Retailers Increase IT Investment in Pursuit of Consumer-Centric Organization

The fourth annual study, "The State of Retail Technology 2001," was conducted from December 2000 to January 2001 by PricewaterhouseCoopers, the world's largest professional services organisation, and RETAILTECH magazine, covering technology and the business of retailing.

"This study is one of the best barometers of where the retail industry stands regarding technology applications, investment and strategy," said Michael Garry, editor-in-chief of RETAILTECH.

Survey respondents include department, discount, apparel and other specialty stores, home improvement centers, convenience stores, and supermarkets. Two out of five survey respondents represent companies with annual sales exceeding $1.5 billion. Non-store retailers were excluded from the survey. Key findings include:

Increased IT Investment - It's About Time While retailers have historically underinvested in information technology, survey results indicate that not only are retailers allocating a larger percentage of company revenue on IT spending, but that they plan to increase IT spending by 10 percent in 2001. Retailers are investing more and they appear to have a better understanding of the strategic value of IT to business performance. Survey findings demonstrate this point:

• CIO's spend nearly one-third of their time on IS and business strategy to ensure that IT investments align with, support, and drive shareholder value.
• The most critical competency for a CIO to possess is business vision and strategic thinking.
• The most important factor in measuring CIO performance is contribution to the overall business

While business vision and strategic thinking top the list of crucial competencies that a CIO must possess to be successful, in reality, CIO are spending less than one-third of their time on these critical functions. "Going forward, expect CIO to increase their focus on developing an IT strategy in sync with the business vision, while ensuring the IT investment can be financially justified, with benefits quantified, and results measured," comments Drew Riegler, a Partner in the Retail Consulting Practice of PricewaterhouseCoopers. "Companies that recognize the value of IT as a key enabler in bringing business initiatives and visions to reality will be the most likely to succeed in the Next Economy," he continues.

Survey findings also indicate that the importance placed on financially justifying the IT project - in terms of ROI, cost/benefit analysis, etc. - is increasing. In 2001, just slightly less than one-half of CIO's indicated that financial justification was the most critical criterion in justifying IT projects, an increase from just under 30 percent in 1999. About two out of five retail CIO's indicate that strategic necessity is the most critical measure in justifying IT projects.

In-Store Systems Are Hot Retailers are increasing their investment in in-store systems and taking a serious look at thin clients. In an effort to increase customer traffic and sales, enhance the shopping experience, and improve operational efficiency and back-office productivity, retailers are replacing proprietary hardware and software and opting for more open and flexible thin-client-server architectures. Between 25 and 35 percent of retailers surveyed indicate that they will be moving toward thin-client-server architecture within the next two years. And, when it comes to selecting an in-store system, Microsoft Windows remains the number one choice among retailers surveyed.

Across the retail industry today, there is no point of competitive differentiation in terms of POS functionality. According to Riegler, "Going forward, in-store system differentiation must come in the form of additional functionality in areas such as multichannel integration, CRM, and application portability. Advanced POS functionality will become increasingly important as retailers begin to look for new ways to drive customer traffic and enhance the shopping experience."

Survey findings also indicate that POS and other store applications will continue to go wireless or onto other mobile devices. In fact, 17 percent of retailers admit they have already implemented wireless POS technology and 38 percent plan to implement wireless within the next two years. "Newly emerging technologies - Web-enabled kiosks, radio frequency and mobile devices like cell phones and PDAs - are opening up new and exciting frontiers for retailers," Riegler adds.

It's All About Collaboration To meet supply chain and logistics requirements, retailers are moving from homegrown systems to best-of-breed software or exchange-based solutions. More than half of CIO's surveyed favor third-party solutions for key supply-chain functions including collaborative planning, forecasting, and replenishment (CPFR).

Survey results indicate that retailers understand that the benefits associated with collaborative supply chain management are numerous. In fact, half of retailers surveyed already have CPFR applications in place and 35 percent plan to invest in CPFR capabilities.

"As collaboration moves to the web, CPFR clearly has become the 'Holy Grail' of emarkets," states Riegler. Of those retailers surveyed that see value in electronic exchanges, over half say that supply chain collaboration services are the primary benefit of joining an exchange. While emarkets offer the potential to improve procurement, eliminate costs, and increase efficiencies via a realignment of supply chain processes and enhanced connectivity, most U.S. retailers have yet to embrace them. Only 26 percent of retailers surveyed have joined or plan to join an exchange. Another 37 percent are taking a wait-and-see approach. And, 12 percent do not plan to join an exchange but will pursue other alternatives such as extranets and private exchanges.

"The retailer who chooses not to integrate with industry emarkets faces significant risk of losing competitive advantage, lowering shareholder value, and being left behind in an increasingly networked environment. Emerging markets and private ehubs will likely provide the technology platform needed to move supply chain collaboration from vision to reality, and transform today's supply chain systems into tomorrow's demand-driven systems," states Riegler.

But Where's the Customer Focus? For the fourth consecutive year, the highest priority for retailers is implementing technologies such as data warehousing, data mining, and/or other business intelligence systems. Integration is the second biggest investment priority with one-third of retailers planning to invest in improving integration among corporate systems over the next two years.

While many retailers would tend to agree that focusing on the customer and creating a better customer experience are critical in today's environment, survey findings do not support this. Less than 30 percent of retailers are paying attention to CRM, B2C or multi-channel integration as investment priorities. "Focusing on the customer and creating a better customer experience are critical in today's business environment - and where retailers should be spending their dollars," comments Riegler.

Pursuing the Multichannel Advantage Retailers continue to explore opportunities on the Web. In fact, over half of retailers surveyed currently sell online and another 19 percent plan to have an ecommerce offering within the next year.

The investment outlook is also positive with 60 percent of retailers surveyed planning to increase eretail investment in the future. "Now that the dust has settled on the pure-play shakeout, many multichannel retailers are faced with the need to upgrade their sites," says Riegler. "Expect retailers to place an increasing emphasis on integrating their channels and technology platforms in the coming years," he adds.

Retailers are making real progress with integration efforts but there is still a lot to do. While nearly three-quarters of retailers surveyed claim to have integrated eretail systems with stores and back-office systems (up from 58 percent in 2000), just under one-quarter believe their eretail systems and those that support other selling channels are tightly integrated. However, 63 percent of retailers expect to attain tight multichannel systems integration within two years.

"Most companies have yet to take advantage of the real benefit of multichannel retailing, which is optimizing the lifetime value of existing customers," Riegler concludes.

Source: PricewaterhouseCoopers June 2001