By Mel Duvall

Major retailers have "severely pulled back their spending on IT this year" as they try to come to grips with the recession and weak consumer spending, according to research firm Gartner.

This has created a dilemma for technology vendors who specialize in the retail sector. If they fail to adjust their game plans quickly, they could find themselves in financial trouble, warns Gartner in a report released Monday.

"Cost removal is a key strategy in 2009 in retail, and this is particularly evident in the supply chain where uncertainty and caution are causing a market slowdown in new projects launched," Jeff Roster, a research vice president at Stamford, Conn.-based Gartner, says in the report. "While many survey respondents are hoping for a return to rigorous IT spending within two years, a high degree of uncertainty prevails."

Gartner says it surveyed 83 senior retail executives with responsibility for IT decision-making between January and March 2009 to gauge their spending plans for the year. Based on the findings, Gartner predicts that the remainder of 2009 will see retailers pull back spending on most new project launches in the supply chain areas, with the exception of vendor-managed inventory technologies. Those projects are still being driven by cost containment strategies.

In addition, no new warehouse management system projects were planned by respondents this year. Similarly, very few new transportation management systems are planned for 2009.

The bottom line, says Gartner, is that technology vendors who rely on the Tier 1 retailers for their financial livelihoods could find themselves in big trouble. As a result, the research firm is urging vendors to develop strategies and offerings that appeal to Tier 2 and Tier 3 retailers, such as grocery chains, which are more resilient in a downturn. "Software-as-a-Service (SaaS) offerings with built-in best practices will appeal to Tier 2 and Tier 3 retailers that are currently priced out of the supply chain application market," Gartner says.

Gartner defines Tier 1 retailers as companies with revenue of more than $1 billion. Tier 2 retailers are those with revenue between $250 million and $999 million; Tier 3 retailers have less than $250 million.

Looking ahead to the critical upcoming Christmas shopping season, Roster says retail technology vendors will need to prepare contingency plans, in the event that the 2009 season is as weak as some fear it will be. If that happens, he says retailers are likely to become even more aggressive with cost containment strategies, and that means more IT deployments will be eliminated or pushed back until stability returns.

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