Retailers told not to skimp on IT

NEW YORK - Retailers can expect slow sales through the first half of the year, but that shouldn't keep them from making technology investments that can improve operational efficiency and raise profit margins.

That's the message from financial analysts who spoke at last week's National Retail Federation conference. Retail IT executives also shared their stories with 15,000 attendees and talked about the competitive advantage of deploying products that improve customer service, make stores run more efficiently, and enable integration among retailers' and suppliers' IT systems.

Participants agree the challenge for retailers is to think strategically. Wall Street is looking for innovation from retailers, said Angela Selden, managing partner at Accenture. In the past, Wall Street placed greater emphasis on short-term sales indicators.

"You could argue that innovation is one of the last things on the minds of retailers today," Selden said. "Instead, it's reduce product development costs, trim inventories, optimize the labor in the stores, hold back on those interesting acquisitions."

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NEW YORK - Retailers can expect slow sales through the first half of the year, but that shouldn't keep them from making technology investments that can improve operational efficiency and raise profit margins.

That's the message from financial analysts who spoke at last week's National Retail Federation conference. Retail IT executives also shared their stories with 15,000 attendees and talked about the competitive advantage of deploying products that improve customer service, make stores run more efficiently, and enable integration among retailers' and suppliers' IT systems.

Participants agree the challenge for retailers is to think strategically. Wall Street is looking for innovation from retailers, said Angela Selden, managing partner at Accenture. In the past, Wall Street placed greater emphasis on short-term sales indicators.

"You could argue that innovation is one of the last things on the minds of retailers today," Selden said. "Instead, it's reduce product development costs, trim inventories, optimize the labor in the stores, hold back on those interesting acquisitions."

The exception are retailers such as Wal-Mart and Burberry, which Accenture calls market makers. These companies have responded to economic challenges by continuing to innovate, acquiring companies at favorable prices and investing in technology in preparation for the future. "They're taking full advantage of the economy right now," Selden said.

Instead of narrowly focusing on short-term earnings, Wall Street is starting to reward companies that use technology to increase profits over the long term, said Scott Tobin, a general partner at Battery Ventures. In turn, Battery Ventures is looking more seriously at technologies designed for the retail sector.

In particular, the firm is focused on analytic software that can sort through and glean useful metrics from the terabytes and petabytes of data that retailers accumulate.

Over the past several years, retailers have allocated their technology dollars to infrastructure products that connect distribution center systems to warehousing systems, for example, or connect point-of-sale and inventory systems, Tobin said.

"Much of this infrastructure has done nothing but create mounds and mounds of data," Tobin says. "The CEOs and CFOs are going to the CIO and saying, 'You know, you spent all this time and all this money implementing this infrastructure, and I still can't tell when this bathing suit is supposed to go on sale.'"

As examples of innovative analytic software makers, Tobin cites ProfitLogic and Netezza - both Battery Ventures-backed companies - and BrickStream.

The ProfitLogic software sorts through historical POS data and helps retailers decide when and how much to discount surplus merchandise. The Netezza product gleans business intelligence from terabytes of data faster and more affordably than existing products, Tobin said.

BrickStream's software analyzes video feeds from store floors to help retailers design better store layouts.