Retail CEOs cautious on IT spending in 2002

NEW YORK -- Retailers may not be penciling in hefty increases on their IT budget lines this year, but they won't be doing any mad slashing either.

Most CEOs polled this week at Retail's Big Show, the 91st annual convention held by the National Retail Federation, said they will either keep IT spending as planned or cut it slightly. Few, however, indicated that they would be taking on major new systems initiatives.

"We've got to watch [IT spending] carefully. It will not increase," said Leonard Riggio, CEO of Barnes & Noble Inc. in New York. "My druthers are that we would definitely cut back a bit."

Retailers "can't sit on [their] hands in the area of technology," but they have to be cautious about major IT initiatives "especially in these times," Riggio said. "That's the thing about technology. You've always got a million things to do that you can't get to. And we have such a list. It goes on and on."

Some retail CEOs said that their companies are still completing installations of merchandising systems, warehouse and inventory management software and point-of-sale systems and that they plan to continue work on those projects this year.

Others said they will try to get more out of the systems they already have in place.

"Nobody's spending millions and billions of dollars on new technology that has a certain amount of risk attached to what the return's going to be," said Mark Bozek, CEO of Home Shopping Network Inc. in St. Petersburg, Fla. "How much more efficient is it actually going to make you?"

He said he would rather concentrate on having better products to sell and producing more entertainment shows. "I'll do much better doing that than I will this year investing on IT," he said. "How much technology do you really need to run your business?"

Bozek said Home Shopping Network will scale back slightly on the $35 million to $40 million it spent last year on IT. He said his company will upgrade and continue implementing some of the major systems it has purchased in the past few years, including order, inventory and warehouse management systems. Bozek said he can't pull back dramatically on IT spending because of his IT department's rather unique situation of having to handle the "very complicated process" of both television and online sales and transactions.

"You have to really keep moving and progress, not only to stay competitive, but just to keep the systems themselves actually growing," Bozek said. But he acknowledged that a company can slow down its product upgrades.

"The [technology vendor] world loves to create these sort of ridiculously expensive upgrades that they build into the purchase price of it," Bozek said. "You buy it one minute, and then next year, [you say], 'Oh, we've got to upgrade,' and there's another $20 million."

One retailer planning to launch a major new project this year is Federated Department Stores Inc. Terry Lundgren, president and chief merchandising officer of the Cincinnati-based retail chain, which includes Macy's and Bloomingdale's, said his company will invest in a new merchandising system and continue work on a marketing system project that commenced last year.

The economy is "not going to get in our way," said Lundgren. "This [systems work] is actually going to help us, not hurt us."

When it comes to e-commerce, though, Lundgren is taking a hard line. Federated last year announced that it would discontinue some of its e-commerce operations in favor of concentrating on one of its most popular sites, (see story).

Lundgren said he would consider pulling the plug on the Macys site, too, if it doesn't break even.

"We're not going to keep just funneling money into something if we don't think it's going to work. We're very clear," Lundgren said. "We're going to break even in a relatively short period of time on the site, and we're very committed to doing that."

George Jones, president and CEO of Saks Inc.'s department store group in Birmingham, Ala., said this year will be significant for IT as it helps the company move toward common systems across its four operating divisions.

"It's a big, big project," he said, explaining that it's so important that it will receive "the primary dedication" of the company's resources.

Jones said there's no "breakthrough" technology involved, but the company will benefit significantly by being able to give its merchants new planning and allocation tools.

David Suliteanu, president and CEO of Sephora USA LLC, said his company invested a lot of money in its first couple of years in business to get a stable IT platform, and this year IT will be a "maintain expense." But he said his decision is based more on "the priorities of our business" than the overall economic downturn in the country. Suliteanu noted that the beauty product business tends to be "recession-proof" and does well when times are difficult.

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Copyright © 2002 IDG Communications, Inc.

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