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IT IN RETAIL SECTOR

IT Trends in Retail

Like the rest of the global economy, the retail industry has suffered over the last 24 months.Persistent unemployment and consumer debt have changed consumer behavior and reduced

spending. While some retailers, notably high performing discount retailers, have benefitted fromthese changes, most have experienced conditions that are somewhere between "a challenge" and"a crisis." The industry's reaction has been somewhat predictable: expense reduction (includingstaff reductions), reduced capital programs, and increased focus on inventory control and pricing.What have these changes meant to retail IT?

Alvarez & Marsal (A&M) conducted qualitative interviews with current and former senior informationtechnology (IT) and non-IT executives in the retail sector. These individuals represented more than adozen companies ranging from grocery to specialty retail to "big box" retail. A&M's interviewsfocused on 1) IT's role within the organization, 2) emerging technical trends and 3) IT priorities intoday's environment.

IT's Role

Most executives observed that companies now view IT as a "strategic enabler" rather than a"necessary evil." Notably, the only respondent to report that IT was still viewed as a "necessary evil"works for a company currently experiencing a crisis. While it would be incorrect to blame thecompany's struggles solely on IT, most respondents would agree that IT is poorly positioned to makea difference if they aren't "at the table" and viewed as true business partners. In fact, mostrespondents shared the view that retailers today realize very little can be done without the input oftechnologists and collaboration between IT and "the business."

The change in how IT is viewed carries significant implications. Being "at the table" means IT musthave a strong understanding of the business and the enabling role of technology. One executivedescribed this as "being less of an order taker and having more of a consultant mind-set."Furthermore, this business understanding must be pervasive in IT. "Even (IT) architects need to havea deep understanding of the needs of the business."

Clearly, IT organizations must recruit and develop professionals differently. The days of hiring aCOBOL programmer with the expectation that he will be a "heads down hard coder" for his careerare over. Today's retail IT professionals are technologists, but they're also business analysts /consultants, project managers, and contract negotiators / managers with a global reach andretailers increasingly depend on these capabilities.

Emerging Technical Trends

A few executives acknowledged relevant emerging technologies (e.g., loss prevention solutions,cloud computing solutions), however, most did not see a new "killer app" for retail. Some mentionedthat this was a departure from just a few years ago when new technologies, such as RFID,appeared poised to be game changing for the industry. That isn't to say the executives don't seeopportunities for new technologies. On the contrary, they expressed real excitement aboutcategories of technologies for which they had difficulty identifying specific technical solutions, suchas multi-channel integration and business intelligence.

Executives were clear about one thing: "Customers are shopping for experiences. They comparetheir experience in other service industries and wonder why we can't offer the same thing. It's notgood enough to just know the products or product characteristics they want. We need to knowthem." This statement typified executives' views of the urgency of multi-channel integration and itsdependency on effective business intelligence, but these sentiments were often balanced by views

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that few organizations had meaningfully defined multi-channel integration for their organizations.

Business intelligence also was raised outside of the multi-channel integration context. Whileretailers recognize process efficiencies are still critical in a fast-paced, globally sourced retailenvironment, IT is even more valuable as a way to reach and understand customers and businesspartners. Most of the business-oriented executives A&M interviewed expressed an interest inbusiness intelligence and data/information strategy, recognizing that such technologies can helpretailers understand customers and their preferences, which could be game changing in both the

near and long term.

IT Priorities

"Compliance" - including PCI, HIPAA and broader security considerations - was a clear technicalpriority for many of the executives. And potential reporting requirements and tax structure changesled interviewees to speculate about future changes to POS and financial reporting solutions.

The importance of smart IT investment also emerged as a priority. While A&M expected manyexecutives to report a "do more with less" approach, nearly all respondents indicated theircompanies planned to make strategic and, in some cases, sizable investments in technology -

despite economic challenges. Their focus is not "how can we spend less money?", but "how can weinvest more wisely in IT?" The implication is that another high priority for retail IT will be to establishgovernance mechanisms through which IT and its business counterparts can identify the best ITinvestments.

Conclusion

All-in-all executives were upbeat about the outlook for the retail industry and the opportunity fortechnology and retail IT organizations to make a significant difference for the industry. Executivesbelieve that IT needs to be "at the table" now more than ever and investing wisely in IT is a keypriority. At the same time, while there may be "no killer apps" on the horizon, customers are driving

the emergence of sophisticated technologies that could be game changers. These ideas bode wellfor the retail IT profession, which, in the span of 20 years, has gone from being a necessary evil to akey strategic enabler and business partner in most organizations.

IT has an opportunity to not only make a difference in today's challenging environment, but also tochange aspects of how retailers understand and provide for their customers. One executive shareda cautionary note, however. "While we're rightly working hard to find new and innovative ways toconnect with and understand our customers, we need to take care that our new technologies don'tget between us and our customers. We can't allow technology to commoditize our interaction withcustomers or 'dumb-down' our understanding of them."