Can Technology Help Retailers Survive 2009 and Thrive in 2010?

CIO — Things have become so depressing for some U.S. retailers that rather than filing for Chapter 11 Bankruptcy protection and trying to slog through the recession, they're simply throwing in the towel.

Close all the stores. Lay off everyone. Liquidate everything.

That's essentially what happened at Circuit City, Linens 'n Things, Sharper Image and several others during the past several months. With the economy in rougher shape than the clearance rack at dollar store, many more retailers may seriously weigh the merits of this gloomy business strategy in the months to come.

"The reason we're seeing liquidation rather than bankruptcy from so many retailers is because people are hopeless," Dean Baker, codirector of the Center for Economic and Policy Research, recently told Newsweek. "We're still looking at a very bad year in 2009 and probably most of 2010, so it's very difficult to be optimistic about reorganizing and coming out of it stronger."

To be fair, some sectors of the retail industry have been oversupplied. This is, after all, a nation that boasted of 2 million retailers before the recession started, which roughly translates to one retailer for every 150 people, according to research from Tony Gao, an assistant professor of marketing at Northeastern University.

So in this environment, a pertinent question arises: Can IT best practices and retail-specific technology applications help weather this storm?

Several retail analysts contacted for this article say, "Yes, IT can make a difference," with many caveats—especially regarding cost. "I think IT can help, however, I would sincerely doubt that any retailers are going to be spending too much money in order to upgrade their systems to help," says Patricia Edwards, a retail industry expert. "This is an extraordinary time for retailers. It's not about margins, which is what IT has been able to help with in the past. This is about cash flow. This is about survival."

Penny-Pinching Traditional for Retail IT

Retailers are well known for their thriftiness when it comes to technology spending, and for a long-held belief that off-the-shelf apps aren't robust enough for their demanding environments. Both of these beliefs may be impediments to IT's ability to accelerate business change right now.

Retailers spend just 2.9 percent of revenue on IT, according to our most recent State of the CIO survey data. Contrast that with the finance and banking category, which spends 7.7 percent of revenue on IT.

Across every industry, however, CEOs and business leaders have made it clear about what they want from IT now: Acquire and retain customers; manage customer relationships; and drive innovative new-market offerings, according to the combined State of the CIO and Forrester Research data (which surveyed 600 top business executives).

How well did IT actually support that mission during the past year? Forty-nine percent of business leaders judged IT's performance as "fair" or "poor." Another 5 percent said IT did not support acquiring or retaining customers at all.

This damning data couldn't be more relevant to retailers' IT shops, as business decision-makers (such as merchandise buyers, forecasters and supply chain managers) try to plan for the latter half of 2009 and 2010: How can retail applications assist decision-making in a recessionary climate when decades' old trends seemingly don't apply?

Edwards points out that the data sets and algorithms employed by markdown-optimization software—which aids retailers in determining when to cut prices and by how much—have to be modified to today's environment. As an example of just how bad this environment is, Kevin Sterneckert, a retail research director at AMR Research, says that on the first day of the new season, one apparel retailer was "offering deep discounts already," he says, "which we had never seen before."

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