Focus on customer service and product forecasting drives spend

Confidence is rising among UK retail IT departments, with spending in 2004 expected to grow from last year's £4.15bn to more than...

Confidence is rising among UK retail IT departments, with spending in 2004 expected to grow from last year's £4.15bn to more than £4.5bn, according to the Computer Weekly IT Expenditure Report, produced by Kew Associates.

The focus of spending is set to change significantly in coming years, moving towards improving customer service rather than squeezing savings from back-office systems, according to industry experts.

Many retailers have been spending in an attempt to emulate Tesco and Wal-Mart, which have the best supply chain operations in the world, said Tom Friedman, chief executive of retail IT consultancy Retail Systems Alert.

However, he said, retailers will catch up - especially when radio frequency identification (RFID) standards are ratified.

"The supply chain is essentially a network and there is not much money to be saved anymore," Friedman said. "The real money can be made in merchandising and forecasting.

"IT suppliers have been talking about innovative front-end systems for some time, but not many retailers have done anything. However, this will be the focus over the next five years."

The aim of companies in the ultra-competitive retail market will be to more closely tie the store to the needs of the customers.

"The high street in the UK is pretty unique, based as it is on chain stores, rather than independents, and chains generally have no idea what the customer wants," Friedman said.

"Technology can help, although it has to be opt-in and based on a value proposition."

Discussions about "customer intimacy" have been going along for some time, but retailers need to improve their management of product catalogues before it can be achieved, said Richard Hull, retail IT consultant at Cap Gemini Ernst & Young.

"How retailers are going to manage information is a big issue, given their struggles with reporting data efficiently - there are always different versions of the truth," he said. "There is going to be more outsourcing of data to third parties such as Dunhumby [which works with Tesco on its Clubcard scheme]."

IT outsourcing is likely to grow, according to Friedman. "The outsourcing debate has moved on to what people are calling 'smart-sourcing'."

"It is no longer about cost, but about focusing on core activities. In some cases it may even be more slightly expensive to outsource, but it will make more sense to have it done by experts."

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