The acquisition will add more than 300 products to L’Oreal’s lineup.
It’s flexibility, say mid-tier e-retailers. While many remain do-it-yourselfers, others find the options they need in commercial platforms.
After growing up on Yahoo Inc.'s Yahoo Stores e-commerce platform, e-retailer Online Stores Inc. decided two years ago that in order to grow further it needed more flexible, feature-rich software, says CEO Kevin Hickey. "What's important for us is efficiency and being able to customize things," he says.
The retailer, which operates seven specialty web stores and booked roughly $30 million in web sales in 2012, went with eBay Inc.'s Magento platform. Magento's software is open source, meaning that retailers can modify the underlying code to fit their needs, while also choosing from some 7,300 add-ons built for Magento by developers around the world.
"It seemed to have pretty much every feature we wanted and we liked being able to extend the functionality of the product ourselves by using the open-source architecture," Hickey says. "Magento also had the fastest trajectory for enhancements."
Cookie cutter is out for mid-tier online retailers—a category e-commerce consulting firm FitForCommerce defines as web retailers generating $20 million to $75 million in annual online sales. To compete with the likes of Amazon.com Inc., they need to offer web site features that will keep shoppers coming back. While more than a third of midmarket retailers still rely on their own personnel to provide that level of customization, others are turning to the growing number of software vendors offering feature-rich e-commerce platforms at increasingly affordable prices.
"Midmarket retailers desire all the functionality that the larger markets want, but they want it faster, simpler and cheaper," says Kerry Martin, FitForCommerce senior consultant. "While this is a challenge for some providers to deliver, it certainly tends to differentiate the providers that are accurately targeting and supporting the midmarket retailer."
Of the 251 e-retailers with 2012 online sales in the range of $20 million to $75 million, according to the Internet Retailer 2013 Top 500 Guide, 94 rely on in-house staff to build and maintain their e-commerce platforms, the software that typically tackles such tasks as managing product descriptions and prices, processing orders and handling payments. The remaining 157 retailers use technology from 41 providers. They include vendors that typically serve smaller e-retailers, such as Volusion Inc., and those that serve some of the largest online merchants, such as IBM Corp. and Oracle Corp., which entered the e-commerce platform space with its $1 billion acquisition of Art Technology Group Inc. in 2010.
One way some upper-market e-commerce technology vendors are opening up to smaller merchants is by hosting their platforms online and letting clients access them via a web browser, a model known as software-as-a-service. That frees retailers from having to maintain their own data centers and the software on their own. Forrester Research Inc. analyst Martin Gill in the 2013 report, "Selecting Tools that Enable Agility," points to IBM and Oracle as examples of large vendors that offer software-as-a-service versions of their e-commerce platforms to make it easier for midmarket clients to begin working with them. That's increasingly attractive to retailers that want to launch new stores quickly or require frequent technology changes, Gill says.
The on-demand model can also be attractive to large retailers that want to launch e-commerce quickly in a new market. For example, Williams-Sonoma Inc., a housewares retail chain that maintains its U.S. e-commerce platform in-house, used web-hosted software from NetSuite Inc. to launch an Australian e-commerce site last spring. Chief information officer John Strain says it took only three months to go live with NetSuite in Australia with features that would have taken the retailer three years to build on its own.
MarketLive Inc., whose midmarket e-retailer clients include A/X Armani Exchange, Title Nine and Peruvian Connection Ltd., in 2012 introduced a more affordable version of its software designed for midmarket retailers. Called "Jump Start," the service allows them to launch new e-commerce sites in 90 days or less—about two months less than the normal setup time for MarketLive's standard platform. Jump Start web sites cost around $120,000 each to build, which is roughly 25% cheaper than the full-service platform designed for larger e-retailers, says MarketLive founder and chairman Ken Burke.
The savings come because MarketLive created 80 preset configurations that offer a variety of the most essential e-commerce features, such as shopping carts and product listing capabilities. Retailers using Jump Start cannot request any customization of the preset configurations during the 90-day setup period, Burke says. MarketLive charges clients fees that start at about $10,000 a month.
Online Stores is already seeing payoffs from its move to the Magento Enterprise edition software, which it runs on its own servers. Magento Enterprise starts at $15,500 to license annually, according to the vendor. Since completing the switch to Magento in September, Hickey says Online Stores has reduced its headcount from about 130 to 80, in turn reducing overhead costs by nearly 40%. With Magento able to provide live inventory updates and automate customer service e-mails and drop-shipping, the office staff was able to downsize from 30 to 15 people. Another 15 people were cut from the web site maintenance staff, because the work managing products across its seven e-commerce sites dropped by 75% with Magento, Hickey says, though he did hire four full-time developers to work on the platform in-house. The rest of the staff cuts were in the warehouse, unrelated to the platform.
Hickey says a Magento feature called "Store Views" contributed greatly to the lower overhead. The feature allows the retailer to manage the products for its seven sites in one database, updating the prices and promotions that display on various sites at once rather than separately. He says that's essential because some of the retailer's sites, such as ConstructionGear.com, DiscountSafetyGear.com and SafetyGirl.com, share inventory although they target different customer groups.