The search giant first rolled out yellow ad labels next to paid links on smartphones and tablets, and in recent months the labels have ...
Technology is back in fashion
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Some investments are more futuristic. Macy's is testing digital screens in stores that show mannequins whose outfits can be switched on the fly, either automatically, as in response to a change in the weather, or by a store employee to accommodate a shopper who wants to see how a particular skirt goes with a different jacket or purse. The department store chain also created, in collaboration with computer chip maker Intel Corp., a kiosk called Beauty Spot that lets a consumer in the cosmetics section of a store see a mix of products across brands and view models wearing a variety of makeup styles, then place her order online.
Because the spending is sometimes hard to categorize, estimates of the size of the e-commerce technology market vary widely, depending on an analyst's definition. But all agree retailers are spending more.
For example, Bill Mirabito of consulting firm B2C Partners estimates that retailers will spend about $750 million this year on e-commerce software, not counting implementation and maintenance, which can make up about two-thirds of the cost of a software project. That's an increase of nearly 22% from his 2009 projection. Alvarez of Gartner estimates retailers' technology spend at about $3 billion and says his retailer clients are reporting "single- and in some cases double-digit increases in investments in e-commerce technology."
Retailers' drive to upgrade also came through in an April survey of 107 retailers with annual revenue of at least $100 million by tax and advisory firm KPMG LLP. While 61% of respondents didn't expect a substantial recovery in the U.S. economy until 2014, they're investing now: 58% plan to increase capital spending this year and 51% will spend more on information technology. Their focus on e-commerce is evident: 59% list online shopping among their company's most important marketing priorities, 58% say social media platforms and 49% say e-mail campaigns.
As they spend more on software and hardware, retailers are also hiring a lot more people to put this technology to work and creating centers devoted to web-related projects. Like Wal-Mart, Barnes & Noble Inc. created a research facility in Silicon Valley in the past year. Staples plans to build an e-commerce innovation center in Cambridge, Mass., that will be "home to some of the world's best e-commerce talent with the goal of rapidly bringing breakthrough new ideas to market in emerging online technologies like mobile commerce and social media," says Brian Tilzer, vice president of e-commerce and business development. Macy's outlined a two-year growth plan for its technology team in January 2011 and this year plans to recruit another 150 staffers for its research center in suburban Atlanta, bringing its technology team head count to 1,200.
Nordstrom is right in the middle of the action, and expects to add 400 employees to its e-commerce team this year. It's also acquiring e-commerce expertise in other ways. Nordstrom bought web-only flash-sale retailer HauteLook last year for $180 million in stock and recently participated in a $16 million funding round for Bonobos, an online-only clothing retailer for affluent men in their 20s and 30s. While Nordstrom will sell Bonobos fashion in its stores, the company made clear that a major aim of the investment was to learn from Bonobos' understanding of online selling. "We want to partner with innovative, fast-moving companies that are in step with how the customer wants to shop online," a Nordstrom spokesman says.
Vendors, too, are hiring to keep up with growing demand for their technology and services (see story on page 23). NetSuite Inc., which derives most of its income from its accounting and business planning software, announced in May a major upgrade to its web retail software and plans to hire nearly 100 more staffers for its e-commerce team.
All this demand for web personnel makes it harder to recruit, but that's not the only challenge e-commerce managers face, says Andy Lloyd, general manager of e-commerce at NetSuite. The technology is changing so fast that it's often impossible to find recruits that have experience in the latest software. Previously a new technology would gain traction, begin to be taught in universities and in five years companies could expect a flow of graduates with those skills, Lloyd says. "But now it is in six to 12 months that you need staff to work on new technology. You need people able to adapt."
The hardest part
Top management also has to be able to adapt to the reality of the Internet age. "What most people would be surprised about is that the organizational part is harder than the technology part," Nordstrom says.
Once his company realized that consumer expectations were changing, the retailer carried out a number of organizational changes designed to make it better able to serve consumers comfortable with the web. As it was beginning to think out how to integrate its computer and inventory systems, the retailer revised its organizational chart between 2005 and 2007 to eliminate the division between web and store teams. Now, Nordstrom says: "We've got one human resources team, one marketing team. We've got the Nordstrom merchandising group which works across all channels."
The retailer revised compensation to ensure that it rewarded personnel based on how the company was doing, not how the web or store channel fared. "You have to look at that from the standpoint that the customer doesn't care who gets credit for that sale," he says.
Meanwhile, the retailer embarked on a nearly 4-year-long project to integrate its systems. By 2008, it had a single view of inventory across all channels, and by 2009 had an integrated fulfillment platform that lets it deliver orders placed online or in stores from all the inventory on hand, whether it is in stores or distribution centers.