Ouch! Retail IT spending down

Gartner believes double digit growth figure will return within two years

Technology service providers (TSPs) must look beyond their focus on Tier 1 retailers and gear their offerings more to Tier 2 and Tier 3 retailers if they are to survive the current fall in retail spending on IT, according to Gartner.

“Double-digit growth in new projects should return within two years, and the 12- to 24-month future holds opportunities for cost optimization applications,” said Jeff Roster, research vice president at Gartner.

Between January and March of 2009, Gartner conducted a survey with 83 senior retail executives with significant responsibility for IT decision making. The survey revealed that North American retailers have severely pulled back their spending on IT this year.

“Cost removal is a key strategy in 2009 in retail, and this is particularly evident in the supply chain where uncertainty and caution are causing a market slowdown in new projects launched,” Roster said. “While many survey respondents are hoping for a return to rigorous IT spending within two years, a high degree of uncertainty prevails.”

Based on the survey findings, Gartner predicts that the remainder of 2009 will see retailers significantly pulling back on all new project launches in the supply chain areas, except for vendor managed inventory (VMI), the uptake of which is being driven by cost containment strategies.

Survey respondents indicated that although ongoing sourcing projects will continue throughout 2009, no new sourcing projects are expected to start this year, with Tier 1 and Tier 2 retailers expected to launch new projects within two years.

Gartner defined Tier 1 retailers as companies with revenue of more than $1 billion. Tier 2 retailers are companies with revenue of $250 million to $999 million. Tier 3 retailers are companies with revenue of less than $250 million.