Why Retailers are Turning to Outsourcing, in Droves

Our friends at outsourcing consultancy TPI has recently been predicting strong outsourcing demand from the retail sector. Nearshore Americas’ Bob Scheier recently asked TPI Partner and Managing Director Harvey Gluckman what’s sparking the demand and what outsourcers need to meet retailers’ needs.

NSAM: First, why retail?

Gluckman: In the last 24 months…the growth has predominantly been driven by the economic recession. (Retailers) were looking for short term opex improvements. Most retailers had not leveraged outsourcing (in the form of) managed services. When the recession came, they started to look at managed services in their IT operations to drive some of the real operating efficiencies.

NSAM: What types of managed services are they looking for?

Gluckman:  Many of the large retailers previously may have had multiple providers, and operated around a staff augmentation (model.) When the recession came, they started to look towards managed services.  Managed services is much different than traditional staff augmentation, because(it involves defined services, defined SOWs (statements of work) and SLAs (service level agreements)…defined pricing, as well as a defined risk model, and a defined offshore/onshore ratios of resources. (Most retailers) started with (application development and maintenance as) an easy area to get their arms around. As a result, they drove out a lot of cost over the last 18-24 months.

NSAM: What type of cost savings are they getting?

Gluckman: I can only speak to the projects we engaged with, but for most of them, we could see from 12-20 percent op ex reductions, of the scope of work that went out to market.

I am aware of at least 10-12 retailers right now who are looking at outsourcing

NSAM: How strong is retail demand for outsourcing right now?

Gluckman: I am aware of at least 10-12 retailers right now who are looking at outsourcing…it’s still at the same pace it was over the last 12-18 months.

NSAM: Where are retailers turning for services?

Gluckman: They are still somewhat predominantly relying on India, as well as Latin America (especially) for U.S. domestic retailers. We’re seeing (demand for) remote infrastructure capability, some maintenance activity. Some of the lead countries are Argentina and Brazil. Some of them are looking for more “follow the sun” capabilities, shifting work between Latin America and India, or some other Asian destination.

NSAM: What else big is happening in retail?

Gluckman: Social media. Many retailers are probably devoting a little bit more of their capital budget (to it. These capabilities) are being deployed through bolt-ons added to customer centric systems to connect to their consumers in a different way. At the national Retail Federation Conference, the most interesting table was Facebook…giving away free storefronts. Within six months they were up to 90,000 storefronts, going after Amazon in a very quiet, subtle way.

NSAM: Could social media for retailers be an opportunity for outsourcers?

Gluckman: No, most retailers want to manage it themselves (in hopes) they will find it to be a strategic differentiator. But eventually it may lead to a managed service.

This article originally appeared in Global Delivery Report.