Moving away from its traditionally conservative outlook on information technology (IT) spending, the global retail industry is realizing the value of investing in IT to enhance efficiency as well as improve customer service and profitability in an increasingly competitive environment.

New analysis from Frost & Sullivan (www.autoid.frost.com), World Retail Application Software Analysis by Segment, reveals that the world retail supply chain application software market earned $2,852 million in 2005 and expects to reach $4589.9 million in 2010. The in-store management software market stood at $1897.2 million in 2005 and is likely to reach $2909.2 million in 2010, while the business intelligence software application market is expected to increase from $474.8 million in 2005 to $731.9 million in 2010.

“The software application markets are set to experience strong growth over the next few years, fuelled by growing investments in technology and increased IT spending by retailers across the world,” note Frost & Sullivan Research Analysts Shyam Krishnan and Aravindh Vanchesan.

Retailers worldwide are expected to increase their IT spending by almost 15 percent in 2006. They are also likely to allocate almost half of this increase to application software with a particular focus on tools that facilitate multi-channel customer relationships, point-of-sale (POS) systems, strategic merchandising and supply chain management.

At the core of software application technologies lies the huge potential they hold in streamlining the supply chain. Indeed, these technologies could conceivably transform the entire retail ecosystem, when judicially combined with the business processes and IT infrastructure that can truly unlock their potential.

“The key to success in the retail application software market is effectively optimizing functional roles across technology domains and providing one-stop complete suites or easily integrable solutions to customers,” says Krishnan.

Unleashing the full potential of application software in the store environment also calls for substantial efforts from vendors to support the retail industry through research as well as proactive involvement in industry-standards organizations and customer pilot projects.

Although retailers are confident about the return on investment (ROI) offered by software applications when implemented, there is still likely to be some reluctance on their part to replace proprietary or legacy systems with more sophisticated ones that function on new application software.

In the Asia Pacific region, for instance, although there is awareness about the existence of these technologies, knowledge of their business benefits is relatively low. These markets are under-penetrated and offer strong opportunities for growth. Raising awareness levels, therefore, will be a major step in increasing adoption in this region.

“This is likely to happen as more global retailers enter and set up shop in these markets,” says Vanchesan. “Increasing vendor alignment with such retailers can help address technology and awareness issues at the earliest.”