27/02/2002
EHI study on retail IT investment shows: Retailers want practical benefits, not gimmicks
Ahead of EuroShop, retail institute EHI-EuroHandelsinstitut of Cologne questioned 43 leading retail companies about costs, trends and investment in information and communications technologies.
Despite flagging consumer spending and stagnant sales, German retailers are continuing to invest more in IT solutions, according to the latest bi-annual EHI study into retail IT investment. For the first time, retailers spent more than 1 percent of gross revenues on information and communications systems in 2001. The exact figure of 1.07 percent is just under the 1.19 percent arrived at by a similar study by Ernst & Young for the US market.
More and more retailers are handing over technical responsibility for their IT systems to external providers. According to the study, over 90% of companies outsource at least part of their programming work, and less than a one in four carry out hardware and software maintenance exclusively themselves. The trend in software development is similar.
On average, IT costs have risen in all areas in the last two years, with the rates of increase particularly high for software licences and network costs. This reflects the increasing complexity of the retail IT landscape as companies opt for extensive software packages and integrate more and more of their systems.
The breakdown of investment into individual hardware components shows that at present retailers are concentrating on systems that deliver clear practical benefits. Reflecting the increasing use of wireless communications technologies, these include, for example, handheld terminals with wireless links. Many retailers also seem to be turning to — long disputed — electronic shelf labels as a serious alternative to conventional price labels. Other items featuring more and more often in IT budgets are EAS systems, poster printers and, in the food sector, checkout scales. Retailers are less willing to spend on innovative but unproven systems such as shopping trolley displays, self-scanners or self-checkouts. Only 3 percent of respondents were planning pilot projects with trolley displays. It will take a lot of persuasion by manufacturers before systems like these find widespread use.
The survey’s analysis of planned software investment shows that, for many retailers, optimising merchandise management systems is still the main priority. Many companies face the need to replace internally developed software with standard solutions or new products to keep pace with technological progress in data entry and analysis as well as new communications methods. 42 percent of executives questioned said that improving merchandise management will be their biggest priority next year. Topics such as receipt data analysis, data mining and automatic stock control are set to increase in importance. A connected theme is the building of data warehouses, which has only just begun at many retailers and is seen as a top priority in budget planning.
Supply chain management is also a key area of investment, with many companies having recognised the importance of links to supplier systems and joint data analysis. However, it is still unclear which technology will win out. For example, almost 60 percent of firms are planning to set up extranets, but at the same time many of the same firms also want to test links with public marketplaces. But CPFR (Collaborative Planning, Forecasting and Replenishment), which provides for complete data integration at every link in the supply chain, is currently an issue only for the big players like Metro, Karstadt or dm. For smaller firms, CPFR is still very much unfamiliar territory, as revealed by the high number of “don’t know” or “not applicable” responses (32 percent) to a question about future CPFR projects.
Investment in new customer retention tools is also a priority area. Many retailers already have customer loyalty cards and specific customer databases, but so far only 10 percent have implemented the corresponding software to analyse the data in detail. Having said that, over half the respondents stated that they had already launched pilot projects or were planning to invest in CRM tools in the near future.
Overall, the study shows that systems modernisation will eat up a large part of many retailers’ investment budgets in the near future. Retailers have recognised that without powerful merchandise management systems and a functioning supply chain, survival on the market is by no means guaranteed. Yet as part of this modernisation, many firms are willing to use innovative applications and new approaches to data analysis. Success is only possible if customers are properly identified, analysed and cared for. Therefore investment in customer retention, though already high in some cases, will in future have to focus more on sophisticated customer relationship management tools.
The important factors for retailers are practical benefit and realistic payback within 1-2 years. If these requirements are not met, retailers often simply won’t invest.
Despite flagging consumer spending and stagnant sales, German retailers are continuing to invest more in IT solutions, according to the latest bi-annual EHI study into retail IT investment. For the first time, retailers spent more than 1 percent of gross revenues on information and communications systems in 2001. The exact figure of 1.07 percent is just under the 1.19 percent arrived at by a similar study by Ernst & Young for the US market.
More and more retailers are handing over technical responsibility for their IT systems to external providers. According to the study, over 90% of companies outsource at least part of their programming work, and less than a one in four carry out hardware and software maintenance exclusively themselves. The trend in software development is similar.
On average, IT costs have risen in all areas in the last two years, with the rates of increase particularly high for software licences and network costs. This reflects the increasing complexity of the retail IT landscape as companies opt for extensive software packages and integrate more and more of their systems.
The breakdown of investment into individual hardware components shows that at present retailers are concentrating on systems that deliver clear practical benefits. Reflecting the increasing use of wireless communications technologies, these include, for example, handheld terminals with wireless links. Many retailers also seem to be turning to — long disputed — electronic shelf labels as a serious alternative to conventional price labels. Other items featuring more and more often in IT budgets are EAS systems, poster printers and, in the food sector, checkout scales. Retailers are less willing to spend on innovative but unproven systems such as shopping trolley displays, self-scanners or self-checkouts. Only 3 percent of respondents were planning pilot projects with trolley displays. It will take a lot of persuasion by manufacturers before systems like these find widespread use.
The survey’s analysis of planned software investment shows that, for many retailers, optimising merchandise management systems is still the main priority. Many companies face the need to replace internally developed software with standard solutions or new products to keep pace with technological progress in data entry and analysis as well as new communications methods. 42 percent of executives questioned said that improving merchandise management will be their biggest priority next year. Topics such as receipt data analysis, data mining and automatic stock control are set to increase in importance. A connected theme is the building of data warehouses, which has only just begun at many retailers and is seen as a top priority in budget planning.
Supply chain management is also a key area of investment, with many companies having recognised the importance of links to supplier systems and joint data analysis. However, it is still unclear which technology will win out. For example, almost 60 percent of firms are planning to set up extranets, but at the same time many of the same firms also want to test links with public marketplaces. But CPFR (Collaborative Planning, Forecasting and Replenishment), which provides for complete data integration at every link in the supply chain, is currently an issue only for the big players like Metro, Karstadt or dm. For smaller firms, CPFR is still very much unfamiliar territory, as revealed by the high number of “don’t know” or “not applicable” responses (32 percent) to a question about future CPFR projects.
Investment in new customer retention tools is also a priority area. Many retailers already have customer loyalty cards and specific customer databases, but so far only 10 percent have implemented the corresponding software to analyse the data in detail. Having said that, over half the respondents stated that they had already launched pilot projects or were planning to invest in CRM tools in the near future.
Overall, the study shows that systems modernisation will eat up a large part of many retailers’ investment budgets in the near future. Retailers have recognised that without powerful merchandise management systems and a functioning supply chain, survival on the market is by no means guaranteed. Yet as part of this modernisation, many firms are willing to use innovative applications and new approaches to data analysis. Success is only possible if customers are properly identified, analysed and cared for. Therefore investment in customer retention, though already high in some cases, will in future have to focus more on sophisticated customer relationship management tools.
The important factors for retailers are practical benefit and realistic payback within 1-2 years. If these requirements are not met, retailers often simply won’t invest.