Increasing economic pressures affecting the retail industry means companies in North America will increasingly look to outsource technology and business processes in a bid to cut costs and focus on core skills, according to a new report by 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," according to Christine Bardwell, retail technology analyst with Datamonitor and author of "Retailing in a Recession: The Opportunities for Outsourcing."
"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."
In a climate of falling sales, while facing cost and finance pressures, retailers are battling to stay afloat. "As such, cost cutting has become their main priority and any option for reducing loss is being considered," the report concluded.
"Cutting down on staff and inventory, the two biggest costs for a retailer, will be the principal areas of focus," Barwell said. "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 be short of staff or having trouble managing correct stock levels."
However, one of the biggest current hurdles to outsourcing is retailers' reduction in capital expenditures. Retailers are requiring outsourcers to offer flexible payment structures, for instance shorter-term contracts with monthly payments, the report noted.
Also, previous experience with service contracts caused some retailers to doubt whether the benefits of outsourcing outweigh the challenges that may arise. Barriers to outsourcing include the unrest caused by off-shoring jobs, language barriers and retail sector expertise requirements.
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.
"Retailers are looking for more than just a supplier," Bardwell said. "They need a partner. A service provider that takes strides to understand the pulse of the organization will win."