THE NEWSMAGAZINE FOR RETAIL EXECUTIVES October …THE NEWSMAGAZINE FOR RETAIL EXECUTIVES ... The...

IT2002

RETAILMore Demands,

Less Money;

How CIOs Cope.

October 2002/ Section TwoT H E N E W S M A G A Z I N E F O R R E T A I L E X E C U T I V E S

CHAIN STORE AGE ®

21st Annual

Survey of

Retail Information

Technology

RETAIL IT 2002

CHAIN STORE AGE, OCTOBER 2002

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When we at Deloitte Consulting agreed to undertake the 2002 Survey of Retail Information Technologyfor Chain Store Age, we knew our involvement with this comprehensive study would yield mountainsof data valuable to retail leaders, above and beyond the rich array of information Deloitte offers already.

We were not disappointed. The results of the survey aptly illustrate the burden retail executives suffer beneathtoday. A hard-luck economy has brought every dime of retail spending under scrutiny. Much of this scrutiny set-tles on IT where, in some cases, projects are not readily tied back to a quantifiable ROI. CIOs are left with theunenviable task of convincing their fellow management why certain technology products are indeed important,indeed necessary.

Oftentimes, the projects that are the most likely to win management approval are the short, quick-hit projects thatgenerate an ROI quickly. These are the projects that are receiving the bulk of CIOs’ attention, frequently at theexpense of more expansive, longer-term projects that prepare for future growth.

The growing scrutiny of IT spending has not driven back budgets. According to our survey respondents, retailIT spending is holding steady, even climbing in some cases. A large proportion of investment goes toward thePOS, which is rising in popularity as a CRM tool. New POS technology makes the cashwrap the ideal place tomake the customer shopping experience more robust. Investment dollars also are going toward upgrading ITinfrastructure and data warehousing, in part to support the evolving functionality of the POS.

But there’s more: While the tough economy has suppressed IT spending growth, its impact on store growth hasbeen muted by comparison. Retailers are still expanding their chains while calling upon their CIOs to minimizespending. This discrepancy amply illustrates the pressure CIOs are under to accomplish more with fewer resources.

Greater details of this challenge, and the way retailers are meeting it, appear on the following pages. More than100 captains of retail IT shops shared their insight and experiences to be processed into what is arguably themost insightful study of retail IT trends this year, a study Deloitte Consulting is proud to have produced. We thankour survey respondents for their effort and contribution.

Happy reading,

Ed Spangler,Director, Global Retail Practice, Deloitte [email protected]

PrefaceThe year is typified by careful budgeting

and a short-term view

ContentsData Warehousing: Keeping It SimpleRetailers seek to reduce costs and increasedata integrity by merging databases.

Merchandise Applications: Using the Past to See the FuturePrice-optimization, planning and allocationsolutions attract CIOs’ attention.

Supply Chain: Keeping It MovingWarehouse, CPFR and logistics solutionslead the way in investment.

Coming AttractionsWireless networks, RFID and kiosks arepoised to break out.

Blueprints for Successful ITAn IT blueprint is required to effectivelymanage the chaos.

Over the HorizonThe changing role of IT

Survey MethodologyHow the results were compiled

Microsoft .NET Fills the Retail Knowledge Gap10 ways Microsoft .NET can improve yourbusiness

Acknowledgment

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Preface - A Letter From Deloitte ConsultingThe year is typified by careful budgetingand a short-term view.

The Moore’s Law ParadoxSoftware development is not keeping pacewith computer power, and that’s a problem.

Overall Spending: Going for the Short GainInvestment dollars are flowing, but CIOs arereluctant to commit to long-term projects.

POS: Ringing Up InvestmentSeeking improved reliability and CRM, CIOs are turning toward the cashwrap.

Infrastructure: Holding the FortA broadband shortage obstructs CIOs’efforts to expand connectivity.

The Case for Portfolio ManagementLike financial investments, the IT portfoliomust be balanced.

Real-Time Transaction Data: What Will You Do With It?A new solution from Intel leverages POSinformation.

Real-Time Transaction DataHow the POS can add enterprise visibility

Outsourcing: Leave It to the ExpertsLetting outside firms handle peripheral ITfunctions remains a compelling option.


RETAIL IT 20024A

T he job of the CIO and the roleof technology in retail organ-izations has never been morechallenging, more complex

or more mission-critical. CEOs canno longer delegate the responsibilityfor technology to their IT departmentsand hope they get it right. The stakesare simply too high and the conse-quences for the business too great. Likeit or not, technology now lies at theheart of the enterprise.

So what, you might ask, has changed?First and foremost, the price of com-puting power fell dramatically. Com-puter performance that would have cost$35,000 in 1980 fell to $2,000 in 1994and can be purchased for less than $100today. At that price, computing powerhas become ubiquitous. Graphical userinterfaces made this technology all themore usable by associates with littlespecial training.

No longer is information technologythe sole domain of tech gurus. Liberatedby the power of Moore’s Law—the rulethat says new computer processors dou-ble in speed every 18 months—IT hasslipped out of the tightly controlled,raised floor, protected environment ofthe technologists and become accessi-ble to all retail executives. Despite thegreat improvements in technology priceperformance, the domain of Moore’s

Law remains confined to the area ofhardware.Limits to Growth: Speed Bumps of

the Information SuperhighwayWhile the user end of technology has

grown less complex, the back end ofthe technology has grown dramaticallymore complex. Moore’s Law, whichhas driven dramatic improvements incomputing power, doesn’t apply to soft-ware. This is the first dimension of theMoore’s Law Paradox.

Entropy drives software. Over timesoftware goes from order to disorder.This dimension of software means thatover time, without the intervention ofoutside energy, software tends to getworse instead of better. The more usersthat depend upon a particular system ortechnology, the greater the incentivesnot to change it, which implies morelegacy systems, not fewer. Dealing withthis complexity is going to be one of thebiggest challenges facing retailers.

Software tends to start out fresh, aus-tere and almost puritanical, and over timeit becomes bloated and sluggish. Legacysystems were always old COBOL sys-tems that ran on mainframes. It’s hard tothink of the PC desktop as a legacy sys-tem, but that is what the idea of Webservices proposes to make of it. Giventhe level of financial, emotional andpsychological investment in the desktop,

replacing it with something new is goingto be an enormous challenge.

The Case for Web ServicesThe most important set of business

decisions that retail CEOs will have tomake over the next two years will dealwith the role of Web services. In our sur-vey, 77% of the respondents either haveplans or are in the process of adoptingsome form of Web services. This deci-sion comes down to whether or notretailers want to make large capital ex-penditures now and have lower mainte-nance costs going forward. Or developthe concept with minimal capital invest-ment now but higher future maintenancecosts using thin-client server technology.

When Microsoft introduced its thin-client server vision for Web services,“Dot-Net,” two years ago it put every-thing in the clouds. Your data is in theclouds; your programs are in the clouds.Now, access to your data can take placefrom anywhere and from any device, atany time. However, universal access toyour data raises a critical question: Whatwill be the killer retail application forthis new technology?

Finding the killer application for anew technology is like finding the potof gold at the end of the rainbow, andjust about as elusive. And yet, as diffi-cult as it is to do, some lucky fools thatwe like to call entrepreneurs manage to

RETAIL IT 2002


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Software development is not keeping pace with computing power, and that’s a problem for CIOs

The Moore’s Law Paradox


stumble upon the killer applicationand make a bundle. For retailers, thekiller applications for Web serviceswill evolve around merchandising,pricing and inventory control, as smallimprovements in any of these areas willproduce large benefits.

The Changing Nature of ChangeSecondly, the nature of technological

change itself has changed. Wherechange in the past was predictable, con-trollable, simple and understandable,change is increasingly unpredictable,uncontrollable, complex andincomprehensible. Change is outof control because informationtechnology is transforming theeffective structure of all organi-zations. Retailers can no longerfunction effectively as commandand control hierarchies withcontrol and information at thetop of the pyramid. They need totransform themselves into sometype of network where real-time information can be widelyshared and action is based noton the power to control but theaccess to information and know-ledge.

This technology-driven dilemma overorganizational structure is only going togrow more severe over time. As the useof technology increases, the need for allindividuals within that organization to bemore sociable in order to be effective alsoincreases. The more technology youhave, the more sociable you need to be inorder to be effective. This is the seconddimension of the Moore’s Law paradox.This need to shift from a hierarchy to anetwork for greater organizational effec-tiveness has led many retail organizations

to consider outsourcing at least part oftheir IT function. Few retailers seem tohave grasped this implication, as only asmall minority of our survey groupadmits to having either plans for, or beingin the process of, implementing any formof outsourcing.

The Productivity ParadoxThe dramatic growth in the use of

technology within retail and other busi-ness organizations has created an unusu-al and unprecedented productivity para-dox. Traditionally, productivity and prof-

itability have moved together. Moreinvestment in productivity-enhancingtechnology produced greater profitability.That was the case up until about 1997. Atthat point, productivity accelerated whileprofitability declined. This is the third legof the Moore’s Law paradox.

The strong growth in productivityresults in capacity growing faster thandemand. The gap between businesscapacity and actual growth is openingup a gap that creates an oversupply ofeverything. The end result is deflation.

What was once the exception for con-sumer electronics is now the reality for abroad range of product categories sold atretail. From tires to autos; from apparelto footwear; from home furnishings andjewelry to toys and packaged goods;prices are slowly edging lower due to theexplosive growth in productivity.

In a deflationary environment, fallingprices accentuate any decline in businessvolume. The only way to make up for theloss of revenue is to move more volume.That creates a “sell-now” mentality on

the part of retailers. The easiestway to move more volume is tomark it down further, resulting ina deflationary cycle as lowerprices create an even greaterneed for lower costs, which intime feed back into still-lowerprices.

The marketplace impact ofthis third dimension of theMoore’s Law paradox meansthat retailers are likely to be dis-appointed in the return on invest-ment they will be getting fromthe investments they will bemaking in technology. This isnot to say that these investments

should not be made, although it mayexplain why overall investment in tech-nology remains relatively depressed.Technology remains only a necessary,but not a sufficient, condition for retailand business success. �

RETAIL IT 2002The Moore’s Law Paradox

Source: U.S. Department of Commerce

l l l l l l l1970 1975 1980 1985 1990 1995 2000

The Moore’s Law Paradox: Profits and Productivity

% Change Productivity % Change Profitability5 —

4 —

3 —

2 —

1 —

0 —

-1 —

-2 —

— 50

— 40

— 30

— 20

— 10

— 0

— -10

— -20

Productivity Profitability

Dr. Carl E. Steidtmann is Chief Eco-nomist for Deloitte Research and is anationally recognized expert oneconomic forecasting of retail salesactivity, consumer trends, technologyand general economic trends.

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Q uick-hit initiatives and smartspending remain the nameof the game in retail tech-nology this year. While no

retail CIO has it easy, most aretrying to make the best of a bad situa-tion by honing in on those projects thatwill do the greatest amount of good inthe shortest amount of time. Such arethe findings of Deloitte Consulting’s2002 Survey of Retail InformationTechnology.

While this is no great change from2001, it represents a 180-degree turnfrom the recently deceased dot.com era,when retail CIOs undertook sprawling,ambitious, long-term implementations,not all of which guaranteed returns oradhered to common business sense.

Today’s retail IT leaders err on theside of caution, eschewing any long-termIT commitments in favor of quicker,smaller projects. While this strategy ishard to criticize in an economy that pun-ishes companies for delaying profits,retailers may pay the price in terms offuture growth.

The overwhelming majority of respon-dents to Deloitte Consulting’s survey—93.1%—anticipated that their IT budgets

would either remain the same or rise in2003. Only 6.9% expected their budgetswould shrink.

However, those numbers don’t tellthe full story. Survey results indicatedthat retailers plan to increase their ITcapital expenditures in 2002, averagingaround $9 million as compared to $8million last year, about a 12% increase.Furthermore, most of that $1 million gaincomes from those merchants with thegreatest freedom to spend: the verylarge ones, with revenues topping $5billion. Their capital expenditures intechnology will average $41 millionthis year, vs. $36 million last year.Overall retail IT operating expenses areexpected to remain flat, averaging $11million in 2002, the same as last year.

The findings are consistent with apoll of retail IT leaders conducted at theNational Retail Federation’s NRFtechtechnology-leader summit recently heldin San Diego. Forty-three percent ofrespondents said that their IT spendingnever slowed down, and 22.0% saidtheir spending already has increased.Five percent expected to raise their ITbudgets in 2003.

Deloitte Consulting’s numbers shed

RETAIL IT 2002


“The economy is

such that nobody can

afford to wait for their

investments to pay for

themselves. They

want the ROI now.”Jeff Orton,

CIO,

Wilsons The Leather Experts

Investment dollars are flowing, but CIOs arereluctant to commit to long-term projects

Overall Spending: Going for the Short Gain

7A


further light on the subject: The scar-city of any significant IT spending in-creases this year is starkly contrastedagainst the fact that retailers are stillgrowing their chains. Respondents toDeloitte’s survey said they expect toincrease their store counts by an aver-age of 8.0% this year.

The fact that store counts are risingwhile IT budgets remain steadyspeaks volumes about the overallstrain retail CIOs are enduring. Thenumbers amply demonstrate that CIOsare being asked to accomplish morewith their existing resources. In somecases, they’re even being asked to domore with fewer resources. Most ofthe 6.9% of survey respondents ex-pecting cost cuts in 2003 said theywould accommodate their reducedbudgets by either cutting staff or out-sourcing some technology functions.Some said they’d shift toward sharedservices or find some other way toreduce expenses.

Helzberg Diamond Shops Inc. VPof IT Butch Jagoda says that as far as

IT spending goes, retailers are pro-ceeding with caution and scrutiniz-ing every purchase. “Given the sloweconomy, retail CIOs are focusing onthose solutions that the businessneeds. They’ve got to pick and choosetheir technology investments verycarefully. If they only want it anddon’t need it, it’s not enough to justifybuying it,” Jagoda says.

Retailers’ reluctance to increasetheir IT budgets this year also wasvocalized by Carrefour CIO JeremyHollows at MoonWatch Media’s Glo-bal Retail Technology Forum held inParis this past spring. “Despite whatthe press is saying about IT budgetsbeing up, by the end of the year you’llsee that retailers spent less than lastyear,” he told conference-goers dur-ing his keynote. “I don’t think manyretailers are going to do wall-to-wallprojects, either.”

Hollows’ latter observation is espe-cially telling. While some retailers haveundertaken extensive IT projects thisyear, the overwhelming majority have

chosen to proceed with greater cau-tion, choosing instead implementa-tions than can both be completedspeedily and deliver an ROI quickly.Given a sluggish economy and in-creasing pressure from their respec-tive CFOs, retail CIOs are loathe tostick their necks out for any projectthat will consume internal resourceswithout a guaranteed, speedy paybackin the offing.

J.C. Penney executive VP and CIOSteve Raish perceives this trend not asa paradigm shift, but a deepening ofthe prevailing strategy among retailCIOs. In June, he told Chain StoreAge “I see [the shift toward quick-hitprojects] as a slight ratcheting up.And I get the same sense from someof my counterparts.

“We’ve never had a lack of focuson ROI for technology, and, in fact, asfar as I know we’ve never done a tech-nology effort that we couldn’t put areturn on,” he added. “The emphasison prioritizing investments for quick-er returns—we certainly feel that.”

RETAIL IT 20028A

Overall Spending: Going for the Short Gain

LargeGeneral Home Drug Other

Total Supermarket C-store Merchandise Apparel Improvement Store Specialty

Less than $50K 3.0% — — — — 6.3% 18.2% —

$50K-$249K 25.7% 13.6% 45.5% 18.2% — 43.8% 27.3% 46.2%

$250K-$999K 20.8% 18.2% 27.3% 18.2% 29.4% 25.0% 9.1% 15.4%

$1M-$2.9M 11.9% 4.5% 18.2% — 11.8% 6.3% 27.3% 23.1%

$3M-$9.9M 15.8% 31.8% — — 35.3% — 9.1% 15.4%

$10M+ 19.8% 27.3% 9.1% 54.5% 23.5% 12.5% 9.1% —

Note: Some percentages don’t total 100% because not all companies reported.

Total expected IT capital expenditures for 2002, by sector

Another executive who can attestto retailers’ insistence upon a quickROI for any current technology im-plementation is Jeff Orton, CIO ofWilsons The Leather Experts. “Onthe whole, retail CIOs just aren’t tak-ing chances on anything that won’tdeliver a return in the short term,” hesays. “The economy is such that no-body can afford to wait for their in-vestments to pay for themselves.They want the ROI now.”

This sense of urgency is reflectedin Wilsons’ IT budget. All in all, thecompany’s IT budget remains flatthis year, Orton says, with less than1.0% of Wilsons sales allocated to IToperating expenses.

“We’re definitely trying to accom-plish more with fewer dollars,” Ortonadds. “We’re still making strategicinvestments, but the key word there is‘strategic.’ We’re making investmentswhere we see value, but if I can’t tiea project to an ROI, we’re not spend-ing on it. I think that’s pretty repre-sentative of what everyone’s doing atthis point.”

While every executive would agreethat potential ROI is a key indicatorof whether or not a proposal shouldbe acted upon, most concur that it isnot, nor should not be the sole, crite-rion for justifying an initiative. In theNRFtech poll, 46.0% of respondentsfingered financial justification, ROI,cost benefit and/or EVA as their topmeasurement of product justification.Thirty-eight percent said their pri-mary indicator of whether or not a

project makes sense is the strategicnecessity of the project. Another 16.0%cited user priority as their key meas-urement.

Despite the pressure placed onCIOs to conserve funds, most arefinding there are a few investmentsthat indeed their businesses can’t dowithout. Investments in infrastructureand applications are among the mostpopular ones, according to DeloitteConsulting’s survey. Eighty-two per-cent of respondents said that some of

their capital expenditures would gotoward infrastructure improvementsthis year. On the whole, CIOs expectto allocate 28.4% of their capitalexpenditures to infrastructure invest-ments in 2002. That’s a significantamount, considering retail CIOs oftenhave a hard time cost-justifying in-vestments in infrastructure, whichgenerate no quantifiable ROI of theirown but support other technologiesthat do.

Another factor depressing retailIT spending is a relative unavailabil-ity of bandwidth. Retailers, especial-

ly ones that operate nationwide, arehaving difficulty finding telecom-munications providers that can ful-fill their broadband needs acrosstheir entire chains (see story, page12A).

“Because so much emerging retail-oriented technology hinges uponbroadband, a lot of retailers are de-laying technology purchases untilbroadband is more available,” saysCathy Hotka, VP of IT for the Na-tional Retail Federation. “The dial-up

connections frequently used todayjust don’t have the capacity or thepersistence to carry the amounts ofdata new solutions are capable ofdelivering.”

The bandwidth shortage affects in-store systems the most, as the chal-lenge CIOs face is in extending band-width to the store.

“We’re definitely seeing a hugepent-up demand for new solutionsthat will probably explode once thetelecommunications providers be-come more adept at making broad-band available,” Hotka adds. �

RETAIL IT 2002


9A

Under $50M $50M-$199M $200M-$499M $500M-$4.9B $5B+

Less than $50K — 9.5% — 2.6% —

$50K-$249K 66.7% 52.4% 25.0% 15.8% —

$250K-$999K 16.7% 33.3% 35.0% 15.8% —

$1M-$2.9M 16.7% — 30.0% 10.5% 6.3%

$3M-$9.9M — — 10.0% 34.2% 6.3%

$10M+ — — — 18.4% 81.3%

Note: Some percentages don’t total 100% because not all companies reported.

Total expected IT capital expenditures for 2002, by revenues


The point of sale remains amagnet for retail IT invest-ment, and it’s not hard to seewhy; as a mission-critical sys-

tem and the technological componentthat most directly affects the customer,retailers want to make sure they’reequipped with the best and most reliablePOS possible. Also, improvements inthe ability of the POS to enhance thecustomer experience feeds CIOs’ desireto have the latest and greatest technolo-gy at the cashwrap.

A full 62.4% of respondents toDeloitte Consulting’s retail IT surveysaid that some of their capital spendingdollars in 2002 would go toward POSupgrades. Apparel retailers proved espe-cially keen on improving their POS sys-tems, with an overwhelming 94.1% of

apparel respondents vowing to spendmoney there this year. Miscellaneousspecialty stores were similarly intent onupgrading the POS in 2002; A full92.3% of respondents from that sectorsaid it was part of their plans.

The findings are corroborated by sim-ilar numbers that emerged from a poll ofretail IT executives carried out at theNational Retail Federation’s NRFtechconference recently held in San Diego.Sixty-nine percent of respondents to thatpoll said they planned to replace theirPOS system over the next 18 months.The executives replacing their POS wereroughly evenly divided on whether ornot they’d go with a thin-client architec-ture. Forty-six percent did, indeed, planto choose a thin-client solution.

One retailer that recently invested in

its POS is 7-Eleven. “Our POS is prob-ably the strongest platform we have,”says company VP of IS Keith Morrow.He notes that the company spent a gooddeal of effort upgrading its homegrownPOS platform this year with the addi-tion of check verification and money-order support to the registers at its 5,300stores nationwide. The retailer also aug-mented its POS with debit-card PINpads and signature capture devices fordebit-card purchases.

“Part of being a convenience retailer isallowing our customers to pay in what-ever method makes the most sensefor them,” Morrow explains. “We expectour POS investment will pay off divi-dends in terms of customer service.”

POS investment also is at the fore-front of the mind of J.C. Penney exec-utive VP and CIO Steve Raish. InJune, he told Chain Store Age that theaging of the merchant’s 12-year-oldPOS systems is prompting the compa-ny to look for a replacement.

The merchant’s POS would havelikely burned out a long time ago if notfor Penney’s fastidious efforts to keep itup to date. Raish said, “My predeces-sors in IT have done a terrific job inexpanding the life expectancy of thatsystem by converting to thin client anddoing a lot of clever things with the

RETAIL IT 200210A

Seeking improved reliability and CRM, CIOs are turning toward the cashwrap

POS: Ringing Up

Supermarket

Convenience store

Large general merchandise

Apparel

Home improvement

Drug store

Other specialty

Percentage of retailers investing in POS in 2002, by segment

50.0%

54.5%

72.7%

70.6%

50.0%

72.7%

76.9%

back room and network architecture.“We are reaching the physical limi-

tations of that equipment, and we havean active project in place to evaluateand eventually replace our POS systemboth at the point of sale and in the backroom,” he added.

The retailer also is investing in ther-mal printers to speed up transactiontimes at the POS. J.C. Penney alreadybought them from NCR Corp. earlierthis year and is connecting them toits existing POS systems. The printersalso will be compatible with any POSunits J.C. Penney buys.

Raish has no illusions about the mag-nitude of the commitment J.C. Penney ismaking by migrating to a new POS sys-tem. That’s why Raish is taking his timeevaluating the shortcomings of the retail-er’s existing POS, and the various solu-tions available. He said the evaluation is“an expensive proposition. We want tomake sure we get it right when we do it.”

Thin-client POS solutions, in particu-lar, are poised to break out. The architec-ture has a lot going for it, for example itsease of maintenance and upgrading, andits ability to access vast stores of infor-mation from the data center. This latterbenefit can be used to power robust cus-tomer-relationship-management (CRM)applications at the POS. Thin-clientarchitecture is especially effective forretailers with many POS units per store,as every one of them can receive soft-ware upgrades remotely, as opposed to

stand-alone units which generally requirein-person attention for the same task.

Ken Harris, CIO of The Gap, saysthe apparel retailer recently began asmall pilot of a Java-based thin-clientPOS system. However, the solutioncomes with a twist: The units are hostednot from The Gap’s San Francisco head-quarters, but from a server in the store’sback office.

Although The Gap’s stores alreadyare equipped with frame-relay connec-tions that are more than capable of han-dling the burden of centrally hosted POSapplications, Harris says he’d prefer notto make the POS dependent upon thoseconnections. “Hosting the POS remote-ly adds a whole layer of risk we’d justrather do without,” he says. “If the con-nection goes down, so does your POS,which means you aren’t making anytransactions until it’s back up.”

Improved customer service is themain motivation behind The Gap’s pilotof thin-client POS. Harris believes thatthe thin-client architecture can speedthrough customer transactions faster

than through the standard POS units. One factor inhibiting thin-client POS

architecture especially and POS invest-ment in general is the relative unavail-ability of broadband solutions to retaillocations. A large proportion of thevalue retailers get from new POS sys-tems comes from the increased insightthey give management through theirdata-collection capabilities. But thosecapabilities are compromised withoutadequate connectivity. A retailer needsa constant broadband connection inevery store to capitalize on the fullpotential of the modern POS, but for anumber of reasons, retailers have foundbroadband difficult to deploy chainwide(see page 12A).

“A lot of retailers are putting off POSpurchases until broadband becomesmore readily available,” says NationalRetail Federation VP of IT Cathy Hotka.“The pent-up demand for new POS isabsolutely ferocious. We could put ourfinger on tens of thousands of units thatwill roll out once the broadband issue isresolved.” �

RETAIL IT 2002


11A

InvestmentLess than $50M

$50M-$199M

$200M-$499M

$500M-$4.9B

More than $5B

Percentage of retailers investing in POS in 2002, by revenues

83.3%

61.9%

50.0%

60.5%

75%


Infrastructure requirements continueto command a sizeable chunk ofretail CIOs’ attention and spendingdollars. But during a challenging

time when every expense is under scrutiny,many retail IT leaders are having difficultyexplaining to management why these in-vestments are necessary.

Deloitte Consulting’s IT survey indi-cates that 82.2% of retail CIOs allocatedsome of their capital spending dollars toinfrastructure needs in 2002. The execu-tives who plan to make capital expendi-tures in infrastructure this year reportedallocating 28.4% of their capital investmentdollars to infrastructure.

Upgrades to desktop computers wereone of the most popular infrastructureinvestment options among respondents,with 71.3% indicating they spent some oftheir capital investment dollars there.Implementations and upgrades of wide-area networks (WANs) and local-area net-works (LANS) proved a popular choicetoo, garnering capital-expense dollars from61.4% and 63.4% of respondents, respec-tively. Other infrastructure areas that oftenreceived capital-expense dollars from re-tailers are data centers (47.5%) and radio-frequency technologies (42.6%).

Infrastructure requirements are com-manding a sizeable proportion of retailers’

IT operating expenses, too. Respondents toDeloitte Consulting’s retail IT survey indi-cated that 29.2% of their operating expens-es will go toward shoring up their infra-structures this year. That’s roughly thesame proportion retail CIOs spent oninfrastructure last year.

According to the survey’s findings, thepercentage of operating expenses CIOsdevote to IT infrastructure is inversely pro-portionate to the size of the company.Merchants with fewer than $50 million inannual revenues plan to allocate 36.0% oftheir operating expenses to infrastructure, agreater percentage than that of any otherretailers. Companies with more than $5billion in revenues devoted the lowestpercentage to infrastructure: 26.2%.

The difference was more pronouncedlast year, when small retailers allocated41.5% of their operating expenses to infra-structure, and very large retailers, 25.2%.

National Retail Federation VP of ITCathy Hotka agrees that smaller retailers arespending proportionally more of their oper-ating expenses on infrastructure than largeones, and she offers two reasons why thatshould be. The first is that large retailerssimply have many more retail systems thansmaller ones do. “If you look at the numberof line items for a large retailer’s IT spend-ing, it will be a lot more than the number of

RETAIL IT 200212A

“Retailers are

making do with the

bandwidth they have,

but they know

broadband will open

up so many more

opportunities for

them.”Cathy Hotka,

VP of IT,

National Retail Federation

Infrastructure:A broadband shortage obstructs

CIOs’ efforts to expand connectivity

line items for a small one. The large retail-ers simply have a lot of technology expens-es a smaller retailer wouldn’t have, and thatmakes their infrastructure costs look pro-portionally smaller,” Hotka says.

Hotka’s second explanation speaks to acommon frustration among retail CIOs:the unavailability of connectivity solu-tions. As with anything else, retailers preferto source their technology services froma single supplier who can meet theirneeds across their entire chain. Mean-while, the two major telecommunicationscompanies providing commercial broad-band services nationwide—Worldcomand Global Crossing—have uncertainfinancial futures, and therefore retailersare hesitant to use them.

There are plenty of smaller telecommu-nications providers offering broadbandsolutions across various regions of theUnited States, however. For smaller retail-ers, which tend to be regional themselves,that’s not a problem. They can source alltheir broadband needs through a singleregional provider. But large retailers thathave stores from coast to coast are left withthe unattractive option of equipping theirstores with broadband using a patchworkof various regional providers. Therefore,smaller, regional retailers are able to spendproportionally more on infrastructure sim-ply because chainwide connectivity solu-tions are more available to them than theyare to the large ones.

Frustration with broadband’s scarcityruns high among CIOs of nationwide

chains. “CIOs crave more insight intowhat’s happening at the store level, andthere’s a huge range of applications thatwill give it to them,” Hotka says. “Butthey all depend on fat, reliable connec-tions, and until the large retailers resolvetheir bandwidth issues, they can’t beginto implement these solutions.”

Analytics are not the only reason retail-er CIOs want fatter pipes to their stores.Eventually, retailers will digitally fulfillany store-related needs that can possiblybe fulfilled remotely. That includes every-

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13A

Holding the FortComposite

Supermarket

Convenience store


Apparel

Home improvement

Drug store

Other specialty

2002 infrastructure operational spending, by segment

29.2%

23.4%

32.1%

28.2%

32.3%

30.5%

31.7%

29.5%

Less than $50M

$50M-$199M

$200M-$499M

$500M-$4.9B

More than $5B

2002 infrastructure operational spending, by revenues

36.0%

29.6%

29.9%

29.4%

26.2%


thing from work-force schedules to piped-in music to e-training to security-cameravideo to merchandising plans.

“Retailers are making do with the band-width they have, but they know broadbandwill open up so many more opportunitiesfor them,” Hotka says. “There’s only somuch you can do with a dial-up modem.”

Sourcing a chainwide connectivity solu-tion piecemeal from multiple regionalproviders remains an option for nationwideretailers, but most retail CIOs don’t recom-mend it. Such a plan increases the infra-structure’s level of complexity exponential-ly, plus the scheme is complicated by thefact that many regional telecommunica-tions companies utilize disparate standardsthat are not compatible with each other.Also, according to Hotka, many regionalproviders routinely try to upsell retailers toexpensive T-1 lines, when few retailersneed more than a slower-but-cheaper DSLconnection to their stores.

Satellite-delivered broadband solutions(VSAT) present retail CIOs with a com-pelling option, as the service is nationwide

by nature. However, VSAT is best-suited forstand-alone locations, especially in remoteareas. Mall-based retailers are generallyout of luck when it comes to VSAT becausemall operators usually block retailers’efforts to mount satellite dishes on the roof.

Mall-based retailers might be furtheralong in their hunt for bandwidth by now ifinitiatives by General Growth Propertiesand Simon Property Group had been suc-cessful. Both of those initiatives sought toequip malls nationwide with fat data pipesto be shared by the tenants, but a tougheconomy put an end to them both this year.

Hotka believes a concerted, unifiedeffort from retailers will be necessary toexpedite the arrival of available, nationwideretail broadband solutions. “Once thetelecommunications companies learn howbig this potential market is, they’ll get thelead out, but that’s something the retailindustry is going to have to communicateto them first. They’re not getting the pictureon their own,” she says.

Butch Jagoda, VP of IT of HelzbergDiamond Shops Inc., is one retail IT leaderwho hopes the telecommunications indus-try gets its act together soon. He’s look-ing for a broadband solution to connectHelzberg’s 200-plus stores to the retail-er’s North Kansas City, Mo., headquar-ters. The retailer had used MerchantWiredat 85 of its stores nationwide. (The otherstores use dial-up connections.) But whenMerchantWired’s owners—which includ-ed major retail landlords such as SimonProperty Group, Taubman Centers andUrban Retail Properties—announced thissummer that the service would be discon-tinued as of Sept. 3, Helzberg was leftlooking for another connectivity provider.

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Infrastructure: Holding the Fort

Composite

Supermarket

Convenience store


Apparel

Home improvement

Drug store

Other specialty

2002 total capital spending for infrastructure, by sector(of applicable respondents)

28.4%

29.4%

25.8%

23.4%

26.4%

34.6%

38.6%

22.3%

Jagoda was considering his options atpresstime. “We’re looking at a number ofalternatives, mainly frame relay and DSL,”he said.

One might question why Helzberg,a low-transaction, high-ticket retailer,might need constant connectivity be-tween headquarters and its stores—afterall, what do Helzberg locations reallyneed connectivity for beyond nightlypolling?—but Jagoda insists that equip-ping the stores with reliable broadbandlays the groundwork for store-levelapplications that will boost the chain’srevenues and efficiency. “It’s a solutionlooking for an opportunity. Once all ofour stores have persistent connections,many more options will be available tous. There are a lot of powerful applica-tions that we want to run at the storelevel.”

Jagoda expects to encounter resistanceto the project due to the nature of the initia-tive’s ROI, which is both some time offand hard to quantify. “It’s difficult to cost-justify, but some projects are like that.They’re like waiting for water to boil. Youhave to watch it for some time before yousee a result.” He adds that such a store-connectivity project would be far easier fora big-box retailer to cost-justify, as theirtransaction volumes are much higher thanHelzberg’s.

Many retail observers believe that asmuch attention as infrastructure require-ments are receiving from CIOs, theyshould receive more. Infrastructure re-quirements often fall victim to the humantendency of CIOs and other executives topursue projects that dazzle. Technology’sgee-whiz factor has suckered many a CIO

into pursuing projects that make littlebusiness sense, as was evidenced by thedot.com craze of the late 1990s. Suchinitiatives can lure CIOs’ attention andresources away from infrastructure bullet-proofing, which ranks pretty low on theexcitement scale.

While most have learned from the mis-takes of the dot.com era, some still yieldto the temptation to pursue flash oversubstance. And that’s too bad, becauseattention to meat-and-potatoes infra-structure issues yields greater businessbenefit in the long run than the flashierinitiatives.

Jones Apparel Group senior VP andCTO Paul Lanham acknowledged thispitfall during a session at MoonWatchMedia’s Retail Systems conference held inChicago this summer. “We all like to workon sexy projects. Sometimes it’s easy toforget which projects make the most sensefor the business.”

He noted that this problem most fre-quently takes its toll on infrastructure.“The infrastructure requirements often getshort shrift,” he said, adding that failure toaddress infrastructure needs can compro-mise the infrastructure’s ability to supportthe sexier projects. �

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Less than $50M

$50M-$199M

$200M-$499M

$500M-$4.9B

More than $5B

2002 total capital spending for infrastructure, by revenues(of applicable respondents)

12.5%

30.3%

33.0%

28.1%

23.8%


Everyone’s experienced it.You bought that potentiallyhigh-flying Internet stockjust to watch its value drop

like a lead balloon. As a result, yourfinancial advisor’s counsel of manag-ing a balanced portfolio sounds moresage than ever. These hard lessons arebeing played out in the CIO’s boardroom as well, as million-dollar bets arebeing placed every day on a plethora ofnew projects and initiatives.

As each and every IT dollar isbecoming increasingly scrutinized,CIOs are seeking methods and tools toeffectively and efficiently evaluate andprioritize their IT investment decisions.And it’s not just a cost-containmentplay, either. CIOs are feeling the pres-sure to deliver results to both the topand bottom lines.

Where’s a CIO to turn? The answeris IT portfolio management. Unlikefinancial portfolio management, ITportfolio management has histori-cally been a decision process lackingmethodology and sufficient infor-mation. In today’s environment oftight IT budgets, increased demandson effectiveness, and rapidly grow-ing complexity, the ability to pro-actively manage the IT portfolio is nolonger an option—it’s a necessity.

In order to manage the IT portfolioeffectively, retail CIOs must:

� Apply financial measures to theIT portfolio: Companies that canproactively manage and measure key

IT financial metrics are much morelikely to achieve their stated results.This includes developing a keen under-standing of the current IT cost struc-tures, spending patterns, risk areas andoverall return on investment.

� Have a long range plan, but beflexible: Remember that achieving anygoal requires prudent planning and apersistent approach. However, factorswill change—and the value of a goodlong-range plan will allow thosechanges to be managed proactively.

� Know when to invest, knowwhen to divest: Decisions to divesttechnologies are just as important asdecisions to invest in new initiatives.Companies making new investmentswith no formalized process for evaluat-ing and retiring technologies find thatthe increasing complexity of the IT en-vironment continues to be a drain onIT budgets.

� Incorporate external informa-tion: Be aware of external factors ineach IT decision, including emerging-technology trends, competitor activ-ities and strategic business partneralignment. In today’s IT environment,decisions can no longer be made with-out considering the impact of theseexternal factors.

� Integrate the three Ps of ITmanagement—project, programand portfolio management: Main-taining an up-to-date understanding ofongoing IT activities is a critical ele-ment of IT portfolio management. This

requires seamless integration to under-lying program and project-manage-ment disciplines in order to paint acomplete picture of the ever-changingIT environment.

Although IT procurement decisionshave historically focused on purely costfactors, retail CIOs must begin tobalance these decisions among a widerange of competing projects, shiftingthe focus to return on investment.However, this shift requires a newmind-set driven from the top of the ITorganization. Organizations shouldconsider developing an IT PortfolioManagement Office that formalizesthe processes and manages theinformation and analysis for ITinvestment optimization.

As IT becomes more critical to thebottom line, the IT environment growsmore complex and resources becomemore constrained—a new disciplineand mind-set is required of IT man-agement. The new mind-set makesstrategic decisions based on thoroughinformation and proven portfolio-management techniques. Those organ-izations that manage IT investmentsusing a stringent, institutionalizedprocess will develop IT environmentsthat maximize investments, facilitatestrategic alignments and dramati-cally reduce ongoing costs and com-plexity. �

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Like financial investments, the IT portfolio must be balanced

Portfolio Management

Ann Senn is a partner with DeloitteConsulting.


The practice of outsourcingseems to be gaining favoramong retail IT shops, but itwill be a long time before

CIOs are willing to turn the keys to thekingdom over to anyone.

The benefits of outsourcing are sim-ple to understand; leaving the technol-ogy to someone else enables retailersto focus more resources on their corecompetencies. It has often been ob-served that retailers are not technologycompanies, and therefore are best offnot getting too bogged down in thedetails of running an IT shop.

The flip side of the coin is that inentrusting vital technology functions toa third party, much of the accountabilityof the relevant personnel is lost. Out-sourcing critics note that one tends toattack a project with greater devotionwhen one is doing it for one’s employ-er and not one of the employer’s clients.That loss of accountability, they say, isreflected in the quality of the work ren-dered.

Of respondents to Deloitte Con-sulting’s retail IT survey, 75.2% report-ed that at least one of their IT functionswas outsourced. Outsourcing appearedto be most commonly done by thelargest retailers. Eighty-one percent ofretailers with revenues of more than $5

billion responded that they outsourcedat least one IT function.

The popularity of outsourcing looksto grow in the coming years, too.Nearly 14.0% of respondents said theyplanned to do some technology out-sourcing within the next two years.

Nearly one-third of survey respon-dents who currently outsource IT saidthey expect the benefits of their out-sourcing endeavors to come in the formof reduced costs. Forty-seven percentsaid they expected the benefits to bemanifested in a quality of work greaterthan what the merchants could havedeveloped on their own. And 24.1%responded that improved efficiency wasthe main purpose of their decision tooutsource.

Many retailers seem to have found ahappy medium in outsourcing onlyfunctions that aren’t mission-critical. ITtraining was far and away the mostcommonly outsourced technology func-tion, with 46.5% of respondents indicat-ing they outsourced it.

Another frequently outsourced ITfunction in retail is the development ofnew applications. Nearly 37.0% of res-pondents said they leave some of theirapplications development to third par-ties. The nature of the applications de-velopment projects retailers outsource

runs the gamut from financial andaccounting (18.9% of respondents out-sourcing applications development),to point of sale (13.5%), to the Web(13.5%), to supply chain and warehous-ing (10.8%) and back office (8.1%).

CIOs often view outsourcing withtrepidation because they are reluctantto surrender control over any functionsthat might directly harm the business ifdone wrong. It’s more than just a mat-ter of trusting one’s outsourcing part-ners, although that does come into play.Another concern is their partners’financial health. A number of retailerswho tried outsourcing technology earlywere left with a bad taste in their mouthwhen the Internet bubble burst and theiroutsourcing partners folded in 2000 and2001.

Fifty-nine percent of retailers sur-veyed agreed there are some IT func-tions that should never be outsourced.In nearly all cases, the functions re-tailers vowed never to outsource weremission-critical.

Security is a concern, too. “We’d neveroutsource anything dealing with confi-dential information,” one anonymousretail IT leader responded. “We want toleave no chance of letting that infor-mation out in the open, and that meanskeeping it within our own enterprise.”

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Letting outside firms handle peripheral IT functions remains a compelling option

Outsourcing: Leave

Some retail observers say the fearsurrounding outsourcing is overblown.The anxiety stems from CIOs’ surren-der of control over to their outsourcingpartners, but Wilsons The Leather Ex-perts CIO Jeff Orton notes that retailersalready depend on several critical func-tions over which they lack control.

“Credit-card authorization is alwayshandled by an outside firm, yet retailersdeeply depend on it!” he says. “If thecredit-card authorization goes down,that severely limits your ability to com-plete transactions. Yet retailers acceptthe fact that they can’t fully control thefunction.”

That acceptance is transferable toother IT functions, Orton says. “Thekey is to work with a outsourcing firmthat understands your urgency and yourneed for constant, reliable service.”

Wilsons outsources a number of tech-nology functions, including e-commercehosting and fulfillment, some applica-tions development and a portion of thePOS help desk. The help desk outsourc-ing has been particularly effective forWilsons, Orton says, as the service isavailable during weekends, which Ortonhas difficulty staffing.

One factor that is making outsourc-ing more appealing to retailers is thegrowing availability of overseas tech-nology labor. The buzz about overseastechnology outsourcing was greater in1999 and 2000 when the IT labor mar-ket was tighter. The supply of talented

IT workers fell so far short of demandin the United States that retail CIOs sawan enticing option in outsourcing lessertechnology functions to gifted coders inplaces like India and Singapore.

Nearly one out of 10 survey respon-dents said they do some technology out-sourcing overseas. Most of those re-spondents doing overseas outsourcingsaid they were sourcing their labor fromIndia. Others pointed to China, Bangla-desh, the Philippines and Mexico as thehome of their outsourcing partners.

The urgency CIOs feel to take somefunctions offshore has eased somewhatsince the collapse of the dot.com econo-my led to an infusion of IT talent backinto the U.S. labor market, but the off-shore option remains a compelling one.In a survey of retail IT executives attend-ing the National Retail Federation’sNRFtech conference recently held inSan Diego, 38.0% of respondents re-ported outsourcing some IT work off-shore. Another 13.0% of respondentssaid they planned to do so.

Word on the quality of offshore ITwork is good. “What we hear about off-shore technology outsourcing is that thework is of high quality and done for afair price,” Hotka says.

Wilsons’ Orton doesn’t outsourceany IT functions offshore yet, but hesays eventually the retailer will have toconsider it. “The option is becomingtoo big to ignore. The advent of on-linecommunications has made this a really

small world, so if you have access toreally good IT talent on the other side ofthe globe, there’s no reason not to atleast consider using it.”

Orton does have some reservationsabout using offshore IT help, though,and they have to do with the humanelement. “I want my partners to identi-fy as a part of Wilsons. I also want ourstaff to identify our offshore partnersas part of Wilsons, not as outsiders.Those two goals are impossible to real-ize if all your partner’s coders work inIndia.”

The Home Depot takes an oppor-tunistic approach to the offshore out-sourcing of technology services. Di-rector of IS Phil Wilkerson explains thatthe company will go offshore if the ROIand business need is right. But hestrongly advises against outsourcingoverseas for its own sake.

“Offshore technology services aren’tnecessarily cheaper than what you canget domestically. And even if they are,the quality’s still got to be right,”Wilkerson says. “You can come in hun-dreds of thousands of dollars underbudget, but if end up with a usabilityproblem because your outsourced labordid a poor job, then you’ve wasted yourtime and money.

“There’s an extra layer of accounta-bility when you use your own internallabor, and oftentimes that’s just notsomething you want to part with,”Wilkerson concludes. �

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It to the Experts


T he capacity of systems to collectand store vast arrays of data hasproven to be a mixed blessingfor retail CIOs. On the one hand,

improved abilities to maintain and minehuge data depositories has given retailersmore power than ever to spot exploitablebusiness patterns. The downside is thatmanaging these databases is a challengein and of itself.

It is this challenge that many retailershope to address with their IT capitalspending this year. The 78.2% of DeloitteConsulting survey respondents indicatingplans to allocate some capital spending toapplications this year said they’d spend, onaverage, 8.6% of their IT capital budgetson data warehousing and reporting.

In many cases, this spending will gotoward simplification or consolidation ofexisting data warehouses. Nearly one-quarter of survey respondents cited plansto reduce complexity in their databasemanagement systems this year.

CIOs often have a dual motive in pursu-ing such projects: For one, consolidationof data warehouses allows a company tosave the operating costs associated withrunning multiple databases. Secondly,consolidation of data warehouses usuallyyields a great data-integrity improvement.

Both of these goals played a role in a

recent database consolidation project byHelzberg Diamond Shops Inc. Until latelast year, the jeweler was accustomed tocollecting and accessing its data through ascattered network of disparate data ware-houses. VP of information services ButchJagoda found that the extra effort requiredto keep so many databases running andcommunicating with each other placed anunnecessary burden on his IT budget.

Simplification was the natural solutionto the problem: Jagoda envisioned a projectthat would consolidate all of Helzberg’sdata into a single master data warehouse.Such an initiative would have eliminateda drain on Jagoda’s budget, but otherHelzberg executives at first didn’t seethe value in Jagoda’s plan. It didn’t helpJagoda’s case that the project was orientedfor the greater good over the long term. Theproject would not generate the short-termROI the retailer’s executives wanted to seein a challenging year.

In the end, Jagoda managed to convincemanagement of the project’s merit by pre-senting them with of a mock-up of what theconsolidated data warehouse would looklike compared to its then-current systemof multiple databases. Once they saw howmuch money would be saved in elimi-nating unnecessary databases and theiraccompanying interfaces, Jagoda garnered

RETAIL IT 200222A

“There was noway I could havejustified a data-warehouseinvestment at thetime, but now wecontinue to feed offthe returns.”Butch Jagoda,

VP of IS,

Helzberg Diamond Shops Inc.

Retailers seek to reduce costs and increase dataintegrity by merging databases

Data Warehousing:

the support he needed to make theproject a reality. The project wascompleted earlier this year.

At the National Retail Federation’s2002 Annual Convention in New YorkCity, Jagoda told an audience aboutHelzberg’s success with the project.“There was no way I could have justi-fied that multimillion-dollar effort atthe time, but now the data warehouse isup, and we just continue to feed off thereturns as we continue to grow the busi-ness. It was a strong project for us.”

Jagoda also mentioned the fact thata consolidated data warehouse aidsHelzberg in keeping its data accurate.That’s crucial for retailers, as bad datacan wreak havoc on any functionof the business that depends on data.Unfortunately, this happens all toooften, as the existence of multiple over-lapping databases and a common lackof data-verification controls makes itterribly easy for inaccurate or conflict-ing data to creep in.

To a degree, retailers have come toaccept bad data as part of the challengeof doing business. As a tough economyforces retailers to look inward to findthings they can do better, many aresingling out data warehousing as apoint of weakness.

Though not a retai l company,Procter & Gamble’s data-integrity storyover the past few years is representa-tive of what many large retailers aregoing through now. In the late 1990s,the company maintained 20 databases,many of which stored overlappingdata. When data is maintained acrossmultiple databases, inaccuracies cropup easily, as updates made to data inone database may not be made toidentical data in another database,thereby casting doubt upon the accu-racy of both data sets. And with thevast range and depth of data thatProcter & Gamble keeps, it was near-ly impossible for the company to keepall of its data clean.

Company CIO Steve David describedthe predicament at Retail Systems. “Ifyou looked up a particular employee’sinformation across all of those data-bases, you’d find that 19 of those data-bases had different information. It was

the same situation with productand inventory data, too.”

Procter & Gamble recentlyaddressed its data-integrity woes by

consolidating the information from allof its databases into one single, masterdepository. This is becoming a pop-ular option among retailers sick ofstruggling to keep data clean acrossmultiple databases.

Not all retailers are focusing ondatabase consolidation. Neiman Mar-cus, for example, is building a sec-ond data warehouse to augment itsfirst, which contains customer data.The new one will contain product andtransaction data, which the companywill analyze.

CIO Phil Maxwell explains that forNeiman Marcus’ data-warehouse initia-tives are about adding value. “Our cus-tomer database has historically beenimportant to us, as we are a very service-driven retailer. We need access to all thatinformation to support the CRM appli-cations we like to run. Our new product-oriented database will help us becomebetter at the way we manage our prod-ucts and inventory. That will help us notonly trim inventory costs, but maintainbetter in-stock status, which itself ispart of customer service.” �

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Keeping It Simple


T he survey respondents whoplan to invest in applicationsthis year said they expect tospend 27.0% of their IT capital

budgets on merchandise- and inventory-management applications in 2002.

More than half—63.4%—of respon-dents to Deloitte Consulting’s surveysaid they would allocate some capital-spending dollars to merchandise systemsthis year. Planning solutions proved tobe the most popular category of mer-chandise systems: Of the 101 surveyrespondents, 46.5% indicated theywould invest in planning solutions.Other popular types of merchandisesystems were forecasting and replenish-ment (44.6% of respondents said they’dspend there in 2002); inventory man-agement (43.6%); buying and categorymanagement (42.6%); pricing (39.6%),and advertising and promotion tracking(29.7%).

The reasons why merchants are pay-ing extra attention to merchandise sys-tems this year are readily apparent toany CIO trying to keep a retailer afloatin the current economy. Challengingeconomic conditions are forcing retail-ers to become more accurate in predict-ing customer-buying patterns, sales vol-umes and the impact of various promo-tions. The purpose of this is to fulfillcustomer demand more efficiently, with

a minimum of overstock and lost salesand a maximum of profit margins.Potent merchandise systems are a strongway to do that.

It helps the case for merchandise-systems spending that they are readilyassociated with an ROI. ROI has alwaysbeen a key benchmark in determiningwhich IT projects to pursue and whichto reject, but the measure has taken onextra significance in an economy thathas retailers struggling for profits.

Wilsons The Leather Experts CIOJeff Orton says that it’s generally easyto win management’s support for imple-menting new merchandise solutions.“Planning and inventory management,especially, are easy sells. Those are thekinds of solutions that the CEO andCFO find it easy to find value in, be-cause they have a clear business pur-pose and because an ROI is readily tiedback to them.”

Pricing- and markdown-optimizationsolutions, which use historical sales datato identify sales patterns, have been anespecially hot merchandising solutioncategory in 2002. A slew of retailerssigned on for such solutions this year,among them Target Corp., Longs DrugStores Corp., ShopKo Stores, CircuitCity Stores, Meijer Stores and H.E.Butt Grocery Co.

So far, reports of the technology’s

efficacy have been positive. This sum-mer, Brian Kilcourse told conference-goers at MoonWatch Media’s RetailSolutions 2002 conference that price-optimization technology is gettingresults for Longs Drug Stores, whereKilcourse serves as CIO. “Because ofthe correlations the solution is able tospot in our historical sales data, we arebecoming much better at measuringprice elasticity across various segmentsof our merchandise,” he said.

Scott Rzesa is senior VP of mer-chandising at D&W Foods, anothermerchant that recently put a price-optimization package in place. Heagrees that the technology is effective,and says that the retailing industry hasneeded solutions like these for a longtime. “Pricing methods in many retailorganizations are really quite primi-tive,” he critiques. “Most product man-agers have only a broad spreadsheet towork with, and they are left with onlytheir own unique intuition to gaugewhat they think is the optimum price.Frankly, that’s not nearly as effectiveas setting prices based on historicalsales data.”

Price-optimization solutions are espe-cially potent for retailers such as Longsand D&W Foods, because they operatein retail sectors where the daily routineis high SKU counts and high transaction

RETAIL IT 200224A

Price-optimization, planning and allocation solutions attract CIOs’ attention

Merchandise Applications:

volumes. Even a price increase of a fewpennies can make its impact on the bot-tom line felt quickly.

Markdown-optimization solutionsare receiving high marks, as well. Thesesolutions, which help to time and meas-ure markdowns to eliminate overstockwhile still preserving profit margins,are especially popular with apparelmerchants and other retailers deal-ing with seasonal merchandise. Infact, 15.7% of apparel respondentsto Deloitte Consulting’s survey report-ed plans to allocate capital spendingto merchandise inventory-managementsystems this year. That’s more than anyother retail sector.

Markdown-optimization applicationsoften guide retailers to begin discountsearlier in the season. While that mayseem counterintuitive, in the long runthe discounts retailers take with thetechnology are generally shallower thanthose they would have implementedwithout it. And the applications gradethe markdowns so that by the time theselling season is gone, so is the season-al merchandise.

Meijer Stores VP of hard lines RogerChristensen can attest to the frustrationof scheduling markdowns without prop-er technological guidance. “We used tohave so much inventory left over at theend of the season because our buyers

were reluctant to take any markdownson their products until it was too late,”he says. Christensen adds that the situa-tion improved when Meijer licensed amarkdown-optimization solution earlierthis year.

No less crucial to retailers’ successthan price-optimization technology areplanning and allocation solutions. Theirpopularity has been bolstered by atough economy, which is forcing retail-ers to get leaner and more efficient withtheir inventory purchasing. Now, it’smore crucial than ever that retailerskeep their purchasing in line with whatconsumers will buy.

Intuition vs. transactional history:Forecasting consumer demand hasalways been a challenge. Buyers havetraditionally based their purchases up-on intuition, but technological ad-vances made in the past few years hasrendered this process obsolete. Today’stechnology is capable of plumbingtransactional history for sales patternsupon which a retailer can base its pur-chasing. The method is far more effec-tive at tailoring purchases to futuresales than can be expected from sim-ple human guesswork.

Orton of Wilsons Leather is amongthe retail CIOs turning their attentiontoward planning solutions in 2002.“Planning is one of our priorities this

year,” he says. “If you can get even justa little smarter at planning, the impacton the bottom line can be huge. That’swhy we want to equip our buyers withthe best tools possible for them to basetheir purchases upon.”

Toronto-based Harry Rosen is anoth-er retailer that sees the value in a strongplanning and allocation solution. Lastyear, the men’s clothier implemented anautomated solution that replaced thelow-tech manual spreadsheet methodthe retailer had been using.

CEO Larry Rosen explains to ChainStore Age that the old method was some-what lacking. “The spreadsheets do nothave the ability to import data from oursales and inventory systems, so all thedata must be keyed into them,” he says.“Not only is it time-consuming, but any-time someone has to key in data, there’sa chance they’ll make a mistake andkey in bad data.”

Rosen adds that the automated solu-tion is far more accurate than the oldspreadsheet method, which dependedon buyers’ intuition to match purchaseswith future customer demand. “It’smuch more scientific,” he says. “Thebenefits are making themselves clear inthe form of shallower markdowns andreduced overstock. We’re also muchless likely to run out of merchandise theconsumer wants.” �

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Using the Past to See the Future


R etail CIOs haven’t let up ontheir devotion to keeping theirsupply chains optimized. In atime of economic difficulty,

merchants have more incentive than everto ensure that their purchasing and logis-tics infrastructures work like a well-oiled machine.

This attention to supply-chain im-provement is reflected in CIOs’ capital-spending plans this year. The respon-dents to Deloitte Consulting’s surveywho are investing in applications thisyear said that, on average, 9.1% of their2002 IT capital-spending budgets wouldgo toward that area.

Warehouse-management systems werefar and away the most popular areas forsupply-chain investment, with 38.6% ofrespondents planning to spend somecapital-investment dollars there thisyear. Other popular areas for supply-chain investment were collaborativeplanning, forecasting and replenish-ment or CPFR (26.7% of respondents),transportation-management systems(23.8%), private digital exchanges(12.9%), scan-based trading (11.9%)and public digital exchanges (7.9%).

Warehouse management: Retailersare responding to the advancement ofwarehouse-automation technology andthe need to improve warehouse efficiency

by bolstering their systems in the distri-bution center.

In many cases, merchants are purchas-ing warehouse-management applicationsto replace ailing legacy systems. In othercases, retailers invest in warehouse-management systems to install in distri-bution centers that have been newlyadded, or built to replace other DCs.

Chico’s FAS is one such retailerinvesting in new warehouse-managementsystems. The apparel merchant licensedone late this summer to outfit a new235,000-sq.-ft. facility that Chico’s isbuilding in Atlanta. When it opens earlynext year, the DC will be Chico’s pri-mary one, replacing a DC the retailercurrently has near its Fort Myers, Fla.,headquarters.

Apparel merchants such as Chico’sspent more than their share on warehouse-management systems in 2002. About58.8% of apparel survey respondents saidthey had plans to invest in warehouse-management systems this year, morethan any other retail sector. This isunderstandable, considering the chal-lenge apparel merchants face in dealingwith a large number of items that arenot only style-specific, but size- and color-specific, as well. Such a difficult productassortment demands strong technologyto manage it.

RETAIL IT 200226A

“The end goal for

retailers should be a

frictionless two-way

flow of information

with their

suppliers.”Randy Mott,

senior VP and CIO,

Dell Computer Corp.

Warehouse, CPFR and logistics solutions lead the way in investment

Supply Chain:

Also, observers say thatChico’s, with its speedy expan-sion plan, was ripe for a moveto a new DC and a correspon-ding upgrade in warehouse-management systems. Thecompany opened about 70 newstores last year, raising itsstore count to nearly 300. In-dustry experts say that acompany reaches a criticalmass that requires heaviertechnological investment whenit grows to 300 stores.

Also investing in warehouse-management systems this yearis Recreational Equipment Inc.(REI) of Kent, Wash. Whenits system goes live next Feb-ruary, it will replace a legacysystem. When announcing thechain’s investment late this summer,company VP of distribution Clark Kochcommented that the upgraded systemwill help the sporting-goods retailerreduce fulfillment costs by running amore efficient warehouse.

The Walking Co. CEO Greg Milnecited similar benefits when he an-nounced the start of a migration to anew merchandise-management sys-tem this August. He commented thatthe new warehouse-management sys-

tem, plus a merchandise-managementsystem the company is implementingsimultaneously, should help the foot-wear retailer halve the $600,000 in lostsales per month attributable to out-of-stocks.

CPFR: The interest in CPFR contin-ues despite a common frustration withthe slow pace of the technology’s pro-gression. But as slow as it is, evenslower is the development of the majorretail trading exchanges GlobalNet

Xchange and WorldWideRetail Exchange, which foryears have been promisingtrue collaborative trading withlittle to show for it. Retailersare concluding that if theywant to conduct collabora-tive trading, they’ll have toget the job done themselves.

Therein lies much of thedifficulty. The fact that technol-ogy for many-to-many CPFRhas not yet been developedis only part of the problem.Cultural obstacles abound, mostof all the tendency of retailersand their suppliers to play theircards close to the vest. Theirinclination is to share tradinginformation sparingly, as theyfear that giving away too

much forecast and/or inventory datawill damage their negotiating posi-tions. The downside is that this lack ofcommunication often leads to under-purchasing, misinformed forecastsand other trading pitfalls.

One of the pioneers in CPFR,Randy Mott, spoke of the value of col-laboration during his keynote at RetailSystems in Chicago this summer. TheDell Computer Corp. senior VP andCIO and former CIO of Wal-Mart

RETAIL IT 2002


27A

Keeping It Moving


Stores Inc. credited Dell’s proprietarytrading hub with the merchant’s strongcash flow. He noted that because Dellconstantly sends sales forecasts out toits suppliers, it is able to carry a leanerinventory.

“The end goal for retailers should bea frictionless two-way flow of infor-mation with their suppliers,” Mott said.

Dell is a unique case in that all ofits merchandise is made-to-order. Ina sense, its solid collaboration infra-structure is driven by necessity. Butthere are examples of other more conventional retailers using CPFReffectively, albeit on a smaller scale.

Saks Inc. maintains a supplierextranet, and is conducting CPFR pilotswith Polo Jeans and Liz Claiborne. But,says Saks senior VP of e-business RickShaller, the process is a bit clunky. Halfof it is automated, and the rest dependson e-mailed spreadsheets. But, Shallersays, at this point the project is mostvaluable to Saks as a learning process.

Earlier this year, he told Chain StoreAge, “What we’re really doing now istrying to understand the collaborativeprocess. Later, we may very likely doCPFR via our extranet or look at …software that would allow us and ourvendors to upload our respective salesforecasts and do comparisons and ex-ception reporting.”

The current scale of Saks’ CPFRproject is indicative of where manyother retailers are in that respect, andof the lack of infrastructure availablefor CPFR.

Ken Harris, senior VP and CIO of

The Gap, says “As an industry, westill haven’t figured out how to domany-to-many CPFR effectively.”

Transportation management: Get-ting inventory from the supplier to theDC to the store is still a priority forretailers. Therefore, with improvedabilities of technology to extract opti-mal business choices from a sea ofdata, retailers have reaped rewards inthe form of improved cost-efficiency.

Large general merchandise retail-ers, which often have the most inven-tory to move, invested the most intransportation-management solutionsthis year. Deloitte Consulting’s surveyfound that 45.5% of retailers in thatsector planned to allocate capital-spending dollars to that area thisyear. Trailing behind were home-improvement retailers, 31.3% of whichplanned to invest there. Other retailsectors notably investing in trans-portation-management solutions thisyear are apparel (23.5% of respon-dents); supermarket (22.7%); drugstore (18.2%); specialty (15.4%); andc-stores (9.1%).

One retailer that recently purchaseda new transportation-managementsystem is RadioShack Corp. Early thisyear, the company completed a chain-wide deployment of a new carrier-selection solution to replace an ancient,homegrown FORTRAN application.The solution improves RadioShack’sability to choose the most cost-effectivecarriers to shuttle shipments from thecompany’s six DCs to its more than7,000 stores nationwide. To illustrate

the magnitude of the task, each of thedistribution centers handles between500 and 3,000 shipments daily. Sofar, the solution only manages out-bound logistics, but the solution isexpected to be expanded to inboundshipments soon.

The application is a boon forRadioShack in that it takes much ofthe guesswork out of choosing carri-ers. Guesswork and intuition were ahuge part of choosing carriers atRadioShack previously, as the dataavailable to the company was notgranular enough to clearly indicatethe best choice.

“We knew what our average costswere from using different modes andcarriers, but we had access only toaggregate data from previous ship-ments. “We lacked key metrics suchas load factors, on-time delivery per-centages and costs per carton permile,” said senior VP of NorthAmerican manufacturing and logis-tics Roger McInnis at a users groupthis summer.

He added that the ambiguity of thedata available to them stymied theirefforts to make the best choices ofcarriers. Another shortcoming of thelegacy system, he said, was that itlacked the ability to track and traceindividual shipments on route. Thatweakness, too, has been addressedwith the new solution.

So far, it seems to be working.McInnis said that an early pilot of thesolution yielded a 15.0% saving onshipping costs. �

RETAIL IT 200228A

Supply Chain: Keeping It Moving


RETAIL IT 200230A

A number of technologies arebursting on the scene in retail.Here is a look at a few ofthem:

Wireless technologies: Although itwould be slightly unfair to call wirelessnetworks an emerging technology asopposed to an underutilized one, thetechnology is rapidly winning over re-tailers that haven’t given it a try already.According to Deloitte Consulting’s sur-vey, 29.7% of retailers have plans toimplement wireless technologies. Ofthat 29.7%, slightly less than half planto do so within the coming year.

Wireless networks already have anumber of believers among the retailsector. Nearly four out of 10 retailerssurveyed have already implemented thetechnology.

The chief benefit of wireless technol-ogy comes from its ability to cut tech-nology loose from the cables that typi-cally root computers to a single spot.Under wireless networks, retailers havemore freedom to tinker with the storelayout, moving the POS wherever theychoose. Retailers can also implementmobile POS units on carts and handheldunits for queue-busting, inventory audit-ing, pricing and other applications.

The technology has already caught onwith many retailers. About one-quarterof retailers surveyed have already imple-mented the technology to some degree.Another quarter of survey respondents

have plans to adopt the technology. RFID: Although RFID shows great

potential, the rap on the technology isthat it is still too cost-prohibitive. RFIDtags are too expensive to be disposable,so it is impractical to tag every item in astore with them, especially small-ticketitems upon which adding the cost of anRFID tag would be noticeable to theconsumer. For now, the most opportuneplace for RFID to be used is in the dis-tribution center.

Some retailers have managed to useRFID effectively in customer-facingapplications, however. ExxonMobil hasmade RFID a key differentiator of itsgas stations, where customers can paywithout getting out of their car using theRFID-based Speedpass technology. AndMovie Gallery has enjoyed a successfulpilot program that tagged video boxeswith RFID tags at one store.

Web-based POS/kiosk: Thin-clientPOS architecture is catching on despitethe broadband crunch, and electronickiosks seem to be finding a niche despitesome doubts as to their business value.Deloitte Consulting’s survey found that9.9% of retailers already have adoptedWeb-based POS or kiosk technology,and 26.7% have plans to do so. Nearly10.0% of respondents plan to implementsuch technology within the coming year.

Web-based thin-client POS has yet tobecome the standard in retail, but it israpidly winning supporters because of

the greater ease of maintenance andadministration that comes when all ofthe units can be managed remotely (seestory, page 10A).

Hallmark Cards IT solution deliverydirector Jeff Gragg believes that Web-based thin-client POS solutions are onthe verge of a breakthrough in retail.“The eventual migration to Web-basedPOS platforms will allow the industryto trickle-poll the stores on a morereal-time basis, providing us with deep-er insight into demand dynamics andopportunities to optimize item replen-ishment.”

Kiosks, too, are still somewhat un-common among retailers despite theiravailability for the past few years. Ob-servers point to a number of failed kioskexperiments that occurred during thedot.com boom. Many of these experi-ments made it painfully clear that anytechnology without a well-defined meth-od for creating value is just a cash drain.

Which is not to say that kiosks don’thave their place.

One of the greatest kiosk successstories in retail comes from 7-ElevenStores Inc., which uses the technolo-gy to offer customers a wide range ofin-store financial services includingcheck-cashing and money-order pur-chasing. This summer, the c-storeretailer followed up a 100-store pilotof the technology with a 1,000-storedeployment. �

Wireless networks, RFID and kiosks are poised to break out

Coming Attractions

RETAIL IT 2002


Imagine an interstate highwaysystem where every mile was de-signed, constructed and governedby a different set of rules. You

think your commute is rough today,imagine the traffic jams you’d en-counter on those highways. It’s a pecu-liar image, but not so different from theIT infrastructures that now exist inmany retail organizations. After years ofdeveloping and implementing new sys-tems without an overarching architec-tural blueprint, organizations are facingincredible systems complexity andredundancy.

Retail CIOs are painfully aware ofthis problem. In fact, over 70% of thisyear’s respondents cited the reductionof infrastructure costs as a key enablerfor reaching their strategic objec-tives. However, Retail CIOs are alsounder pressure to deliver results to thetop line, with over 85% citing revenuegrowth as a strategic objective. Today’sretail CIO must balance the need toproactively drive costs out of the ITenvironment while continuously deliv-ering new business and systems capa-bilities to remain competitive.

Fortunately, this balance can beachieved through the establishment of aself-funding migration plan, groundedby a holistic architectural blueprint.The solution involves diligent long-range planning, practical consolidationof redundant technologies and reinvest-

ment of cost savings to fund the migra-tion to a new architecture. Here are a fewtips on how to get your IT architecture inshape:

� Develop a long-range architect-ural blueprint: Remember that IT ar-chitectures will continue to evolve. Byestablishing a blueprint as a benchmark,IT organizations have a better perspec-tive of where they are and wherethey’re going. However, choose yourarchitectural strategy carefully, as thoseretailers that back the wrong horse payfor their error in reduced efficiency,higher operating costs, compromisedability to compete and, ultimately, start-ing the migration process all over.

� Know your portfolio: Beforestarting any journey, develop a firm un-derstanding of where you are today.This should involve the development ofa holistic understanding of your compa-ny’s processes, applications, and data-bases, and the complex array of rela-tionships between them.

� Make information the strategicdriver: Technology’s emphasis hasswung away from application function-ality toward data integration and acces-sibility. It’s no longer just what the so-lutions can do, but rather what infor-mation they can retrieve and interpret—in real time.

� Think process, not function: Asthe concept of seamless extended enter-prise collaboration comes closer to real-

ity—organizations must first clean uptheir own houses. This should begin byaligning and integrating IT capabilitiesalong end-to-end processes. There willinevitably be technical hand-offs re-quired—so integrate and manage thebusiness processes digitally to the great-est degree possible.

� Simplify where possible: Cananyone justify the need for a dozen dif-ferent database-management systems?Or 20 different definitions of the sameretail item? The answer is no. And thecost associated with such redundancycan be outstanding. Consolidate redun-dant systems and eliminate unnecessarytechnologies to reduce maintenance andenhancement costs, which can swell toconsume the majority of your IT budgetif not managed effectively.

Retailers are just beginning to wakeup to the fact that the heterogeneoussystems that were cobbled togetherduring the 1990s just won’t cut it.Fixing the problem is possible—butdoing so will require a carefully coordi-nated migration strategy and plan. Asyou go forward with the evolution ofyour systems’ architecture, manage itwith a specific, well-planned blueprintthat deeply considers business process-es, emerging technology standards andbest practices. �

31A

An IT blueprint is required to successfully manage the chaos

Blueprints for Successful IT

Rob Howard is a Partner with DeloitteConsulting.

Demands on the IT organi-zation are changing. Infor-mation Technology—oncerelegated to the dark back

rooms of retail organizations—is in-creasingly seeping into every imagina-ble element of the retail environment.From digital shelf tags and intelligentbarcodes to mobile Internet devicesand self-serve kiosks—IT is there,making significant contributions to theday-to-day operations of the business.Retail executives have noticed and as aresult, the pressures on CIOs havechanged.

The CIO’s challenges are nearlyendless. They are being asked to opti-mize investments, align initiativeswith the corporate strategy, and pro-duce specific bottom-line results. Thedemands for technology are outpac-ing the IT department’s ability to sup-port them. And, an ever-increasingnumber of technology componentsare creating an environment that isexponentially costly to maintain.Meanwhile, the operational modelthat most retail organizations employis the primary obstacle to a CIOs abil-ity to deal with these problems. Thesepressures when viewed independentlymay not seem shocking, however, it’sonly when you group these pressuresand trends together that you begin tosee the relationship and impact thatthey are having on the overall philos-

ophy of corporate IT. It’s enough toturn the most junior CIO gray.

Today, most IT organizations arefunctionally oriented and further seg-mented among delivery and supportdisciplines. Additionally, most retailershave established the majority of theirIT services and resources through yearsof homegrown development—resultingin an environment that is deeply rootedin the past. As a result, organizationsoverwhelmingly lack standards anddisciplined processes for managing anincreasingly complex IT environment.However, in today’s rapidly changingIT environment the evolving demandson IT require much the opposite.

A few retailers have realized thechange and have begun to fundamental-ly alter the way they conduct IT.They’ve realized that the role of IT ischanging and will continue to change.For these retailers, the changing role ofIT equates to an evolving role of theCIO and requires focus on two key ele-ments: instituting the processes requiredto effectively manage technology, andbringing the right people together at theright time for efficient service delivery.No small task for a CIO.

Leading IT organizations know thateffective processes are at the core ofeffective IT. Processes for evaluatingand prioritizing investments in newtechnologies. Processes for retiring anti-quated technologies. Processes for man-

aging assets. Processes for ensuringalignment with standards and the overallIT blueprint. Processes for selectingbusiness partners. Processes for effec-tive project, program and portfolio man-agement. It is through effective insti-tutionalization of stringent, controlledbusiness processes that IT becomes freeto adapt their model and leverage out-side resources when and where neces-sary in a cost-effective manner. Andfreedom can be liberating. Once an ITorganization obtains an effective level ofmaturity, IT becomes adaptable to thebusiness need, complexity within theenvironment becomes controlled andIT fulfills its promise. Couple this ITprocess focus with an IT organizationthat is more tightly aligned with specificbusiness processes and you have a win-ning model.

The second key element for CIOs isthe need to focus on bringing the rightpeople together at the right time. Theability to strategically source serviceswill be a critical differentiator goingforward. Only once an organizationhas developed the maturity of process-es are they able to truly, efficiently andeffectively begin to source IT workers.At this point, a CIO will be able to buyservices, when and how the businessrequirements demand.

The delivery model will be flexibleand can quickly adapt to changingbusiness needs. In this model, four


RETAIL IT 200232A

Over the HorizonThe changing role of IT

key principles comprise the heartand soul of the IT organization. TheIT organization must:

Become process-centric: IT mustbe both IT process and businessprocess-centric to enable a virtualplug-and-play sourcing model.

Become standards-focused: ITmust establish a rigorous and exten-sive set of standards, principles andarchitecture blueprints by which allinitiatives will be managed.

Develop a portfolio manage-ment capability: Understandingand proactively managing the port-folio of IT investments allows foreffective investment and divestmentof technology components, mini-mizing the management complex-ity.

Develop a strategic sourcing cap-ability: The ability to source appro-priate skills and capabilities whenand how necessary creates a power-ful and flexible delivery model.

The demands on the IT organiza-tion are not merely a result of atough economy, but rather a resultof an evolution of IT throughout theenterprise. The demands will con-tinue to build and CIOs must recog-nize that these pressures are part ofa much larger trend; a trend inwhich the evolution of the ITorganization will be a key definingfactor in a company’s success. ITorganizations that fail to act will beleft holding the bag. �

Peter Gertler is a ManagementConsulting Principal with DeloitteConsulting and an expert in strategy,marketing and merchandising.


D eloitte Consulting’s 2002Retail IT study is based ona survey of decision makersat 101 retailers, representing

combined sales of $268 billion and59,805 stores. Retailers of every size andfrom every sector took part, giving thestudy a strong cross-section of retailers torepresent.

The survey was conducted this pastsummer in July and August. Among therespondents taking part were representa-tives from such retail heavy-hitters asTarget Corp., Dillard’s, Saks Inc., TheHome Depot, Walgreen Co., Lowe’s Cos.and Neiman Marcus. Mid-size, smallerand regional players were represented,too, among them Cracker Barrel, BartellDrug, Party City, Happy Harry’s, Bashas’and Snyder Drug Stores.

The largest proportion of retailerssurveyed—37.7%—fell into the range of$500 million to $4.9 billion in annual rev-enues. A full 15.8% of retailers surveyedpost annual revenues higher than that.Retailers recording between $200 millionand $499 million in annual revenuesaccounted for 19.8% of survey respon-dents, and 20.8% of those surveyedreported revenues of $50 million to $199million. Nearly 6.0% of respondents post-ed fewer than $50 million in revenues.

The survey’s sample was balancednot only in terms of company size butin retail sector. Of the respondents,21.8% represented supermarket chains.Apparel and home-improvement retail-ers, respectively, contributed 16.8% and15.8% of survey responses. C-stores,large general merchandise and drugstore chains each accounted for 10.9%of the sample size. Finally, 12.9% ofrespondents classified themselves asanother type of specialty chain.

In nearly all cases, survey responsescame from near the top of the chain ofcommand. In 21.8% of cases, responsescame from a c-level executive: CEO,CIO, COO or CFO. Another 32.7% ofexecutives classified themselves as eithersome type of technology director, or adirector of retail services, finance or someother function. VPs of technology, R&Dor administration accounted for another21.8% of the sample group.

Managers of technology, retail systemsor other functions contributed 14.9% tothe sample size. In 2.0% of cases, it wasthe controller or treasurer who respondedto the survey, and another 2.0% of thetime, it was an IT systems analyst. Theremaining respondents, representing4.8% of the sample group, classifiedthemselves by some other title. �

RETAIL IT 200234A

SurveyMethodology

Percentage of respondents by retail segment

Supermarkets21.8%

Apparel16.8%

Home improvement

15.8%Convenience stores

10.9%

Large generalmerchandise

10.9%

Drug stores10.9%

Other specialty12.9%

Percentage of respondents by revenue

More than $5B15.8%

Less than $50M5.9%

$50Mto $199M

20.8%

$200M to $499M19.8%

$500Mto $4.9B

37.7%

Combined store count: 59,805

Combined sales: $268 billionMean annual revenue: $2.653 billion

ACKNOWLEDGMENTS

Chain Store Age is the leadingpublication serving retail headquar-ters management. A monthly news-magazine, Chain Store Age reportsand analyzes trends and strategies inthe following areas: � Corporate Strategies� Finance� Communications� Store Design/VisualMerchandising

� Human Resources� Real Estate Development� Operations� IT/POS� Security� Store Construction� Logistics/Distribution� Payment Systems� Electronic Retailing� Marketing� Physical Supports� Leasing

Chain Store Age has been pub-lished since 1925. Its readers include

chain headquarters decision makersfrom department store, discountstores, specialty stores, supermar-kets, convenience stores, varietystores, general merchandise stores,drug stores, home centers and hard-ware chains, and nonstore retailers,as well as shopping center ownersand developers.

For more information on ChainStore Age, contact Murray Forseter,Publisher/Editor, 425 Park Avenue,N.Y., N.Y. 10022, (212) 756-5257 orat [email protected].

Intel believes in innovation. We’redriven by it. We live by it. And it’sthis principle that led us to create theworld’s first microprocessor back in1971.

Today, Intel is behind everythingfrom the fastest processor in the worldto the cables that power high-speedInternet, to technology that powersretail solutions that can let retailmanagers and employees know soon-er, decide smarter and respond faster.We keep innovating because it’s in ourblood. Because it’s part of our her-

itage. And because the technology weinvent today will shape the world’sfuture.

If you’d like to learn more aboutother Intel initiatives in the retail industry, visit us at www.intel.com/go/retail. You can also e-mail us [email protected], or contact yourlocal Intel representative or field office.

Founded in 1975, Microsoft is theworldwide leader in software, servic-es and Internet technologies for busi-ness computing. Microsoft offers awide range of products and servicesdesigned to empower people throughgreat software—any time, any placeand on any device. Microsoft soft-ware can give any retail organizationthe agility to turn the acceleratingpace of change into a competitive

advantage. Microsoft .NET allowsthe creation of truly distributed WebServices that will integrate and col-laborate with a range of complemen-tary services to serve customers inways that today’s retailers can onlydream of. In conjunction with itssolutions providers, Microsoft offersthe most cost-effective business solu-tions focused on helping retail organ-izations connect with their customers,integrate with their business partners,and empower employees to makebetter, faster decisions.

Microsoft also plays a leadershiprole in driving retail technologystandards. Its OPOS, ActiveStore,BizTalk™, and Data WarehouseFrameworks have achieved wide-spread industry support. Throughthese initiatives, Microsoft has de-veloped a fully featured architectureto support a family of easily integrat-ed business applications across thedemand chain, from consumer tomanufacturer. For more informa-tion: www.microsoft.com/business,800.426.9400

Deloitte Consulting is one of theworld’s leading management con-sulting firms, and is uniquely known

for its straightforward approach tosolving today’s most complex busi-ness challenges. Deloitte Consultantswork hand-in-hand with clients toimprove business performance, driveshareholder value, and create com-petitive advantage. The firm has15,000 professionals in 33 countries,

and serves more than one-third of thecompanies in the Global Fortune®

500. It is the only consulting firmwith five straight appearances onFortune magazine’s list of “100 BestCompanies to Work for in America.”Deloitte Consulting can be found onthe Internet at http://www.dc.com.

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