51.4% of respondents, the e-commerce technology budget is $50,000 or less, compared with 27% with yearly budgets ranging from $50,001 to $200,000; 9.5% with budgets of $200,001 to $999,999. On a larger scale, 5.4% of merchants in the survey maintain annual e-commerce budgets of $1 million to $2.5 million, and 6.7% at more than $2.5 million.
But regardless of the size of the budget or who’s in charge of making decisions, it’s clear that web retailers are taking advantage of more affordable hosted software and software-as-a-service applications to update their e-commerce platforms. Just a few years ago, web retailers had only two choices for implementing an e-commerce platform: They could write their own software and build the system in house or they could purchase an off-the-shelf platform from a third-party vendor.
But the survey finds that 29.3% of merchants are now implementing a new e-commerce platform using software-as-a-service applications while 22% will utilize hosted software. By using more hosted applications or purchasing a software-as-a-service package, retailers don’t need to buy and install software, says Rebecca Wettemann, vice president of research for Nucleus Research, a Boston e-commerce technology research and advisory services company. They also avoid having to pay recurring software maintenance fees and have greater flexibility in choosing their technology options.
A new e-commerce platform with advanced modules for order processing, content management and customer service can cost a web retailer from $100,000 to $400,000. The price tag can also rise rapidly, depending upon the number of users, the need for customization and other factors. But with a software-as-a-service option, some merchants can pay as little as $20,000 for one major application and get another year of performance from their existing platform, Wettemann says. “Retailers this year are scaling back on the big back-end plumbing projects, but going ahead with initiatives that can be planned and implemented within a quarter,” she says. “On-demand applications give retailers an option to add a major new feature or function quickly and cost-effectively.”
Despite having more available e-commerce technology options, most web retailers, especially smaller niche merchants with limited time, money and personnel, prefer building and maintaining their own platforms. Similarly, merchants like running their own picking, packing and shipping operations.
The survey finds that 51.3% of retailers have no plans to hire a consultant or any third party to help with a major technology upgrade this year. 73.7% of merchants also run their own internal fulfillment program. Of the ones that do outsource fulfillment, 65% have no plans to replace their current third-party provider. “Retailers are very focused on efficiency this year,” Wettemann says. “If it’s a smaller on-demand application and the only e-commerce technology upgrade they’re making this year, merchants are still looking very hard at the cost and the projected return on investment.”