Customer Concerns Drive Retail IT Decisions

June 23, 2010

Retailers are focusing on how to better communicate with and serve the needs of their customers as they allocate their IT budgets, according to the recent “RIS News Retail Tech Study.”

Customer Satisfaction Leads Action Items
The most popular major IT action item during the next 18 months for retailers is customer satisfaction, with 34% of retailers using customer satisfaction as an IT decision driver. Interestingly, the second-most-popular action item, supply chain visibility and efficiency (29%), is a back-end area that only indirectly affects customer satisfaction.

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However, the next three most popular action items are all customer-facing. Store-level inventory visibility and efficiency (27%), developing multichannel initiatives (27%), and promotions effectiveness (25%) all directly relate to satisfying the customer.

The remaining items are a mix of customer-facing and back-end concerns. It is worth noting that although social media has largely emerged as a retail IT tool within the past year, already 16% of retailers are making it a major near-term action item.

Merchandising Dominates Top 10 Technologies for 2010
Most of the 10 technologies for 2010 as listed by retailers could be classified as merchandising, which is an area that straddles the back and front ends of the retail enterprise. For example, the number one technology, forecasting and planning (27%), integrates front-end customer demand with back-end supply chain and sourcing activities.

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The same is true of assortment planning (22%), product lifecycle management (21%), allocation (20%), replenishment (19%), and item management (19%). Price and markdown optimization (23%) primarily deals with goods once they have reached the back room of the store, as does shelf and space planning (18%). New product or private label development (21%) is a unique process that includes research and development.

Integrating Customer Demand Tops all Challenges
Following the sentiment expressed in the list of top 10 technologies for 2010, retailers selected adding customer and analytic insight capability as a top IT challenge/concern at a much higher rate (60%) than any other individual challenge.

The next-most-popular challenge, multichannel strategy, was only selected by 44% of retailers. Many of the other top challenges, such as real-time visibility (37%), application rationalization and/or retiring legacy systems (36%), application integration (33%), PCI compliance (28%) and unified communications (9%), are internal IT operations concerns.

However, mobile commerce strategy (20%) is a clear customer-facing concern, while environmental sustainability and social responsibility initiatives (12%) have customer-facing, regulatory, and employee morale components.

Close to Half of Retailers Will Increase IT Budgets
The largest single percentage of retailers (37.1%) will not change their year-over-year IT budget. However, 27% will increase their budget from 1% to less than 5%, 10.1% will increase it between 5% to less than 10%, and 6.7% will increase it 10% or more. This means 43% of retailers plan to increase their year-over-year IT budget.

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In comparison, 7.9% will decrease their IT budget from 1% to less than 5%, 5.6% will increase it between 5% to less than 10%, and another 5.6% will increase it 10% or more. This means 19.1% of retailers will decrease their year-over-year IT budget by some amount.

Retail IT Spending to Exceed $20B
Despite the negative impact of the recession on retail sales, retailers continue to increase their IT investments, according to a new study from ABI Research.

“Next Generation Point of Sale Systems and Retail Technology” indicates that in investment in retail technology hardware market, consisting of integrated point of sale (POS) systems, payment terminals, POS barcode scanners, POS printers, and electronic article surveillance (EAS) systems, managed to continue growing during 2009. Retail IT spending totaled approximately $14.8 billion last year.

In addition, retail IT spending is expected to continue growing at a rapid pace during the next four years. By 2014, ABI predicts retail IT spending will have undergone approximately 50% growth from its 2009 level, reaching almost $21 billion.

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