Forecasting Substantial IT Spending Cuts In 09, Analysts Predict Projects To Make The Cut

Call it the “CSI phenomenon.” As coined by AMR Research retail VP Mike Griswold, it describes the current atmosphere in which every retail expenditure is under the kind of analysis reserved for a crime scene and accompanying forensics. As a result, retailers have moved from trying to guess how much their IT budgets will be cut, to focusing on the projects that they need to execute.

For the record, Griswold and his colleague Janet Suleski told the AMR Business Technology Conference in Boston last week that the 7% to 8% increase in retail IT budgets projected earlier in the year will in reality be a decrease in the neighborhood of 5%. This reassessment came on the same day that Best Buy CEO Brad Anderson joined Barnes and Noble CEO Steve Riggio in calling the current retail environment “the most difficult climate we’ve ever seen.” When it comes to infrastructure, customer relationship capabilities, and data analytics, retailers are no longer asking “how deep” but “what can I spend on?”

Griswold believes retailers will be predisposed to pick IT projects that show a quick and appreciable ROI, are implemented within six to nine months and have a low impact on everyday business operations. “The back office piece is still struggling at many retailers,” he said. “The customer facing piece of cross-channel retailing has received a lot of attention, now it’s time to bring planning and execution together. The disconnect between the warehouse and the store needs to be addressed.”


Here are the projects most analysts and retailers say will be affected, both positively and negatively, by the new budget dynamics:

Promotions Optimization: With marketing budgets at wire-tight levels, knowing the effectiveness of discounts and marketing efforts to support them is expected to be the single largest IT investment for retailers in 2009. Real-time information that can be spread throughout the supply chain is also a “must have” to optimize any spending that gets approved.

Workforce Management:
Finding the right people to hire, and training them to be effective with customers is top priority on the budget “must have” list. Retailers continue to balance technology and humanity when it comes to the customer experience. Workforce management is where those two issues intersect.

Knowledge Management: Many key retailers have indicated that knowledge management is integrating quickly with workforce management. Customer and inventory knowledge is not being collected and disseminated solely for sales and marketing executives. “It is being used to help sales associates be more effective with customers,” says one major retailer.

Cross Channel Management: How many customer segments do I have and how do I get to them? Those are the questions that retailers want more information on as they continue to keep pace with “buy anywhere/fulfill anywhere” issues, and also maintain momentum for loyalty programs.

POS Upgrades: It is unlikely that existing initiatives will be scrapped, but POS upgrades may be at risk for retailers that don’t want to risk the business process interruption.

System Replacement/Upgrades:
Total replacement and upgrades fail the quick turnaround and change management tests.  Big ticket enterprise management projects are under review.

RFID, Digital Shelf Upgrades:  Once again this can be expensive and not necessarily a higher priority than optimization, workforce or knowledge.

One thing is for certain, retailers and software vendors are not panicking. Most of the key players we spoke with were adjusting, not squashing their budgets. As Griswold says: “Retailers still want better customer relationships and that will continue to be addressed.”

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