The credit crunch is forcing consumers to keep their wallets in their pockets, but does it mean that the purse strings are also tightening for IT departments? Joanna Perry finds out.
Whether to spend money on something new when what you have is still working is not just a dilemma for consumers at the moment. Retailers too are asking themselves if they should be spending on new IT systems or just keep going for another year or two and delay planned capital expenditure.
Privately, IT directors admit that projects they had pencilled in for next year are on hold – and in some cases they are having to consider whether their staffing levels are still appropriate if they are to run their systems as is until the market begins to pick up again.
One retail IT director, who did not want to be identified, says it is clear that capital project activity has slowed down, but adds that the brakes won’t be put on important projects already underway. He says: “We have continued with a number of projects because of PCI DSS compliance, where we have no alternative but to carry on. But new things are being held back.”
In other words, IT projects to support future growth are not a priority for many right now. But the same IT director adds that apart from changes to systems to achieve PCI DSS compliance, supply chain technology is one area where investment is still forthcoming, primarily because these projects can build longer-term efficiency.
In its latest trading update, Marks & Spencer said that although it was reducing its capital investment expenditure guidance, it was still focusing on investment in both technology and its supply chain.
Its capital expenditure for the present financial year is now expected to be about£700 million, compared with previous guidance of between£800 million and£900 million. The following year, it expects to spend about£400 million, focused on supply chain and information technology systems.
A spokeswoman for M&S said that the company was unable to comment further on where it would continue to invest in IT while the company is in a closed period. However, M&S is in the process of implementing replacement store systems, a project that is undoubtedly too important to the business for it to put the brakes on.
Meanwhile DSGi has just announced that it will cut capital expenditure by£30 million in its present financial year. So far it has said only that cuts will be focused on areas of its business with lower returns, but it too must be well into a major IT project after signing a deal with SAP last year.
For cash-strapped retailers that don’t have the funds to make capital investments in IT, there has always been the option of leasing. However, the unnamed IT director says that leasing arrangements are becoming more difficult to obtain. This is partly because suppliers are having to assess the risk of whether a retailer will still be trading in three years’ time and also partly because suppliers themselves are finding it harder to raise money. As a result, they want to shorten the length of leases, which makes the deals less attractive to retailers.
WORK WITH WHAT YOU’VE GOT
Other retailers that have embarked on substantial IT overhauls in the past few years have already tightened their belts and are making the most of their existing investments.
Moss Bros head of IT Brett Grobler explains that the company replaced its core systems two years ago, but says that the company continually invests so that they don’t turn into legacy systems. It implemented applications such as Argility’s merchandise management system, and also moved its distribution centre and rolled out a picking system there. Grobler says that this wave of investment has created a much more efficient supply chain and increased the speed of stock through the business.
Like many IT departments, now that it is through a major upgrade Moss Bros has reduced its staffing. Grobler says that what was a 21-person team has been reduced to 12 since the new systems went live.
The unnamed IT director adds that there has been a 10 per cent reduction in headcount within IT at his company. He says that redundancies are at all levels, but focused on business-facing and admin roles, rather than technical staff who are needed to keep existing systems running.
Retailers are also still spending on projects that allow them to contain costs in the longer term. Electronics retailer Maplin completed a project to overhaul its IT infrastructure in May this year, working with IT consultancy Centiq.
Centiq infrastructure practice leader Craig Wilson explains that his company has assisted Maplin in virtualising its infrastructure, allowing it to optimise the performance of its existing Lawson accounting software and slash the time taken to process daily sales and operational reports.
At the same time, the project means that when Maplin wants to adopt new applications it can do so without having to consider further large-scale investment in new hardware. Wilson says that the retailer will get a quicker return on the project because of the speed and low cost at which it will be able to deploy new business applications.
The project took about six months and cost£250,000, but Wilson says that if Maplin had chosen to rip and replace its IT infrastructure to get the same benefits, the costs could have been three times as much.
Wilson suggests that virtualisation is something that retailers should consider as an alternative to ripping and replacing existing infrastructure if they want the performance benefits of new systems without the cost.
Another area where retailers are continuing to spend is on their online presence. For pure-play e-tailers in particular it seems that, downturn or not, they want to ensure their sites provide the best possible experience for customers. Only last week Retail Week wrote
about Asos’ plans to bolster its IT systems to cope with the continued growth it expects to witness in the coming years.
However, even e-tailers that expect to experience tougher trading conditions want to use IT to maximise market share and position themselves to prosper once the recovery begins.
BT-owned consumer electronics and computing e-tailer Dabs.com this month announced plans to replace its systems developed in-house with an ERP platform from Junction Solutions. The JunctionRES platform, which is based on Microsoft technology, will support business processes such as planning, purchasing, order processing, customer services, returns and marketing.
Dabs.com finance director Neil Catto says: “Those with the lowest cost bases can offer value for money to customers.” He expects the new platform to deliver this low-cost base that – as soon as the market picks up again – will also allow the company to take advantage of the upturn.
Catto adds: “We are definitely looking to invest and don’t see it as a bad time. You can get good value for money in a downturn. BT is backing us to grow and we are trying to put a strategy in place to grow.”
Catto admits that some of the benefits of the change in systems are intangible, such as how customers will perceive better stock availability. However, he says that when the company was working out the return on investment it could hope to receive from the project, intangibles were not costed in – instead they are seen as a bonus. He adds that the whole company is involved in the project and has bought into the benefits it can bring.
He likens the project to changing an engine on a 747 while it is flying. “We want to make sure that there is as little disruption for customers as possible.
The system at the moment has been developed in-house over 17 years. We want to make sure that it is nailed down so there is no disruption.”
However, Dabs.com won’t be taking on more staff to work on the task. Catto says the company already has a reasonable sized development team and is training them further so they can develop on the new Microsoft-based platform.
The project will mean big bang changes initially, but Catto adds that it is not a one-off investment. “There will be a second wave of further development in July next year. We always do invest in our business systems on an ongoing basis, but there will be a change in terms of having a more flexible platform.”
The other growth area is in emerging markets. However, it is not clear whether IT spending will hold up in all of these areas. Earlier this month, Gartner forecast that IT spending within Europe would actually fall next year compared with 2008, and said that while Western Europe would fare worst, even emerging European economies would not experience the IT spending growth levels of the past few years.
The unnamed IT director forecasts that IT budgets will focus on PCI DSS compliance next year, where there is no choice but to spend money, or supply chain projects that offer the chance of quick cost benefits. The earliest that wider IT investment will start coming back, he believes, is 2010 – and that will depend on how quickly sales figures pick up.
IT departments will feel the pinch even more than usual during the coming year and retail IT directors will be expected to make do and mend, just as retailers’ customers find themselves doing.