Security concerns, new technology spur retailers to increase IT budgets

Large retailers plan to increase their overall information technology expenditures by 7 percent, according to an annual study. In addition, from a technology investment perspective, retailers are increasing capital expenditures by 6 percent. These expenditures include investments in store systems such as point-of-service, kiosks, and other customer-facing technologies.

For companies with revenues in excess of $5 billion, IT spending as a percentage to total revenues was 1.3 percent in 2005, according to the “IT Budget Benchmarking Survey,” conducted by the National Retail Federation and AMR Research. Companies with revenues between one and five billion dollars, reported total IT spend as a percentage of revenues was 1.7 percent in 2005.

The survey of chief information officers from 34 of the nation’s leading retailers, with combined annual revenues of $224 billion, also found that headquarters hardware maintenance and support outsourcing is expected to grow 24 percent from 25 percent in 2005 to 32 percent in 2006.

Budgets for IT security are expected to increase 34 percent and IT compliance budgets are anticipated to grow 7 percent in 2006, according to the study. Companies with revenues of more than $5 billion grew their IT security and compliance budgets 34 percent and 19 percent, respectively. Much of this increase is due in part to retailers trying to comply with payment card industry data security standards.

Mainly all IT operational costs such as hardware maintenance, networking, telecommunications, software infrastructure and maintenance saw positive growth. Hardware maintenance and software infrastructure are expected to grow 11 percent for their FY 06 budgets. Companies with $5 billion or more in annual revenues expect to increase hardware maintenance and software infrastructure, 12.3 percent and 15.1 percent, respectively.

“This increase really is not surprising when considering how dated some systems are,” said Dave Hogan, NRF chief information officer. “Retailers used Y2K as their main reason for investing in new technology. That equipment is now almost a decade old—this is a completely normal buying cycle for store systems.”

During a live webcast recently in which AMR and NRF announced the results, the IT executives who participated were polled and asked what was their change in IT spend from the previous year anticipated for security. Of those who answered, nearly 76 percent are either increasing significantly or increasing moderately.