Finally, Some Spending on IT

By Beth Cox

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A new study of IT spending by the retail industry says things are starting to turn around just a bit, and that 2003 will see modest spending increases and the beginning of a compound annual growth rate going forward of 5.3 percent.

The study by Framingham, Mass.-based research and consulting firm IDC predicts that IT spending by the U.S. retail industry will reach $29.6 billion by 2007.

Last year such spending actually declined by 3.4 percent, so such growth would be a welcome turnaround for IT vendors, who are now facing up to the new reality that the days of dizzying, double-digit quarterly growth in IT spending are over and done with.

"A challenging retail environment over the last couple of years led many retailers to defer technology spending... this is bound to have resulted in pent up demand for IT upgrades, for everything from point-of-sale systems to sophisticated analytics and planning tools," said David Schatsky, vice president and research director at Jupiter Research.

"I doubt very much, though, that many companies will commit to million-dollar-plus projects until the outcome and the after-effects of the war in Iraq become better understood. A rapid, successful conclusion to the conflict and reasonably stable or slightly positive consumer demand ought to motivate many retailers to invest again."

"As always, projects will need to have clear cost-cutting and/or top-line benefits to gain approval ... " Schatsky said.

"The retail industry ended 2002 much weaker than it began the year," said Christopher Boone, program manager for IDC's United States IT Opportunity: Retail and Wholesale program. "IT budgets were negatively impacted as the year progressed and retailers struggled to manage costs and meet profit goals. ... [But] despite the setback in 2002, we expect retail IT spending to resume growth in 2003 and beyond."

For IT vendors with products oriented toward the retail sector, both online and offline, IDC said it recommend that sales efforts include efforts to identify solutions that improve a retailer's margins and can be implemented relatively quickly with a measurable return on investment (ROI).

Vendors can also search out business units that benefit from IT projects to get their financial support, the report says.

E-commerce, meanwhile, continues to get a slightly larger share of the retail pie - a report from comScore Media Metrix said that weekly online sales were up 21.9 percent year-over year for the week ending March 9.