Recession-hit retailers consider outsourcing

Johannesburg, 18 Jun 2009

During the current global economic downturn the retail industry is increasingly looking to outsource technology and business processes in an effort to cut costs and focus on core skills.

This is according to a new report by independent market analyst firm, Datamonitor. The report, 'Retailing in a recession: the opportunities for outsourcing', looks at the business processes retailers are outsourcing, and why.

Christine Bardwell, retail technology analyst with Datamonitor and the report's author, says to survive the downturn, retailers will look for efficient ways to generate revenue while at the same time making cost savings across the organisation. “Many are looking to technology and services to help cut the cost of managing inventory, non-critical business processes and store operations,” she says.

Cost reduction is the main driver for outsourcing in the recession-hit retail industry. “Cutting down on staff and inventory, the two biggest costs for a retailer, will be the principal areas of focus,” says Bardwell. “Cuts in these areas offer a two-fold opportunity for outsourcers as retailers will look to service providers to help cut costs across the business and will also be short of staff, or have trouble managing correct stock levels, and so look to outsourcers to provide the solution.”

Bardwell explains that while retailers are opting for outsourcing in the 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 over longer periods of time.

According to Datamonitor, one of the biggest current hurdles facing 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, by offering shorter-term contracts with monthly payments.

Retailers require strong, flexible partnerships that can evolve with their business. According to Datamonitor, retailers will expect outsourcers to not only know the demands of the retail industry, but also the challenges of their particular retail sector.

Bardwell concludes that the recession is pushing retailers to consider outsourcing in order to achieve cost saving and enhanced operational efficiencies. But competition in the services space is strong.

“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 organisation will win over,” she states.