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Retailers worldwide accelerate IT spending

A new survey says retailers worldwide will spend $31 billion in new IT investments.

The Targets and Home Depots of retailing have long known the road to success is paved by technology. Now their...

midmarket brethren around the world are getting the message, too.

A new survey from AMI-Partners in New York shows that IT spending by midmarket retailers worldwide will grow from $22 billion in 2004 to $31 billion in 2009, an annual compound growth rate of 7%. That's up from the previous five-year period, when IT spending among midmarket retailers grew an average 5%, from $18 billion in 1998 to $21 billion in 2003.

The survey found that midmarket retailers will spend $161 million on ERP and supply chain management software in 2005 alone, with the bulk of that, or 80%, spent by firms in the mature market. Investments in customer relationship management (CRM), wireless networking and Web hosting are expected to reach $679 million by the end of 2005 and grow to $946 million by 2009, a 9% compound annual growth rate.

"What is interesting is the contrast in what is happening in the mature markets and emerging economies, such as India and China, said Deepinder Sahni, senior vice president for AMI-Partners.

The survey, which examined the spending patterns of roughly 1,000 midmarket retailers across 12 countries, defines the midmarket as firms with 100 to 999 employees.

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Midmarket retailers in mature markets are looking for technology that will help them acquire and keep customers, as they battle for market share in both the brick-and-mortar and online environment, Sahni said.

"Retailing in the mature markets is becoming very segmented and tuned to a specialty audience. A bicycle business on the Web, for example, not only sells you the gear and the apparel, but lets you read about good stretches to do," Sahni said.

Niche retailing in mature markets increasingly depends on computer technology, from Web site development and credit card transactions to segmentation of the customer base, Sahni said. This is driving investment in CRM technology, business intelligence, data warehousing, wireless and online transaction solutions, according to the survey.

In developing markets such as India and China, the traditional mom-and-pop shops that account for the bulk of the retail sector are facing competition from "newly minted entrepreneurs that have scaled to midsized businesses," Sahni said. Modeled on western-style formats, the larger stores generate more sales per square foot, and their proprietors are finding technology a useful partner.

"In order to manage the volume, the stock-keeping units, they are deploying what in that part of the world would be defined as newer technology -- bar codes, scanners, point-of-sales and back-end accounting systems," Sahni said.

Not surprisingly, the pace of IT spending by small and midsized business retailers in the emerging markets over the next five years will surpass that in mature markets, according to the survey, with IT spending by emerging country retailers growing an average 11% annually, compared to an average 6.5% growth in spending by mature market retailers.

The growing appetite for IT among midmarket retailers has not gone unnoticed by major vendors. Microsoft, IBM, SAP AG and Oracle Corp. are tripping over each other to roll out the next best product for the SMB retail sector. In recent weeks, for example, Microsoft unveiled Microsoft Point of Sale, marking its entrance into the smallest corner of the SMB market with a product designed for retailers with only one store. Meanwhile, Oracle beat out SAP in a battle to acquire Retek Inc., a Minneapolis-based software company that is popular with the midmarket.

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