Study: Retail IT Spending Poised for Strong Growth

Nowhere are IT budgets leaner than in the retail sector, where tight margins strictly curtail technology spending. However, a recent report from IDC indicates that the retail IT market will grow rapidly over the next few years and could be worth US$40 billion by 2006.

Experts said that while retail spending on information technology is currently low, the sector will outgrow other markets, with industry leaders like Wal-Mart, Home Depot and Best Buy purchasing technology that includes self-checkout systems and in-store kiosks.

“Historically, retail typically is a laggard when it comes to IT spending,” IDC senior analyst Christopher Boone told the E-Commerce Times. “They’re always fighting against tight margins.”

Still, Boone said, leading retailers are expected to shell out IT dollars to improve customer service and operational efficiencies, as well as to keep or gain market share. That spending, in turn, is likely to trickle down to competitors eager to keep up.

Getting Through 2002

Admittedly, the economy is still suffering, and the relatively small retail portion of overall IT spending is ailing along with it, IDC senior analyst Ann Lu told the E-Commerc e Times.

However, IDC has projected that retail’s share of the overall IT spending pie will grow faster than that of other verticals, such as manufacturing, banking, and communication and media. The Framingham, Massachussetts-based research firm has downgraded overall IT spending growth projections for 2002 to 3 percent, although it is projecting an uptick in 2003 of 8.9 percent.

“The growth rate is very exciting [for retail],” Lu said. “Although in 2002 retail is not doing well, we think that from 2003, retail will be one sector that will experience the highest growth rate.”

Rising Retail

However, IDC’s 8.9 percent growth estimate is still less than the compound growth rate of 9.3 percent for retail spending between 2001 and 2006.

In its forecast, IDC considered IT spending in various retail sub-industries, such as home improvement, general merchandise, food stores, auto dealers and gas stations, apparel and accessory stores, eateries, drug stores and catalog retailers.

Ready To Spend?

Boone said that while retailers currently spend on technology only when the return on investment is clear or when legacy systems become antiquated, the sector is poised to plunge deeper into IT.

For example, while the impact of consumer spending on retail IT spending remains unclear, Boone noted that the number of store systems in use — such as self-checkout setups and information or ordering kiosks — is going to increase.

“Those types of technology are at the level where they’re picking up,” he said, adding that the technologies, which are aimed at improving customer service and increasing operating efficiency, are “just at the beginning stages.”