STORY HIGHLIGHTS:

• 85 percent of all retail purchasing decisions are made at the store shelf
• Retailers are expected to spend $10.4 billion on software by 2011
• 76 percent of retail software implementation will be hosted at a central location
• Top three retail software vendors in 2006 were: SAP ($210 million), Oracle ($205 million) and Microsoft ($161 million)

Retailers are set to go on a shopping spree for new applications as the sector looks to replace aging merchandising infrastructure and capitalize on new technologies to transform store and cross-channel customer shopping experiences, according to an AMR Research report.

The industry is already in the midst of a robust growth period, with sales expected to grow 10 percent in 2007 to $7.9 billion, according to AMR's Retail Software Market Sizing Report. Sales will continue to grow over the next four years at a compound annual growth rate of seven percent, reaching $10.4 billion by 2011.

"With 85 percent of buying decisions made at the store shelf, retailers are spending aggressively to improve in-store operations," the report says. That has led retailers to tackle long put-off plans to upgrade their point-of-sale (POS) systems, providing a boost to such vendors as CRS (owned by Epicor), NCR and Datavantage (owned by Micros).

Another hot area for retail is business intelligence, led by such vendors as SAS, Hyperion and Cognos.

"Intense competition and the need to cultivate cross-channel shoppers-who spend 30 percent to 50 percent more with retailers than single-channel shoppers-mean that customer intelligence and loyalty applications represented the second largest subcategory within the store and cross-channel operations," AMR reports.

Robert Garf, vice president of retail strategy for AMR, says the report uncovered a number of trends taking place in the industry, one of the most notable the decision by many large retailers to implement packaged applications as opposed to building custom software solutions. He pointed to Wal-Mart, which announced last month it would implement SAP to support its global expansion, as a prime example.

"That could really serve as a tipping point for the industry's movement toward packaged applications," he says. Wal-Mart plans to implement SAP in phases, with the first phase expected to be completed in 2010.

Three familiar names top the list of retail software vendors: SAP ($210 million in sector revenue in 2006), Oracle ($205 million) and Microsoft ($161 million). Four of the 10 highest-ranking vendors specialize in business intelligence applications: NCR/Teradata (fourth place, $117 million), SAS (sixth, $67 million), Hyperion (eighth, $44 million) and Cognos (10th, $35 million).

Retailers are expected to spend the most on POS and self-checkout software. Garf notes POS terminals have become much more intelligent, allowing, for example, customers to order products that may be out of stock in the store. Such smart POS terminals are increasingly being linked into large centrally located data centers.

"One retailer we talked with expects as much as nine percent of its sales may come from products not physically in the store at the time of purchase," Garf says.

"Our estimate is that by the end of 2007, 76 percent of in-store applications will be housed centrally," he says. In other words, applications to run POS terminals, kiosks and other in-store systems will be served up from a retailer's central data center.

Tech-Savvy Tesco Invades U.S.