Spend IT

Remember the hysteria over Y2K? One of its byproducts was rampant spending on information technology, brought on by panic-stricken visions of widespread computer crashes. Money for IT flowed freely. Not for long, alas. Last year, spending plunged from 1999’s high, according to “Retail I.T. 2000,” a survey by Cap Gemini Ernst & Young.

As a percentage of sales in 2000, IT spending dropped to 1997 and 1998 levels. In 1997, information technology operating expenses as a percentage of sales were 0.99%. In 1998, that figure dropped to 0.98%, then in 1999 it shot up to 1.19% before going back to 0.99% for the year 2000. Last year, apparel and accessories retailers, along with mass merchants and department and discount stores, spent at moderately higher rates.

The survey was based on 102 respondents who represent a broad sample of companies of various sizes involved in different retail segments. Twenty-five percent of the companies surveyed post revenues over $1 billion, and 64% report annual sales of less than $500 million, with the rest falling somewhere in between.

According to Tom Hogenkamp, vice president of the consumer products retail distribution group of Cap Gemini Ernst & Young, business expenditures on technology should remain steady through 2001. “If you’re looking at this trend, IT spending will remain the same.”

Big spenders

Most of the participating retail respondents, 77%, believe that IT operating expenses would rise relative to 1999 figures as 2000 came to a close. On average, retailers anticipate spending increases of 10% to 14%, pointing to increased technology needs for merchants to carve out competitive niches in every retail area, from marketing to management to training.

In addition, the report points out that information technology needs are now serious factors in major corporate decisions. Gone are the days when IT was solely a support function. Retailers can be expected to lavish attention on IT as long as the return is profitable.

Spread the Wealth
All Participants Apparel/Accessories Restaurant Mass/Dept./Discount Supermarket Home Improvement Speciality Convenience/Gas
IT Spending as Percentage of IT Operating Expenses Data center 19% 19% 15% 24% 20% 24% 22% 10% Percentage of Respondents
Application development 18 15 16 28 13 21 18 26
New application maintenance 10 10 8 7 8 12 15 9
New application development 10 10 11 8 6 12 15 9
IT management 10 10 10 9 16 8 9 9
Distributed services 6 12 12 7 2 3 2 7
Internet services 6 6 8 6 5 6 7 6
IT planning 6 6 6 3 7 6 4 6
IT training and development 6 5 4 4 7 6 8 7
Consulting 6 3 8 3 7 4 10 5
Network security 5 6 5 4 5 3 4 5
Source: Cap Gemini Ernst & Young, October 2000

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