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. This is according to a new report by independent market analyst firm, 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”, says Christine Bardwell, retail technology analyst with Datamonitor and author of the report: “Retailing in a Recession: The Opportunities for Outsourcing”.

According to Bardwell, though 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.

Cost cutting has become the main priority and any option for reducing loss is being considered including cutting down on staff and inventory. Says Bardwell: “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 also be short of staff, or having trouble managing correct stock levels so will look to outsourcers to provide the solution.”

Currently, one of the biggest 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.

According to Datamonitor, retailers will also 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 endeavour to understand the nature of the business in order to work in partnership with the retailer.

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.