Retail IT Spending Leaps 9 Percent in 2004

Pressure to realize cost savings from supply chain efficiencies seen driving investment, AMR reports

Pressure to realize cost savings from supply chain efficiencies seen driving investment, AMR reports

Boston — March 19, 2004 — Retailers are increasing their information technology (IT) spending by more than 9 percent in 2004 as pressures to realize cost savings from supply chain efficiencies drive higher levels of investment, according to a new report from technology consultancy AMR Research.

In a joint study with the National Retail Federation (NRF), AMR provided what it said was the first comprehensive, line-item level IT budget analysis seen in the U.S. retail industry based on a survey of 27 members of NRF's chief information officer council. Together, these 27 members represent $180 billion in annual sales, according to AMR.

According to the survey, the average IT budget at the respondents increased from $219 million last year to $239 million in 2004, nearly doubling the increase in total spending growth reported in previous retail IT spending surveys for 2003 and 2004. That dramatic upward trend is notable in an industry typically conservative in its approach to technology.

"IT spending in the retail industry has not increased this dramatically since the invention of barcode scanners," said Tony Friscia, president and CEO of AMR Research. "The pressure to continue to realize cost savings from supply chain efficiencies while improving customer service has forced retailers to accelerate their technology investments. This is clearly an indication of the industry's commitment to realizing the benefits of IT systems that the rest of the business community has already adopted.

Capital expenditures among study participants are projected to be more than 27 percent higher this year than 2003. This rise includes a greater than 57 percent increase in capital spending on store-based technology hardware, which AMR sees as validating the importance retailers see in improving the consumer's shopping experience.

Study participants also reported that they are increasing spending in network communication technology more than 20 percent, indicating increased store bandwidth to support better responsiveness and more centralized application deployments.

Retailers are budgeting an average 16 percent increase in training for IT personnel, reflecting the need to gain faster understanding of new application technologies and business processes affected by accelerating IT investments.

"The report's projected expenditures did not include RFID compliance investment," Friscia noted. "Two thousand and five is around the corner, and retail spending for this technology alone should continue the upward trend in retail IT investment. Our report with NRF has validated the trend that AMR Research has witnessed through our client discussions — that we should plan on seeing continued investment in retail technologies."

NRF is the largest retail trade association in the world.