Demandware sets out its omni-channel retail stall

Stuart Lauchlan Profile picture for user slauchlan September 22, 2015
In the omni-channel retail world, Demandware reckons its customers demonstrate a variety of different models.

Tom Ebling

Omni-channel and e-commerce are two terms that you don’t need to look far on diginomica to realise that it’s a major focus both for us and for our coverage of the retail sector.

One company that we haven’t looked at very much to date though is Demandware, whose CEO Tom Ebling set out the company’s stall at last week’s Deutsche Bank Technology Brokers Conference, which allows us to rectify that omission.

While e-commerce remains the bedrock of Demandware’s business, these days it’s all about omni-channel when it comes to messaging to the markets, although it’s a term that can mean many things to many people, Ebling admitted:

It means a lot of things that people are already doing today like buying online, shipping in store, ordering in a store and having ship to home. It means, to some customers, having an effective mobile site and social in all the different places that consumers are which want to interact with them.

What customers are looking at is does the platform they choose support my omni-channel need today? Is it flexible and innovative enough to support my unpredictable omni-channel needs in the future?

Then there’s the next step, Ebling explained:

The other element of omni-channel, which very few people are doing today is actually making a seamless experience for consumer all the way to the register in the store.

So for example if you as a consumer put something in your cart online and then you’ve stopped shopping and you come back the next day online and try to find another item, any decent website will say, ‘hey would you also like to buy the item you put in the cart yesterday?’.

But if instead of going back to the online site on Sunday too, you went to the store and you brought something up to register to buy it, they would not say to you, ‘would you also like to buy the product you have in your cart?’. Now that's crazy, I mean everyone says that’s crazy of course, but it’s hard to do.

That’s because online and offline are operating across two separate technology stacks:

Where things are going, where we believe they’re going where retailers believe they’re going, is to unify those experiences, so you no longer have this differentiation in technology stack for in-store and for traditional online.

To tackle this problem, Demandware earlier this year paid out $75 million to acquire cloud-based point-of-sale company Tomax. This was necessary, said Ebling, both on a wider market level, but also to address specific customer needs, citing Brookstone as a case in point:

It was a vital criteria to them that whoever they bought for an online platform was also able to support this seamless vision of omni-channel reaching all the way to the register. If had not been able to credibly commit them that we’re going to do that we would not have won the deal.

Differing models

That said, Ebling said that Demandware’s customers provide examples of multiple varieties of omni-channel models:

Pier 1 is the classic. They have the capability to buy online and pick up in store. Something like 30% of their online revenue is actually picked up in the store, which generates other revenue in the store.

They also have 30% of their online revenue that is actually sourced in the stores. So if someone goes into the store and decides they want to buy something that's not there, they get a trip to their home. This has allowed Pier 1 to double the number of skews they have, so in the past they might had only had size rug in a certain pattern, that’s all that they can fit in a store.

One of Demandware’s biggest customers is Adidas and it’s clear that this is an important relationship for the vendor. Ebling explained that the sporting goods brand was set to go with a rival e-commerce provider to meet its international needs:

We got into the Adidas Corporation because Rockport was one of their subsidiary brand. It had the autonomy to make a separate decision. Rockport shows off Demandware as highly successful implementation and the Adidas worldwide roll out of the software thing was going slower than expected, which is somewhat normal.

So because of our success with Rockport, Adidas decided they would try Demandware in some of their, frankly at the time, unimportant geographies because there isn’t much to lose. So we started with Demandware in Russia and I think it was like an 8-week implementation. We got Russia launched and they’d been struggling to do other geographies with this software competitor for quite a while. So that led to picking off one geography at a time. We started getting to some of the big European countries - Germany, France, UK.

They saw that we were much more agile, much flexible and much more reliable in terms of rolling out these sites. We were able to meet their customization needs. They saw that through direct working with us. And as a result they concluded that having their US site, which was their biggest site, on Demandware made sense.

Rivals in play

As for the competitive landscape, Ebling argued that it ultimately comes to one of four rivals most of the time: IBM, SAP through Hybris, Oracle through ATG or Magento , part of eBay, with IBM at the high end and Magneto at the low end. He said:

In terms of the shifting of the dynamics there I would say that between SAP and Oracle, probably SAP is more commonly the one we are competing it against in the final two than Oracle. That’s sort of shifted a little bit between those two.

I think the change with the SAPs acquisition of Hybris in some ways made them a tough competitor, in some ways made them worse competitor. In decisions that are primarily driven by the business, by somebody with revenue responsibility or a business role, SAP has probably become a worst competitor. Because SAP just isn’t used to having dialogue with that kind of person and they’re not an e-commerce executive who thinks in terms of rapid innovation, doesn't think of SAP as somebody that delivers that right.

In other situations it’s worked against us and those are situations where it’s an IT driven decision. Where IT already has a very strong SAP relationship and a lot of SAP products , they would be comfortable simply buying it from SAP. In those situations we’re probably worse off than we were before the Hybris acquisition.

It’s interesting to note that Ebling made no mention here of NetSuite, which has invested heavily in omni-channel e-commerce. Where the two providers differ is that NetSuite’s integrated suite message takes it into the back-end supply chain space, an area in which Demandware doesn’t appear to have ambition. Bling said:

If there were a clear line between front end and back end we wouldn’t go into the back end at all. We feel like our value proposition of the customer is about differentiating their interactions with the consumer, and having excellence in terms of their interactions with the consumer. That’s what we really feel we’re best at and we should be focused at.

There are some places in which the line is not so clear, one in particular having to do with fulfilment on stores. So fulfilment from the stores is something that people want to do to have a better consumer experience, because they can have a lower shipping cost they can have a faster fulfilment.

But to do that, they need back end system that support that. So that’s one of the reasons we’ve acquired a sort of management offering a couple of years ago, because some customers by consistence do not support that.

So that’s a sort of gray area, we’re going for because it was an important consumer experience. But we wouldn’t go as far as into warehouse management and to optimizing your efficiency of your supply chain. We wouldn’t go there, because we don’t feel like that sort of value add.

My take

An informative overview of Demandware's omni-channel pitch in an increasingly-competitive market.

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