Gartner Says U.S. Retail Spending on IT Is Down but Opportunities Remain for Technology Service Providers

IT Non-Adopter Retailers Are Largest Area of Untapped Opportunity in 2009 as Tier 1 Retailers Scale Back IT Spending

STAMFORD, Conn., 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, Inc.

“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,” Mr. Roster said. “While many survey respondents are hoping for a return to rigorous IT spending within two years, a high degree of uncertainty prevails.”

Mr. Roster said that TSPs need to prepare contingencies for the current slowdown to continue into 2010 if Christmas 2009 is as weak as some fear it will be. He predicted that cost containment strategies will become more aggressive, and many retailers may push back their planned IT spending until stability returns.

To weather the storm, Gartner advised TSPs to build growth strategies to capture resilient market segments, such as grocery, and allow for market maturation among Tier 1 retailers. As most Tier 1 retailers will have already made most of their vendor selections for the 2009 holiday season, TSPs should also target IT — the late adopters of IT and the non-adopters. Software as a service (SaaS) offerings with built-in best practices will appeal to Tier 2 and Tier 3 retailers that are currently priced out of the supply chain application market.

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 data indicates that no new warehouse management systems projects were planned by respondents in 2009, although quick and late adopters said that they would be looking to launch some projects within two years. Similarly, very few new transportation management systems are planned for this year, but double-digit growth could return within two years.

Inventory planning projects launched by respondents before September 2008 are likely to continue with some Tier 2 retailers looking to launch new projects. Gartner expects double-digit growth to return to inventory planning projects within two years, led by new engagements among quick and late adopters. Demand planning projects in 2009 are likely to be limited almost exclusively to Tier 1 and Tier 2 retailers, although double-digit growth is expected to return to all three tiers within two years.

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.

Additional information is available in the Gartner report “User Survey Analysis: U.S. Retail Spending on IT is Down but Opportunities Remain for TSPs" The report is available on Gartner’s website at http://www.gartner.com/DisplayDocument?ref=g_search&id=1058112&subref=simplesearch.

About Gartner:
Gartner, Inc. (NYSE: IT) is the world’s leading information technology research and advisory company. Gartner delivers the technology-related insight necessary for its clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, Gartner is the indispensable partner to 60,000 clients in 10,000 distinct organizations. Through the resources of Gartner Research, Gartner Consulting and Gartner Events, Gartner works with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and has 4,000 associates, including 1,200 research analysts and consultants in 80 countries. For more information, visit www.gartner.com.