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Demandware Preps Retailers for the Coming e-Commerce Explosion

It’s no secret that retail spending is shifting from brick and mortar stores to online at a breakneck pace…

In May, comScore reported that e-commerce retail sales reached $44.3 billion in the U.S. alone in the first quarter. Not only is that an increase of 17% over the same quarter in 2011, but comScore also says it’s “the tenth consecutive quarter of positive year-over-year growth and sixth consecutive quarter of double-digit growth.”

On the other hand, total U.S. retail sales dropped 0.2% in April and May – the first time we’ve seen a consecutive drop in almost two years, says The Wall Street Journal.

The trend isn’t exclusive to the United States, either. For instance, China is currently raking in $23 billion through online retail, and that number is expected to grow 29% a year, according to A.T. Kearney’s 2012 Retail e-Commerce Index.

The reason for the shift should be obvious, given that online shopping is more convenient than braving overcrowded malls and dealing with rude employees.

But just in case you needed reassurance, take a look at the chart below. It shows which purchasing platform consumers prefer (in-store, online using a computer or mobile) based on five different categories. And online purchases using a computer beat in-store purchases in three categories, including ease of use and convenience.


Frankly, though, the important question isn’t why consumers are changing their shopping habits. It’s how you can profit as companies begin to re-strategize around this trend. (By the way, some WSD Insiders are already sitting on double-digit profits by playing the shift. Go here to find out how.)

Enter, Burlington-based Demandware (NYSE: DWRE).

The All-In-One e-Commerce Solution

You may remember that Louis Basenese alerted Wall Street Daily readers to Demandware’s potential ahead of the company’s IPO in March. Here’s a quick review of what the company’s all about.

Demandware is a leading provider of software-as-a-service (SaaS) e-commerce solutions.

Essentially, SaaS allows businesses to outsource all their e-commerce needs, including the design, implementation and management of their online retail sites and mobile applications. Or, as the company’s website says, its “leading cloud-based digital commerce platform empowers retailers to create tailored and effective shopping experiences for consumers.”

With that in mind, the benefit Demandware’s solution provides to retailers is clear.

Consider that the costs of implementing an e-commerce platform don’t stop at the development stage. Companies must continually maintain the infrastructure and keep up-to-date on the latest technologies and trends.

Demandware does it all, allowing retailers to reduce costs and push products online faster, while keeping up with consumer demand at the same time.

So it’s not surprising that the company boasted 91 customers by the end of the third quarter last year, including brands like New Balance, Crocs (Nasdaq: CROX), Hugo Boss, L’Oreal, Barneys New York and Lands’ End.  The list continues to grow, too. In the most recent quarter, the company brought on leading retailers like Pacific Sunwear (Nasdaq: PSUN), Ecco, Oreck and TaylorMade, jacking up its total client list to over 110.

It’s also important to note that Demandware implements a subscription-based model that hands the company a cut of its partners’ total gross revenue that’s funneled through Demandware’s platform. Meaning the company can capitalize on the mounting increase in e-commerce spending without providing additional services or increasing costs.

Talk about a win-win!

The strategy is certainly paying off, too. Sales increased 54% in 2011 and subscription revenue for the first quarter of 2012 is up 46% year-over-year.

And based on new research from Gartner, Demandware’s outlook will only continue to improve.

Businesses Turning to the Clouds

Last month, Gartner projected that spending on enterprise application software will increase 4.5% this year, hitting $120.4 billion.

Now, most analysts are harping on how this projection falls short of Gartner’s previous estimate of 5% growth – a change the firm attributed to uncertainty in the economy.

But here’s the key takeaway from the research we should be focusing on: As businesses prepare for a potential slowdown, they’ll be turning to SaaS solutions more than ever.

Gartner’s research vice president, Tom Eid, says, “After more than a decade of SaaS and cloud service use, adoption continues to grow and evolve within the enterprise application markets. This is occurring as tighter capital budgets demand leaner alternatives; popularity and familiarity with the model increase; and interest in SaaS and cloud computing grows.”

If that’s still not enough proof for you, consider that consolidation in the industry is picking up steam, as well. For instance, Oracle (Nasdaq: ORCL) has recently scooped up two cloud-computing companies for a combined $3.3 billion. And SAP (NYSE: SAP) agreed to acquire a cloud commerce developer for $4.3 billion in May. This follows the company’s purchase of another cloud-based company for $3.4 billion in December.

Bottom line: As more consumers make the shift to online spending, retailers will have no choice but to respond with advanced e-commerce platforms to meet the demand. And SaaS solutions from companies like Demandware offer a solid place to start.

Justin Fritz

, Executive Editor

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