For more than a decade, the annual Internet Retailer North America Top 500 Guide has been a go-to source for who’s up and who’s down in the world of digital commerce. It provides a window not only to where retailer online sales rank in terms of size, but also highlights trends in commerce platforms.
What does this year’s Guide tell us?
Among other things, 45% of retailers on the NA Top IR500 use in-house – otherwise known as custom – commerce platforms. This is down close to 10% over the past two years. The number of NA Top IR500 retailers on the Demandware Commerce Cloud in 2014 was 44, up 42% year-over-year. That is pretty remarkable when you consider that there were only two retailers on the NA Top IR500 in 2008 on the Demandware Commerce Cloud.
Seven of the top 10 retailers, as measured by online revenue, use either custom or a combination of custom and packaged applications to drive their commerce operations.
The question is, outside of the very largest retailers, are custom applications practical anymore? And what are the business implications of commerce platform choice?
According to Scott Galloway, clinical professor of marketing at the NYU Stern School of Business and founder of L2 Research, the cost and complexity of building and maintaining a custom commerce platform is sustainable for fewer and fewer retailers.
“The size of a company required to justify a custom build is increasing every day,” he told Demandware earlier this year. “We couldn’t find a single brand in the 82 companies we looked at, that embarked on a custom solution in the last two to three years. Slowly but surely, cloud and on-premise solutions are getting better and better and leaving the rationale for custom [commerce platforms] to fewer and fewer players.”
L2 published a study, “E-Commerce Agility,” which examined 82 retailers to determine whether there is a correlation between commerce platform choice and financial performance.
It found that retailers on cloud platforms were more agile, able to make site changes, introduce new features and launch global sites, faster than others, and on average demonstrated overall higher growth rates than retailers on other platforms. Specifically, retailers on cloud platforms saw an average sales growth rate of 12%, versus 9% for on-premise platforms and 6% for in-house platforms.
The pace of change in retail, particularly in digital, is fast and only getting faster. New capabilities constantly emerge to engage consumers and make the buying process simpler, more fun, and democratized. Cloud technology is a critical weapon to drive business agility and continually serve the increasingly connected, influential, and mobile consumer.
Which companies in this year’s NA Top IR500 will fail to evolve and fall off within five years? Will there be new companies in the top 500? The top 100?