Report: Retail sector to up IT spending

Retailers are expected to increase their information technology spending in 2003, after a year in which they tightened the purse strings, according to a study released Monday by research firm IDC.

The U.S. retail industry, a sector highly sensitive to consumers' spending whims, is anticipated to increase IT purchases by 2.8 percent to $23.5 billion this year, according to the survey. The slight increase will be a welcome change for IT vendors, who last year saw retailers pull back on spending with a 3.4 percent decline to nearly $22.9 billion.

"The retail industry ended 2002 much weaker than it began the year," said Christopher Boone, program manager for IDC's U.S. retail and wholesale IT spending program, in a statement. "Despite the setback in 2002, we expect retail IT spending to resume growth in 2003 and beyond."

Over the next five years, retailers are expected to increase spending by a compounded annual growth rate of 5.3 percent, according to the study.

"IDC believes that retailers have not recognized a significant (return on investment) from multichannel integration projects on a widespread scale, and therefore they are choosing to spend their current IT budgets in areas that provide more immediate returns, such as store systems," Boone said in his report.

But although Boone anticipates retailers will increase their IT spending, in part due to an improved economic environment, Wall Street analysts hold a different view on the industry.

"We anticipate industry sales weakness to continue through at least October?In fact, industry sales momentum is weakening further following some sequential improvement from mid-December through mid-January," Linda Kristiansen, a UBS Warburg analyst, wrote in a retail sales report.

Analysts note that the war with Iraq, rising oil prices and less than stellar consumer confidence is creating the weak retail spending environment. However, Boone remains optimistic that retailers will increase IT spending.

Late last year, retailing giants like Wal-Mart, Home Depot and Benetton, signed large IT contracts for new technology projects. Home Depot, for example, is investing in a new customer checkout system for its 1,400-store retail chain.