Despite their budgets remaining depressed, the IT directors who joined Retail Week and BT Expedite to discuss their plans were upbeat on what can be achieved, found Joanna Perry

At 8am in the morning, you could have forgiven the retailers who came along to a roundtable on IT budgets for being downbeat at the news that the relative spending cuts they faced last year were still in place.

But, just as in their working lives, these IT directors are making the most of the hand they are dealt. The results of the Martec International IT in Retail Research report, sponsored by BT Expedite, show budgets have stuck at 1.1% this year, but the retailers present pointed out that this does not mean that new projects aren’t taking place, more that how the money is being spent is shifting.

Spar IT controller Roy Ford explained: “These figures hide some of what the true spend is. We forced down the cost of maintenance on hardware and software; our costs of development are the same.”

Others at the table agreed with Ford that they had been asked to make savings. Comet IT director Kevin O’Brien said that this need to cut costs in some areas to protect other investment had led to Comet taking decisions more quickly than it otherwise might have. For instance, it has entered into an offshore partnership that is helping it to make savings.

Carpetright group IT and ecommerce director Ian Woosey added: “We have seen a willingness with a number of our big suppliers to adopt a new pricing policy.”

Taking a long-term view

BT Expedite chief executive Rich Lowe agreed that retailers and their technology suppliers need to work together. “People are asking to do a lot more with their assets, looking to reduce their supplier spend so that they can do more in terms of technology innovation and development.”

He continued: “For us it’s about listening to our customers and ensuring that we are responding to their needs whether that be PCI compliance, reductions in terms of their infrastructure costs or delivering real innovation that is agile and quick to get to market.”

O’Brien said he expected to see more peaks and troughs in IT expenditure. For instance, he said few retailers would have been willing to spend £5m to £10m on an EPoS system last year due to the economic uncertainty.

Wilkinson IT director Ritin Patel said that the return did not always have to be instant for his company to invest, but the issue is more about risk. “I think my chief financial officer will take the one that’s guaranteed.”

The retailers agreed that investments to fill holes in existing technology should not always be viewed as quick fixes. Reiss head of IT Hugh Raeburn commented: “Point solutions don’t mean not strategic.”

O’Brien said: “Ideas about new systems come from IT. But we sit down and work out our business priorities. Last year it was getting a return on investment within a year, now it is a bit more about longer term. Getting agreement up front is important, and you have to be able to prioritise.”

But was there agreement with the research, and each other, about what they are investing in?

Woosey said Carpetright had spent a lot more on online technology in the past 18 months. “We have had to look at store and merchandising systems so we can track online,” he explained.

“There is a lot of focus on indirect channels and investing in our insurance business. But we also have significant involvement in our infrastructure, such as networks, etc.”

White Stuff head of IT Mike Padfield admitted that the multichannel retailer was looking at replacing all of its end-to-end systems. It hopes to have a multichannel solution in place by March next year.

Aurora Fashions group IT director John Bovill agreed that multichannel was important to his business. “My gut instinct is that we still need the fundamentals, but the demands of the infrastructure will be different.”

Raeburn added: “Ecommerce continues to dominate a lot of our spend [as does] supporting international growth.”

O’Brien said that ecommerce, merchandise planning and stock planning would all be areas for investment as would technology to support Comet’s after-sales care and improving the customer experience.

Wilkinson would focus on online and infrastructure projects, said Patel. It is also looking at contactless payment as its average basket size is small.

Expect the unexpected

Complying with the payment card industry security rules (PCIDSS) may no longer be pushing up IT spend beyond its long-term average but it is still eating into budgets and causing retailers to have to keep money aside.

BT Expedite chief operating officer Richard Dodd said: “PCIDSS continues to be a source of frustration for retailers. The common message is that the continual movement of goal posts is frustrating to them.”

Woosey explained that the complexity means retailers need to keep budget aside for the unexpected: “It is never black and white. You have to try and understand what it means and then go and do it. So you have got to have something in your back pocket.”

Patel said: “We are compliant now but it took a huge amount of effort.”

Having achieved the standard, it is relatively easy to maintain but only as long as the standard doesn’t keep changing, added O’Brien.

Ford said that once it began to replace payment card readers in-store, PCIDSS would again be a big expense. “40% of our budget this year is for finance systems, and half of that is for the unknown. We were getting no support from the banks and have just gone out to tender for a credit and debit card provider.”

The good news is that the projects IT departments are becoming involved with, especially around multichannel, are giving them a higher profile within their businesses. Dodd said that it was clear IT departments were becoming far more at the forefront of their businesses.

Ecommerce sits in the commercial teams for Aurora’s brands, which Bovill is an advocate of. He concluded that investment in ecommerce and multichannel brings with it a new, more public role for IT within retailers. “I think it is an opportunity for IT. It means IT comes front of house, and the role of IT is changing.”

Is 1.1% the new normal?

In the past decade, retail IT spend has been static at 1.3% of sales, apart from one year when spending on payment card industry security rules forced it higher. That was until last year, when it fell to 1.1%. It has stayed there this year, but with plenty of retailers achieving sales growth, IT directors will have more cash to spend.

“The challenge is if you all do a good job of coping at 1.1% then it becomes the new norm,” said Martec International managing director Brian Hume (pictured).

Hume said Tesco, Asda and Sainsbury’s have pulled up the average budget for grocers as they are selling a lot of non-food and can’t run a clothing business with grocery systems.

Department stores spend more at 1.4%, but this has fallen from 1.7%. Home shopping retailers spend 3.4% and Martec predicts this could rise in the next few years as they invest in technology to better integrate various channels.

This focus on improving services offered online and making different channels more joined up doesn’t just mean investment in the ecommerce front-end, it requires money to be spent on some of the fundamentals. Hume said as an example: “How do you do click-and-collect or return to store properly unless you are able to update your merchandising systems at the same time?”

There are some other application areas seeing a strong focus. Hume said any retailer with more than 10 staff in each of its stores should look at labour scheduling, and marketing systems are also gaining investment, predominantly CRM systems.

The latest IT in Retail Research by Martec International - sponsored by BT Expedite -is now available and BT Expedite is providing a free white paper on the results to Retail Week readers at www.retail-week.com/BT-ITinRetail