Survey Suggests Retail IT Spending Recession-Proof. Or Does It?

Written by Evan Schuman and Fred J. Aun
March 11th, 2009

Many retail IT budgets in 2010 will have about the same ratio to sales they had in 2008, and a decent percentage of those budgets will be boosted to cover projects currently in progress, according to a new report.

The survey of retail IT directors and CIOs in the United States and Europe, conducted by Martec International for Aldata Solution and IBM, took place in the fourth quarter of 2008 “when retailers were feeling the full force of the recession,” said Aldata CMO Allan Davies. He said the timing of the surveys “makes the results all the more encouraging.”

Some 51 percent of the retail CIOs and IT department heads who took the survey said that they expect their IT budgets, as a percent of sales, to stay the same next year, while 26 percent said that they expected their IT budgets to increase to cover ongoing projects.

Surveys like this raise skeptical eyebrows, as they should. Do those IT execs truly expect their budgets to go up or are they merely hoping that they’ll go up? Even more cynically, is it possible that those execs know that surveys like this tend to impact CEO/CFO expectations and, therefore, they’ll give the answers they want their CFOs to believe?

Even if the execs are being straight with the survey takers—and that the survey takers are being straight in reporting all of the collected data without sanitation—we have to wonder what was behind those answers. In late 2008, they saw a new president being elected and, historically, they knew that these kinds of economic downturns don’t usually last more than a year. So could those execs have simply thought, “There’s no way this will still be going on by 2010 so yes, I will assume my budget will be the same or will increase.”

If that’s the case, it’s not manipulation, but merely optimism—perhaps unwarranted, but optimism nonetheless—that is behind these numbers. This might be more significant if the optimistic assessments were based on something concrete, such as new shipment figures or plummeting supplier pricing from Asia. Also, even the questions weren’t asking about straight budget dollars as much as ratio to sales. So if sales plummet, that ratio could be the same—or perhaps even be slightly increased—and IT budgets still might be slashed.

That all said, the report authors saw other explanations for the answers. Companies maintaining or increasing IT expenditures during such a rotten economic period might seem counterintuitive. But, the authors argue, technology is one area that can help businesses save money during tough times.

“Most retailers are looking to use IT investment to squeeze greater returns out of assets they already own, such as inventory and space,” the report said. Many of the tech executives said they are investing in systems that improve stock management and availability, help boost sales from new channels or will bolster the effectiveness of promotions.

However, not all aspects of IT are being spared the ax. Retailers “are far less likely to consider investing in areas that do not deliver short-term ROI,” according to the study.

“It is quite clear that CIOs are not losing their nerve, and that retailers continue to see IT investment not as a luxury, but as a means of reducing cost and improving business performance over a comparatively short time period,” Davies said.

That approach has been widespread across the retail industry over the past few quarters, said the report. It noted that most companies are not embarking on large-scale system “rip and replace” projects but are instead focusing on specific areas, such as automatic replenishment, “where the gains can be felt in months, rather than years.”

Of those surveyed, 87 percent said they either have, or plan to have, automatic replenishment applications up and running within the next three years. In Europe, the Middle East and Asia, that figure was a whopping 97 percent “with almost half of the respondents either in the process of implementing upgrades or planning new systems.”

The top application for logistics and distribution was real-time warehouse management. In the U.S., 84 percent of those surveyed said they were already using real-time warehousing systems while another 11 percent said they are planning upgrades. A full 100 percent of the U.S. retailers surveyed said they were already using mobile applications for logistics and distribution and 16 percent are planning upgrades over the next three years.

The most important application within the IT and Data Architecture realm, as listed by the survey respondents, was Enterprise Master Data Management (MDM). Although only 28 percent of the retailers surveyed said they have MDM implemented, 48 percent said they intended to upgrade or implement MDM in the next three years.


One Comment | Read Survey Suggests Retail IT Spending Recession-Proof. Or Does It?

  1. Supply Chain Management India Says:

    Recession effects everybody. It has impacted the IT sector more than others. But in the current situation, the report shows a decent percentage. Proper planning helps to boost sales from new channels of promotions.


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