Reduced IT Spending May Ruin Some Retailers

With the U.S. economy in recession and consumer confidence down, U.S. retailers are continuing to hold back on new IT investments, including B2C applications and e-commerce infrastructure, according to International Data Corp. (IDC).

An IDC survey of U.S. consumers done before the holidays found that 72 percent of Americans planned on spending the same or more this holiday season compared with last year. The big change, however, comes in the way the money is being spent. Survey results show 46 percent growth in the value of online orders over the same period last year.

“Although e-shopping is expected to increase at a level in 2002 comparable to that in 2001, the opportunity for retailers to take advantage of this opportunity is threatened by reduced IT spending,” said Carol Glasheen, IDC’s vice president of Global Market Models and Demand-side Research.

Here’s the problem: In 2002, U.S. holiday e-commerce will reach $26 billion, a 49 percent increase over 2001, according to IDC. Although consumers will spend more of their holiday budgets online, e-shopping and consumer e-commerce in general will be constrained by supply, as reduced IT investments resulting from the economic slowdown limit some e-retailers’ ability to meet the demand. Businesses will not have invested in the channels and logistics required to meet an expanded supply.

This means e-retailers will miss the opportunity as the number of online customers increases over the next year, including the next holiday season.

“There will be 100 million online buyers in the U.S. by 2005. All retailers need to do is reach them,” Glasheen said. “However, reduced investment in B2C applications such as online order processing or order fulfillment in 2001 will impact consumer e-commerce in 2002 because the channels, logistics and infrastructure needed to support an expanded supply will not be in place for all would-be e-retailers.”

IDC warns that retailers skimping on IT investments now will be out of the online holiday market altogether next year. According to IDC, the lost revenue associated with the decreased investment is approximately $4 billion in 2002.