Demandware and the Future of Retail: A Post-IPO Snapshot

6/27/12Follow @gthuang

In the world of e-commerce, Amazon is going one way, and everyone else is going the other. Amazon has cornered the market on commodities and price-driven shopping, it seems, but what’s still up for grabs is the luxury market.

One of the more interesting tech companies in that sector is Demandware (NYSE: DWRE), the Burlington, MA-based maker of online shopping platforms for brands and retailers. The 250-person company started in 2004 and is led by CEO Tom Ebling. Since its IPO in March, Demandware’s stock has been trading above $25 (after opening at $16), and the company has a market capitalization of about $750 million.

Demandware is the latest in a crop of recently minted public tech firms in the Boston area—including Brightcove (NASDAQ: BCOV), TripAdvisor (NASDAQ: TRIP), Carbonite (NASDAQ: CARB), and Zipcar (NASDAQ: ZIP). (Two more Massachusetts firms are expected to go public this week: Exa, a simulation software company, and Tesaro, a cancer drug maker.) It is one of those non-consumer tech companies that tends to fly below the mainstream radar. But if you ever shop online at stores like Crocs, Kate Spade, Lands’ End, or Columbia Sportswear, you’ve probably seen the results of Demandware’s technology platform.

It has been a long road for the firm, which made its name helping businesses navigate the fast-moving channels of online commerce (think websites, but also mobile and social interfaces). Now, as a public company emerging from the recession, Demandware faces a new set of challenges, such as sustaining its growth, getting profitable, and remaining innovative—all while being subject to a greater level of scrutiny.

“Our IPO was one day in the life of our company,” says Rob Garf, Demandware’s vice president of product and solutions marketing. “We need to stay focused on the ultimate prize, which is our clients’ success, and growing our client base.” (The company’s technology powers some 400-plus digital sites.)

Garf, a veteran of the retail industry since the mid-‘90s, came to Demandware about a year ago from IBM, where he helped lead the tech giant’s global retail strategy. He seems to have a fresh perspective on where Demandware goes from here. As he puts it, the key is for the company to have an open technology platform, so retail businesses can do things like set their own promotions and price delineations and port over their own data and applications. It’s also important, he says, to give retailers control over the look and feel of their e-commerce sites and interfaces and, of course, to make sure they don’t crash.

As for staying innovative, Garf points to the company’s Labs group, which lets developers work on projects outside the product management process. (Every tech company, once it gets big enough, seems to have something like this; how well it works is another question.)

“That team is incented on identifying and executing the next cool and big thing,” he says. “They don’t have to put together a formal business case.” One example from Labs: a social button for Pinterest, the online pin board, that integrates with Demandware’s platform so a customer like Brooks Sports can add the button to its product pages (for social sharing).

Beyond such upgrades, however, Demandware is looking to become the “digital backbone across all devices” for luxury brands, Garf says. “The perception in the marketplace is that we’re a strong player to support medium-size retailers for direct-to-consumer operations.” But increasingly, he says, brands like Pier1, Brooks Brothers, Marks & Spencer, and Lands’ End are using Demandware’s software to handle a broader range of commerce needs and to expand globally. “The mold has been broken,” he says.

The company will certainly face plenty of competition in that arena. Yet Garf sees some relevant lessons from the experiences of e-commerce big boys Amazon and eBay. “They are less about retailing, and more about being the digital intermediary,” he says.

In other words, if Demandware can position itself as the go-to tech provider for many more brands to sell stuff digitally, it should do OK. Garf notes that in the retail industry these days, there are two main categories—commodity and luxury—and you don’t want to get stuck in the middle, as either a retailer or a technology provider.

“We tend to serve the fashion and luxury segment, who’s really focused on brand differentiating,” he says. “Whereas Amazon is focused on the commodity business. They’ve already won that market. We’re targeting a different market.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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