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Retailing in a Recession - The Opportunities for Outsourcing (Strategic Focus)

Published by: Datamonitor

Published: May. 11, 2009 - 107 Pages


Table of Contents


Overview
Catalyst
Summary
Key Messages
Falling consumer confidence causes economic woes and puts many retailers at risk of bankruptcy
Cost reduction is the main driver for outsourcing in recession-hit retail
Previous experience and small capex makes retailers reluctant to outsource
IBM is the leading service provider to the retail sector, but recent technology and services market consolidation could change that
Retailers require, strong, flexible partnerships that can evolve with their business
Table of Contents
Table of figures
market opportunity
Falling consumer confidence puts many retailers at risk of bankruptcy
Around the globe, alarming numbers of retailers are going bankrupt
The credit crunch has hit consumer confidence, causing a drop in retail sales
Low consumer confidence causes further economic uncertainties
Poor consumer spending hit sales and margins hard
Some retailers are thriving despite the downturn
Retailers' focus in the downturn provides opportunities for outsourcing
Four key retail focus areas have developed as a result of the economic downturn
The number of retail outsource contracts is up, but the value of individual contracts is down
Retailers are using BPO savings to fund larger technology projects
Cost reduction is the main driver for outsourcing in recession-hit retail
Staff cuts force retailers that are short of skills to consider outsourcing
Outsourcing back office functions is an attractive option for retailers cutting back on staff
Outsourcing can ensure customer service levels are maintained with fewer members of staff
Holding inventory is costly, but cutting inventory can worsen retailers' problems if not done properly
Managing the supply chain is complex; retailers want more than outsourced warehousing and logistics
Cutting capex is a quick and easy way to show immediate improvement to the bottom line
The recession has increased the importance of operational efficiency in retail
Outsourcing IT support and infrastructure management has proven popular in the retail sector
BPO is growing as technology and best practices make for leaner retail organizations
Retailers must improve the customer experience to grow sales from existing customers
Retailers will invest in customer retention and conversion to maintain satisfaction
Datamonitor predicts the demand for analytics outsourcing in retail will multiply in 2009-2010
Global expansion plans will continue as growth cannot be guaranteed in home markets
Although global expansion plans may have been scaled back in the recession, plans are still afoot for entry into new markets
Replicated store formats offered by outsourcers offer a quick and cost effective way for retailers to expand
Outsourcers with local knowledge and expertise are invaluable for retailers expanding into new markets
Customer Impact
Previous experience and reduced capex makes retailers reluctant to outsource
Previous experience of outsourcing in retail has led to a reluctance to sign deals
Reduced capital expenditure budgets must stretch further; retailers require flexible payment structures
Retailers of different sizes benefit from outsourcing for different reasons
Retailers require providers whose services address key recession priorities
Flexible staffing and relevant skills are a key requirement for retailers
Retailers benefit from the project focus and speed to implementation offered by service contracts
The retail boardroom expects an offering personalised to its unique business challenges
The CEO and CFO have taken charge
Pilots help retailers understand benefits of outsourcing, but are not suitable for cost driven projects
Retailers require relevant case studies in the vendor decision making process
Case Studies
Wipro Technologies for Morrisons Supermarkets (UK) in January 2009
Atos Origin for neckermann.de (Germany) in July 2008
IBM for Carphone Warehouse Group (UK) in March 2009
EDS for Belk (USA) in September 2008
Atos Origin for First Quench Retailing (UK) in July 2008
Clear expectations written into SLAs are key to a successful contract in retail
The retail business is fast paced and forever changing; retailers require flexible, scalable contracts
Monitoring SLAs to ensure they are being met
Competitive Landscape
IBM is the leading service provider to the retail sector, but recent technology and services market consolidation could change all that
The top 2 service providers hold over 22% of the overall retail, wholesale and distribution markets
The leading service provider is being challenged by market consolidation
IBM Corp
IBM is the global retail services market leader
IBM's strategy in retail is to focus on small, flexible contracts under the 'managed services' umbrella
HP Services
HP Services is defining a verticalized go-to-market strategy
HP Services does not pose a threat to IBM in the short-term
Fujitsu Services
Fujistu Services has become a global partner
With global presence no longer an issue, an expanded offering for retail should be the next step
Tata Consultancy Services (TCS)
TCS will look to beat a rising cost base with its vertical focus and innovation
Steria
Go to Market
Sell against the key challenges retailers face in a recession
Provide evidence that outsourced services provide the solutions to key issues for retail in a recession
Identify retailers seeking to differentiate in the recession through innovation
Knowledge of local retail markets is needed to service internationally expanding retailers
Retailers require, strong, flexible partnerships that can evolve with the business
Retailers need partners, not just suppliers
Transparency is vital: help retailers understand internal requirements to prevent surprises
Partners need to be flexible in order to cater to the fast paced, forever changing needs of the retail industry
Recommendations
Sell against the recessionary requirements of retailers
Become more than just a supplier; become a partner
Flexibility is key to a successful working relationship
APPENDIX
Definitions
Methodology
Further reading
Ask the analyst
Datamonitor consulting
Disclaimer
List of Figures
Figure 1: The UK retail sector will experience negative growth in 2009
Figure 2: Cutting cost is the biggest priority for retailers in North America and Europe in 2009
Figure 3: Big value services deals in global retail are on the decline
Figure 4: IT support and infrastructure management have been the most popular choice of IT services for retailers between January 2005 and January 2009
Figure 5: Retail CEOs and CFOs in the US, UK and Germany haven taken charge of IT decisions in 2008
Figure 6: Reasons for a SLA
Figure 7: The key requirements from an in-house management team for managing a SLA
Figure 8: Selected service providers share of the retail, wholesale and distribution services market in 2008
Figure 9: Selected service providers' revenues from retail in 2008
Figure 10: Over 18% of IBM's 2008 services revenues in retail were from maintenance and support

Abstract

Introduction

The increasing economic pressures affecting the retail industry means that companies will increasingly look to outsource technology and business processes to cut costs and focus on core skills. This report provides a detailed analyss of service providers capabilities in selling to the retail sector through the current recession.

Scope
  • Contains analysis of the difficulties and opportunities retailers face in the current economic downturn.
  • This report looks at the opportunities available to IT and BPO service providers in North America and Western Europe.
  • Provides analysis on leading players in the market and discusses future predictions
  • The report also offers recommendations to vendors about how best to target the retail sector based on recessionary requirements.
Highlights

A large number of retailers in North America and Western Europe are suffering as a result of low consumer confidence; even to the point of bankruptcy in some cases.In this uncertain environment, the priority for a retailer will be to protect margins.

Cutting down on staff and inventory, the two biggest costs for a retailer, will be the principal areas of focus. Retailers are also cutting costs in other areas: one of the biggest current hurdles to outsourcing is the industry-wide reduction of capex in retail.

Choosing the right service provider is very important. Retailers will expect outsourcers to not only know the demands of the retail industry, but also the challenges of their particular retail sector. As such, a service provider must take strides to understand the pulse of the business in order to work in partnership with the retailer.

Reasons to Purchase
  • Learn about the business goals and priorities for retailers which provide opportunities for outsourcing.
  • Offers an overview of the current competitive landscape in the services to retail market
  • Provides recommendations to vendors interested in selling into the retail sector


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