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Report: Apparel Brands and Retailers Keep their Heads in the Cloud

When e-commerce-averse labels like Chanel and Fendi finally caved and announced plans to start selling their goods online, other longtime luxury holdouts likely started plotting their own virtual invasions. And if that didn’t do the trick, an Exane BNP Paribas prediction that e-commerce could be “the next China” for high-end houses probably did: Who doesn’t like the idea of an added $43 billion in sales through 2020?

How they go about making the move to e-commerce, however, is paramount. According to a report published Thursday by research group L2 and software technology company Demandware, luxury brands focused on aggressive expansion over the next five years are shifting their online efforts to cloud-based platforms—and it’s paying off.

In a study of 82 brands across six categories—including apparel and accessories, luxury, specialty and broad-line retail—over a 12-week period, cloud-based e-commerce came out on top in terms of increased agility, thereby allowing brands to make a greater number of feature changes and resulting in year-on-year sales growth of 12 percent.

“Like a physical store, e-commerce teams must conceive sites as complex as living organisms, demanding ongoing care and feeding,” said Jane Thorn Leeson, research lead at L2. “In the context of [an e-commerce] platform, agility refers to the ability to sufficiently run and scale the IT function on-demand and rapidly respond to changing conditions or opportunities in the marketplace—capabilities provided by the best-in-breed.”

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In addition to flexibility and scalability, cloud-based e-commerce platforms offer the ability to expand into new regions with limited upfront investment. In fact, the study found that 73 percent of cloud-based brands were high growth (generating double-digit sales and earnings), including Diane von Furstenberg, Tory Burch and Kate Spade, and focused on aggressive expansion over the next three to five years.

To make up for their initially lackadaisical e-commerce efforts, luxury labels are increasingly choosing cloud-based systems over in-house or on-premise: the proportion of high-end brands on a cloud platform increased from 13 percent of the category in 2010 to 29 percent in 2014, while on-premise share dropped from 65 percent to 53 percent and in-house fell from 20 percent to 18 percent.

Meanwhile, early e-commerce adopters such as Burberry and Gucci, two luxury brands that invested in on-premise and in-house platforms before any of their competitors considered online stores, are now saddled with expensive, aging systems.

Another benefit of cloud-based platforms outlined by the report is the ability to road-test new markets with e-commerce before committing to a brick-and-mortar presence: 60 percent of cloud brands operate sites in emerging markets, compared with 40 percent of on-premise brands and 45 percent of in-house. Furthermore, 43 percent of companies surveyed said that faster deployment timelines are a key consideration when re-platforming onto cloud.

With that being said, privacy and security threats could be problematic. “On-premise solutions are considered more secure because the data sits inside the company—versus on an external shared server—and has a much lower risk of being compromised,” Thorn Leeson pointed out.

On top of that, having an internal IT department allows a brand to be better prepared for high-traffic time periods (Black Friday, Cyber Monday, etc.) rather than being vulnerable to outages, which is more typical of a shared-service solution.

No matter what platform brands and retailers choose to go with, however, Thorn Leeson insisted that a lot more needs to be done to streamline the online shopping experience for consumers, namely user-generated content and shoppable looks and stepping up such omnichannel efforts as ship-to-store and in-store pickup.