Sainsbury's leads retailer IT spend

But many big IT retail names report they have no plans to update aging systems

Retail spending on new technology is set to stagnate, but Sainsbury's plans 2011 upgrade

Retail spending on new technology is set to stagnate, with many of the UK's leading supermarkets and high-street stores reporting they have no plans to update systems which can be up to 20-years' old.

Tesco appears most content with the IT systems it already has in place, according to a report published by specialist retail sector consultancy Martec International last week.

Though its yearly IT investment is still estimated at £200m, the company said it had no plans to replace any of its systems, some of which were first installed in 1997, with the latest upgrade being performed in 2007.

Sainsbury's spends more on IT – £220m per year according to Martec – and has revealed firm plans to update 10-year-old e-commerce, supply chain and store systems in 2011. It will also replace an in-house system for staff time and attendance management in 2012/13. This was first installed in 1995.

Martec practice manager Frances Riseley said that many retailers do not like to reveal their IT upgrade plans for fear of alerting rivals to their intentions and opening the door to unwanted sales pitches from hardware and software vendors.

Of the 142 UK retailers polled, 19 per cent refused to reveal their top IT investment priorities on the basis that these were either too commercially sensitive or they had not yet formalised their IT plans for the next three years.

Marks & Spencer spends an estimated £180m a year on IT, followed by Morrisons (£100m), Asda (£80m) and Waitrose (£60m). Figures for the Co-op are harder to accurately assess because the retailer splits its organisations into multiple regional operations.

M&S updated its store and data warehouse systems in 2008/09, with further upgrades to its 15-year-old supply chain software set for 2011 and a migration of its 20-year-old merchandise management platform to SAP already underway. Morrisons performed a sweeping upgrade to most of its IT infrastructure in 2009, following its acquisition of Safeway in 2004.

Part of the John Lewis Group, Waitrose updated its e-commerce platform this year, and its store and customer relationship management (CRM) systems in 2006 and 2003 respectively, while its supply chain/logistics applications date back to 1992.

The average age of the systems in place at all UK retailers varied from almost 11 years for merchandise management, to four-and-a-half years for e-commerce platforms, though up to five per cent of retailers are set to implement e-commerce software for the first time.

Sainsbury's leads retailer IT spend

But many big IT retail names report they have no plans to update aging systems

Martec managing director Brian Hulme said that the current economic climate has certainly forced some retailers to put off major IT upgrades, but added it was good news that so many were at least planning new rollouts over the next three years.

"Lots of retailers have important infrastructure upgrades which they have been deferring for the time being, but there comes a moment when they will just have to get on with it," he said.

"Many are focused on IT projects that help retailers drive productivity of the stock they already have, like staff management and supply chain, for example."

"We have certainly deferred IT projects [due to the economic climate], though I cannot recall which," said John Bovill, CIO at Aurora Fashions, which owns the Oasis and Warehouse chains in the UK, among others.

"But cost-cutting can be a good idea for a short spell and help in some ways but it also creates risk – you cannot put off major infrastructure upgrades for too long."

Bovill is happy with Aurora's current network, electronic point of sale (EPOS) systems and CRM infrastructure, for example.

But he says the company will look to improve its IT-based multi-channel projects; elicit more accurate information from customer details for marketing purposes; collaborate with rival fashion retailer Thomas Pink on software development; and work with technology and other providers to improve its supply chain efficiencies.

"The software-as-a-service (SaaS) model means upfront costs do not have to be high, in many cases," he said.

"Retailers negotiating new [IT contract] deals now can get a good price, while some retailers are getting rid of UK-based contract programmers and replacing them with offshore equivalents at lower day rates," said Hulme.

Tesco already makes extensive use of offshore IT resources in Bangalore for system support, supplemented by systems integrator Steria for legacy supply chain and merchandise management systems dating back to the mid-1980s.

Martec lists the top IT investment priorities for all retailers as in-store systems (including EPOS, back-office applications and wireless handheld devices), supply chain/logistics apps, and web/e-commerce platforms.

The Martec IT in Retail 2010/11 report was sponsored by multi-channel specialist arm of BT, BT Expedite & Fresca, and is sold to retailers for £5,000 a time.

It estimates that UK retailers will spend on average 1.1 per cent of their total sales revenue on IT in 2010, the same as estimates in 2009, but down from 1.3 per cent in 2008. For example, at the bottom of the scale, Bargain Booze will spend 0.2 per cent (£700,000), while the retail arm of Vodafone will spend 7.6 per cent (£1.9m).