Retail CIOs are no strangers to volatility. From pandemic-induced digital acceleration to supply chain disruptions and shifting consumer habits, the last few years have reshaped IT priorities. Now, in 2025, economic pressures — ranging from inflation and cautious consumer spending to margin compression — are forcing retailers to once again reevaluate their IT investments.
For many, the directive is clear: reduce costs without losing momentum on innovation. It’s a high-stakes balancing act, where cutting too deeply can blunt competitive edge, but failing to act means wasted spend and stalled growth. Fortunately, the right strategy can help CIOs lower costs while still enabling the digital agility modern retail demands.
Rethink the “Run vs. Change” Mix
Retail IT budgets are typically divided between “run the business” (operations and maintenance) and “change the business” (innovation and transformation). At many retailers, up to 40% of spend supports run functions — like POS support, legacy systems and store infrastructure — while 60% is allocated to transformation, including omnichannel capabilities, customer experience platforms and advanced analytics.
CIOs aiming to preserve innovation need to optimize the “run” portion. That starts with deep visibility into IT spend. Which areas are critical to business continuity, and which can be automated, retired or outsourced?
Advertisement
In-store self-service options (like kiosks, price checkers and returns automation), self-healing infrastructure (e.g. automatic reboot or restart protocols for failing POS systems), and AI-powered service desks can dramatically reduce operating costs. These tools free up IT staff to focus on innovation while also improving associate productivity and customer satisfaction.
Automate with Purpose
Retailers are increasingly using AI and automation to handle tasks that used to require costly manual effort. Price optimization, inventory forecasting, visual search and chatbot support for online shoppers are just a few areas where automation can reduce labor costs and speed up response times.
But automation must be deployed thoughtfully. AI-led systems should include “guardrails” to ensure compliance with data privacy laws (like GDPR or CCPA) and to prevent reputational damage from algorithmic bias or inaccuracy. For example, human oversight should remain in place for sensitive decisions — such as fraud detection, personalized promotions or customer credit offers.
Retail CIOs are embedding AI governance into their deployment plans to balance innovation with accountability, building systems that scale without creating risk.
Fast ROI: Fund Innovation with Innovation
Given tighter capital budgets, CIOs are prioritizing quick-win innovation projects that pay for themselves within a two- to six-month timeframe. Retailers are experimenting with:
- AI-based returns fraud prevention, reducing lost revenue.
- In-store fulfillment optimization, cutting delivery costs and improving speed.
- Predictive staffing, using traffic data to optimize labor scheduling.
These aren’t just cost-saving initiatives — they also improve the customer experience. And that dual benefit makes it easier to secure internal buy-in even during spending freezes. For high-potential ideas, CIOs are piloting with a limited number of stores or SKUs before scaling companywide.
Find and Eliminate Budget Drains
Retail IT waste often hides in legacy systems, overlapping platforms or disconnected digital programs. A common culprit: POS systems that haven’t been consolidated post-acquisition or between brands, leading to redundant support teams and software contracts.
CIOs are addressing this by standing up program management offices that tie each initiative back to its business case. Instead of tracking project milestones in a vacuum, they look at enterprise value delivery. Programs that fail to meet intended business outcomes are stopped or restructured.
Software license rationalization is another area of waste. Retailers often have multiple vendors performing similar functions across departments — marketing, ecommerce, store ops — which can be consolidated under enterprise agreements or sunset entirely.
Work Smarter with Vendors
Cost-cutting doesn’t require cutting ties with strategic partners. In fact, some of the best innovation in retail comes from vendor collaboration. The key is changing the engagement model.
Retail CIOs are moving away from time-and-materials contracts in favor of outcome-based partnerships. In this model, vendors are rewarded for hitting specific business metrics — like uptime, conversion lift or customer service efficiency. This aligns incentives and ensures vendors are invested in retail-specific outcomes, not just hours billed.
Another best practice: distinguishing between strategic innovation partners (e.g. for customer experience platforms or AI personalization) and commoditized services (e.g. infrastructure support or routine integrations). This helps CIOs negotiate better pricing while maintaining flexibility.
Master Multi-Cloud Cost Control
Many retailers use multi-cloud environments to power global ecommerce, loyalty programs, and data analytics. But without strong governance, cloud costs can balloon unexpectedly — especially during holiday peaks or promotional spikes.
CIOs are increasingly deploying FinOps teams to manage cloud cost optimization. These teams analyze usage patterns, implement auto-scaling policies and ensure workloads are placed with the most cost-effective cloud provider. Just as important: every cloud project is measured against its original business case to ensure it’s delivering the expected value.
Retailers also test multi-cloud deployments during peak periods (Black Friday, flash sales) to ensure systems perform under stress without triggering unnecessary overprovisioning and spend.
Partner with the CFO to Align on Value
In retail, CFOs are deeply involved in IT investment decisions. Given narrow margins and intense pressure on cost of goods sold (COGS), finance leaders demand strong ROI from tech initiatives.
Successful CIOs bring CFOs in early — co-building business cases, agreeing on success metrics and tracking value realization over time. This avoids over-indexing on trend-driven projects and ensures tight fiscal discipline across both innovation and operations. Some retailers have established cross-functional steering committees to jointly approve projects, creating shared accountability and better alignment with business outcomes.
Conclusion: Smart Cuts, Lasting Value
In retail, IT cost reduction isn’t about cutting corners — it’s about cutting smarter. With the right approach, CIOs can reduce operating costs while fueling the innovation necessary to attract and retain customers.
By reallocating spend from run to change, automating intelligently, partnering effectively with vendors and aligning with finance on every initiative, retail CIOs can transform budget pressure into a catalyst for reinvention.
Innovation doesn’t have to stop — it just has to pay off faster, scale more efficiently and serve the business more directly.
Niranjan Ramsunder is Chief Technology Officer and Head of Data Services for UST, a global IT services firm. He works with UST’s retail practice to drive technical innovation and to integrate best-in-class agile methodologies, DevOps, test automation and cloud development to meet retailers’ most challenging business needs.
