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BOSTON -- Sales of software for the retail industry might hit $10.4 billion by 2011, growing at an average annual rate of 7 percent from sales last year of $7.3 billion, according to a new market research study released yesterday by AMR Research.
The projected growth will represent a shift in revenue toward implementation services, as retailers install the applications they purchased in 2005 and 2006, AMR said in the report, "The Retail Software Market Sizing Report, 2006-2011." The market remains primed for growth as retailers seek to replace aging merchandising infrastructures, transform store and cross-channel shopping experiences for consumers, and efficiently respond to changing demand and trends, AMR said.
Store and cross-channel operations software comprised the largest revenue category in 2006, at 33 percent of total sales, which reflects an emphasis on improving the consumer experience at each point of interaction, according to the report. Specifically, point-of-sale (POS) software revenue represented 17 percent of the retail applications market in 2006, as many organizations initiated major projects after delaying them for several years.
Revenue from customer intelligence and loyalty applications, as well as workforce and task management software-both closely linked to customer satisfaction-also contributed substantially to the success of the store and cross-channel operations software category in 2006, AMR said the research showed.
Enterprise resource planning software vendors SAP and Oracle each earned 9 percent of retail software market sales in 2006, said AMR. While SAP edged out Oracle for overall license revenue, both companies benefited from a full year of sales from the retail-specific vendor acquisitions closed in 2005.
Business intelligence and vendors based overseas also affected the market in 2006. AMR said acquisition sprees by the large vendors will continue to have a profound effect on the market landscape over the next several years as well.
ERP vendors, in particular, continue the mantra of one-stop shopping, the report said.
But the reality is that retailers, even those with retail ERP strategies, continue to seek best-of-breed vendors to support key business processes, in particular merchandise planning, assortment planning, and retail business intelligence.
The good news for application and service providers is that retailers are shifting from a build-it-ourselves approach to commercial software, thus fueling growth in the retail market. Still, AMR said the research showed that many vendors lack the out-of-the-box functionality that retailers require, which has led to retailers delaying selections or partnering for co-development.
As software matures over the next five years and vendors deliver referenceable accounts and improve integration among modules, AMR said it expects the buying floodgates opening up further.
Although the story of the retail business applications market over the last two years has been one of consolidation, the market remains fragmented, with a variety of best-of-breed vendors attempting to solve business challenges throughout the retail enterprise.
The top five vendors, ranked by revenue from both license and alternate pricing revenue, accounted for 33 percent of the market in 2006. And no one vendor represented more than 10 percent of license revenue during the year.
Consolidation among retailers (not just their technology providers), expansion into wholesale and private-label businesses, focus on effective cross-channel retailing, and the desire to rationalize the number of software providers have led retailers to put more pressure than ever on technology providers. In response, software vendors are developing broad functionally to address multiple areas of the retail enterprise. As with other industries, adoption of packaged software will become the de facto technology approach in retail in the coming years.
AMR Research said it studies the intersection of business processes with value chain and enterprise technologies, and provides subscription advisory services and peer networking opportunities to operations and IT executives in the retail, consumer products, life sciences, and manufacturing sectors.
To download the full report, visit www.amrresearch.com.