Evan Schuman's StorefrontBacktalk

In a sharply down economy, retail IT budgets are going to go on a roller coaster ride in the need for greater efficiency. And given how small a percentage of corporate spending is typically represented by the IT capital expenditure budget, IT will probably feel less of the pain than many other divisions.

But—you just knew there was going to be a but—a new Gartner report predicts that it may not be all happy news. As IT spending is slightly insolated and spending in other departments gets gutted, “IT spend as a percentage of retail revenue will go up,” said Gartner Research VP Hung LeHong. “In some ways, that will backfire on the IT group” as they’ll then become a bigger target for cost-cutters.

How bad will the initial gutting be? “In 2009, capital expenditures will be cut by as much as 50 percent” and will be so cut “by half of the world’s top 10 retailers,” the Gartner report predicted.

The damage will vary greatly from chain to chain. “Many retail IT departments are being informed that IT capital and operational spending will decrease significantly and, in some cases, will decrease by half, as
a result of the credit crunch,” the report said. “IT departments generally account for only around 3 percent of total organizational costs. Therefore, the contribution that the CIO can make through cost cutting in the IT department is modest.”

The key advice LeHong is pushing is for CIOs to now embrace business alignment and to embrace it quickly. Work sources throughout the company to determine the most cost-effective IT projects that can deliver the fastest and most easily proven ROI.

The analyst said that good technology candidates include service-oriented architecture (SOA), virtualization “and reviewing IT procurement contracts and bringing forward contract negotiation.”

Another area that LeHong pushes is software as a service, but he cautions that most SaaS projects will look spreadsheet-friendly in the short term but not the long term. Still, in this dire an economy, short-term attractiveness may be a very good choice.

Retail “IT groups have kind of hesitated” on SaaS and with good reason, LeHong said. “When the economy gets better, SaaS will take a hit. In five to nine years, SaaS business cases start becoming unfavorable.”

LeHong also suggests that CIOs push to create a business project management office, which will help track cost-cutting and ultimately help prove IT’s contributions.