London: A new report indicates that economic pressures affecting the retail industry means companies in Western Europe and North America will increasingly look to outsource technology and business processes in a bid to cut costs, and focus on core skills.

Independent market analysis firm Datamonitor, conducted the report: “Retailing in a Recession: The Opportunities for Outsourcing.”

Retail technology analyst with Datamonitor and the report’s author, Christine Bardwell noted: 

“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."

“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,” she said.

Bardwell explains that cutting down on staff and inventory - the two biggest costs for a retailer -
will be the principal areas of focus.

Capex cuts are biggest hurdle to outsourcing 
According to Datamonitor , one of the biggest current hurdles to outsourcing is the industry-wide
reduction of capital expenditure (capex) in retail. As capex must go a lot further than a year ago,
retailers now require outsourcers to offer flexible payment structures, for instance by offering
shorter-term contracts with monthly payments.

Previous experience with service contracts has caused retailers to doubt whether the benefits of
outsourcing outweigh the challenges that can arise. Barriers to outsourcing include the unrest
caused by off shoring jobs, language barriers, and retail sector expertise requirements.

IBM’s place as top service provider on shaky ground 
The report also assesses the key suppliers of infrastructure technology outsourcing (ITO) and business process outsourcing (BPO) to the retail sector.

IBM is the top outsourced service provider to retail, with 14% market share but the report says this could be set to change as competition in the space heats up.

“Competition in the services space is strong,” Bardwell added. “Retailers are looking for more than just a supplier; they need a partner. A service provider that takes strides to understand the pulse of the organization will win over.”