Study: Retailers plan more outsourcing, POS upgrades

FRAMINGHAM (09/26/2003) - IT outsourcing and point-of-sale overhauls are among the most popular IT projects being planned by retailers, according to a study released this week by IBM Corp.'s Business Consulting Services unit.

Interest in outsourcing is on the rise as retailers look for ways to control costs, according to the 2003 Retail CIO Survey. Respondents say they will commit increasingly more funds to outsourcing - from 13 percent of their IT budgets to 19 percent in the next three to five years. The reasons retailers cited for moving to outsourcing include: reduced operating costs, increased responsiveness to unexpected events, and access to key skills.

Aging gear is making POS upgrades a top IT priority for retailers. According to the survey, almost all retailers are on board - 19 percent already have widely deployed POS upgrades or replacements, and 76 percent plan to do so within the next five years. Driving these upgrades are efforts to enable new customer-facing applications, speed up customer checkouts, reduce costs and improve reliability.

Overall, this year's Retail CIO Survey reveals a mixed outlook for technology investments. On the positive side, IT spending among retailers increased to 2.1 percent of total retail industry sales in 2002 from 1.8 percent in 2001. For 2003, however, retailers say their spending levels have remained the same or decreased slightly - a result of lingering concerns over war, economic uncertainty and heightened competitive intensity.

Beyond 2003, the horizon appears brighter. Many retailers expect to launch major infrastructure projects over the next one to five years, according to the survey. Investments in transactional systems, wireless infrastructure and CRM software are planned so retailers can boost employee productivity, increase enterprise flexibility and improve customer service.

Specific areas of investment include:

* Analytic software. A top corporate priority for 72 percent of respondents is to improve executive reporting and analytic features. Retailers are looking for tools that can give them a real-time view of enterprise activity and performance.

* Systems integration. Lack of integration and poor access to data are hampering retailers. Among survey respondents, 59 percent said that data and systems integration is a significant business challenges.

* Linux. In-store Linux deployments are expected to increase fivefold: Among respondents, 26 percent said they plan to adopt Linux operating systems within three to five years, up from 5 percent today.

* Inventory management. The majority of respondents (84 percent) say that inventory management represents the greatest opportunity to cut costs and improve efficiency through investment in IT. Technologies that respondents are considering include price- and markdown-optimization, assortment planning, automated replenishment and demand forecasting.

* Wireless. Radio frequency identification is not an immediate priority for most retail CIOs, however more than 40 percent expect to be deploying some form of RFID technology - such as item- or pallet-level tagging, security surveillance, and smart shelves and checkouts - within the next two years.

The 2003 Retail CIO Survey is based on interviews with 78 CIOs and senior IT executives from retail companies with annual revenue of at least $100 million. IBM conducted the survey in association with Executive Technology magazine.

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