How do America's retailers plan to stay competitive in 2005? By cutting prices? Hiring market researchers? Bombarding their customers with surveys? While all of those may be useful, retailers say their primary strategy for keeping tabs on what their customers really want this year will be … supply chain optimization.

A study unveiled at the National Retail Federation's Annual Convention in New York last month reveals that retailers will focus on supply chain efficiencies and data-gathering capabilities to stay competitive this year. Titled "Retail Horizons: Benchmarks for 2004, Forecasts for 2005," the study says that the majority of retailers cite supply chain optimization as a priority initiative for getting closer to the customer in 2005. The third annual study surveyed more than 300 retailers, representing department, specialty, apparel, grocery, and home center stores. Respondents ranged in size from companies operating a single store to chains with more than 2,000 outlets. The study was conducted jointly by the NRF Foundation and by BearingPoint, a business consulting and systems integration firm.

"There was a little less emphasis on cost reduction than there has been in the past," says Kevin Boyanowski, managing director for supply chain solutions at BearingPoint Inc. "It's not that cost reduction isn't still in the top two or three items, but just that there seems to be more emphasis on planning, forecasting and optimization tools within facilities."

How will retailers go about optimizing their supply chains? It looks like technology will play a big role. And it won't just be RFID. "Retailers realize that in order to improve their businesses, it is important for them to reinvest in new technologies and programs," says NRF President and CEO Tracy Mullin. "Consumers are rewarding retailers who utilize resources to feature new merchandise, new technology, and new ideas." Among those new technologies will be upgraded point-of-sale information systems and inventory management systems.

But that's not to say that RFID won't continue to be a major focus for retailers. The NRF/BearingPoint study confirms that RFID use is spreading throughout the retail sector, with 35 percent of survey respondents reporting that they will deploy RFID sometime in 2005. However, the use of data synchronization is more far off."RFID obviously has traction," says Boyanowski,"but the technology is still in the discovery stage. The question in most people's minds going forward isn't [if the technology will take hold] but when and how."