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Rising economic pressures affecting the retail industry will spur companies in Western Europe and North America to increasingly outsource technology and business processes as a way to cut costs and focus on core skills, according to “Retailing in a Recession: The Opportunities for Outsourcing,” a new report from London-based independent market analyst firm Datamonitor.
“To survive or succeed in the downturn, retailers will be looking for efficient ways to generate revenue by managing the demands of the customer, while at the same time making cost savings across the organization,” said Datamonitor technology analyst Christine Bardwell, the report’s author. “Many are looking to technology and services to help cut the cost of managing inventory, non-critical business processes and store operations. Although retailers are outsourcing in a recession, the types of contracts have changed; large-scale infrastructure overhauls are less common. Instead retailers are requesting a mixture of services on lower-value contracts, or transformational deals over longer periods of time.”
Bardwell added that retailers will concentrate on slashing staff and inventory, their two biggest costs. “Cuts in these areas offer a two-fold opportunity for outsourcers, as retailers will be looking to service providers to help cut costs across the business, and will also be short of staff, or having trouble managing correct stock levels, so will look to outsourcers to provide the solution,” she noted
One of the biggest current hurdles to outsourcing, however, is the industry-wide reduction of capital expenditure (cap ex) in retail. Since cap ex must go a lot further than a year ago, retailers now require outsourcers to offer flexible payment structures, for example by offering shorter-term contracts with monthly payments. Other obstacles to outsourcing include the controversial nature of off-shoring jobs, language barriers, and retail-sector expertise requirements.
Retailers will expect outsourcers to not just know the demands of the retail industry, but also the challenges of their particular retail sector, the study found, so a service provider must understand the nature of the business to work well with the retailer.