With more than 150,000 retail stores expected to close their doors this year as a result of the current economic crisis, should retailers consider look to outsourcing IT services to help cut costs and stay in business?
Outsourcing contracts in the retail market were up 40% from last year, but average and total values of deals signed in the retail industry actually dropped to their lowest levels in five years, according to a 2009 study by TPI, an outsourcing services advisory firm.
Outsourcing does have the potential to yield more than 30% savings for retail stores that outsource finance and administration, HR, procurement and/or IT. “Outsourcing the IT function can also free up capital and human resources, allowing retailers to focus on their core competencies, their customers and their bottom line,” said Micky Houston, managing director of retail practice at Alsbridge Inc., a global advisory firm specializing in outsourcing and benchmarking.
“Retailers should definitely be outsourcing in this economy,” according to Houston. “When the volume of the business is going down, the back office has to ramp down at the same pace.” This is a challenge for many retail stores that are still providing all IT services themselves.
Traditionally, retailers have been slow to use outsourcing services for many reasons, Houston said, including the belief that by doing everything internally, their back-end services remain confidential and therefore give them a competitive edge. But times have changed and those retail stores that are hiding behind their “confidential” services are actually missing out on better services that will improve the business, Houston said.
Many retail stores are finding success in outsourcing IT services such as support of the infrastructure, field locations and data centers.
Online retailer iStorez.com swears by the savings it’s seen from outsourcing services. According to Anand Jagannathan, CEO of iStorez.com, the online retailer has saved 60% in costs since outsourcing all of its product development and product engineering to Persistent, an Indian outsourcing provider.
When they first launched the site, Jagannathan knew he had the expertise and vision to succeed on the front end and sell clothing online. However, he did not have the technology expertise to succeed on the back end. That’s what led to his decision to outsource to Persistent. By outsourcing, iStorez became a technology leader and leveraged Persistent’s expertise to get to market quicker with new products and efficiently react to market changes, Jagannathan said.
Some small to midsized retail stores are also taking advantage of multiple sourcing vendors for best of breed. For instance, if you wanted to install a new point-of-sale system at 500 stores, how do you get that done quickly? By outsourcing integration and ongoing support, retailers can now take advantage of cost and additional capabilities.
Outsourcing IT is one way retail stores can cut costs and remain competitive in this economy. But is it enough?