According to the annual IT budget survey from AMR Research and the NRF's CIO Council, retail spending on IT is expected to rise a modest two percent in 2007. That's less than the seven percent planned increase retailers reported in a 2006 survey.
In the study, AMR said one reason for the decline is that retailers are now realizing operational efficiencies from capital investments over the last several years in areas like telecommunications, store networking, store hardware (such as POS systems) and packaged enterprise software, resulting in a four percent decline in IT operational expenses between 2006 and 2007. The reduction in operational spending is offset by a planned seven percent increase in IT labor budgets. Depreciation expenses are growing two percent due to substantial increases in capital expenditures in recent years.
Source: AMR Research; in millions
"Retailers are currently taking a short break to digest the aggressive technology investments that they made in packaged applications over the past few years," said Rob Garf, vp and general manager of retail strategies at AMR Research. "But even while retailers implement this influx of technology, great operational gains are being achieved from the utilization of new broadband networks, in-store hardware, and third-party software."
The study also found several areas where retailers are planning investments. Highlights include:
- Forty-five percent of retailers plan to invest in merchandise management systems (including item, price and inventory management) in 2007. AMR believes aging merchandise management systems at the heart of the enterprise are forcing many retailers to replace this foundation as part of their architecture strategy. Retailers are also finally embracing ERP as packaged application suites become viable options;
- Half of the retailers surveyed plan investments in retail planning systems to more effectively capture demand signals and respond with more accurate financial, assortment, allocation and pricing strategies. AMR said new functions like store clustering by attributes, pack optimization, lifecycle pricing and size profiling allow retailers to plan at more granular levels than ever before;
- Forty-five percent of retailers plan to add to, improve or replace their customer relationship management (CRM) applications in order to provide consistent and positive cross-channel customer interactions;
- Sixty percent of survey participants plan to add to or improve or replace their B2C e-commerce platforms. AMR said retailers recognize that the cross-channel shopper spends nearly one-third more than her single-channel counterpart and that more than half of in-store purchases are influenced by online research;
- Sixty-five percent of retailers intend to improve or replace their current POS software. Outdated software, according to AMR, is plagued by increased maintenance and support costs, excessive training costs, inefficient marketing and merchandising execution and manual cross-channel operations;
- Forty percent of retailers surveyed plan to invest in new payment systems, which AMR believes is linked to PCI data security regulations and the desire for more efficiency;
- Around supply chain systems, nearly half plan investments in replenishment/inventory optimization and warehouse management. PLM investments are also increasing as private label efforts expand.
The findings came from the CIOs of 23 retailers with average revenues of $4.4 billion.
Discussion Questions: Why do you think retailers are slowing investments in IT spending? Are some core enterprise applications under-appreciated? Based on your experience, where do you think most retailers should be focusing IT investments?