Norbert Segers is a cautious man. And when it comes to his $5 billion Belgian supermarket chain Colruyt outsourcing IT applications to a company thousands of miles away, he is doubly cautious. But, being guarded doesn’t mean he is against his company’s strategic outsourcing roadmap. In fact, Colruyt started outsourcing retail applications in a small way two years ago. Now, more of that work — IT applications and maintenance in the retail space — will be offshored to TCS and NIIT Technologies in India.
“It was the lack of resources that sent us offshore. We couldn’t find enough talent in Belgium and the demands from customers were increasing,” says Segers, Outsourcing Manager, Infoco, the IT servcies arm of Colruyt. “In the longer term the cost advantage too comes in, but our primary driver was lack of resources in Belgium.”
Today, retailers are changing their mindsets when it comes to using technology. While managing costs and improving operational efficiency will always be critical in the low-margin retail industry, retailers are now shifting the focus to solutions that enhance the basic customer experience and drive revenue across all channels. This revolution has been focused on the store in recent times, but knowledgeable retailers will now demand that all technologies have a positive impact on the customer experience across all channels the customer comes in.
Innovation is the Key Driver
Tom Bridges, CEO, Biz-2-me has an interesting angle to the retail IT sourcing story. His New York-based products company that builds marketing tools to enable retailers in awarding loyalty points to their customers, has been scouting around for good technology for his products. “We came across this company in India, Aspire Systems, which has been in product-engineering services, and after checking out the kind of technology they were using, we worked with them. They enabled us to build our retailing product in record time and get it into the market,” says Bridges.
“We have a large network of small and medium retailers who use our software, which aims at helping the retailer protect his customer base. And for this you need innovative use of technology,” adds Tony Galluscio, VP, Research and Development, Biz-2-me.
Today, the rules for retail are changing. Wal-Mart, the “Big Brother” of the retail world has created patterns that are being followed by other retailers — in more innovative ways. The world’s largest retailer that has staked out territory in smaller markets and has chalked up expansion plans in larger markets such as India had, however, reported the lowest same-store sales in 10 years last November and ended its fiscal year on Jan. 31st with the lowest annual same-store sales gain in 27 years, according to a Wall Street Journal online report. As a result, Wal-Mart is slowing its expansion plans this year, and when Wal-Mart sneezes, the rest of the retail world scrambles to gain market share in as ingenious ways as possible.
Traditionally, most retailers have been slow to taking to outsourcing. But today there is one significant change that is seen among retailing companies. Retailers are increasingly focusing on innovative ways to satisfying customer expectations and creating a more agile organization for the future.
“When we talk of customer satisfaction it boils down to innovation. That is what every retailer, big or small, is looking at. Today, mere IT services — applications and maintenance — is part of every vendor’s offering, but retail houses are looking at outsourcing in a way that innovation is built into the deals they strike,” says Bhanumurthy B.M., SVP, Retail, CPG & Distribution, Wipro Technologies.
Larger retailers such as Target and Tesco have opted to set up captive IT centers, while others such as
JC Penny, Marks & Spencers, Carrefour, Selfridges and Office Depot have been outsourcing work to third-party companies in India and China.
In India, not only do larger Indian houses such as TCS, Wipro and Infosys work on these accounts but MNCs such as Accenture and IBM Global Services also work on large outsourcing contracts. The same is the case in China where a number of small outsourcing firms such as I.T. United and Freeborders (U.S.-based with backend operations in China) are actively working in the retail IT space. (A few days before we went to press, I.T. United was acquired by Latin America’s IT and BPO service provider, Softtek.)
“The drive for IT solutions in the retail space in the local Chinese market is itself very strong,” says Nilotpal Chakravarti, Research Analyst, Springboard Research. “And, it is being driven by small retailers as the market continues to explode in China. Small- and mid-sized retailers are looking to ramp up their IT infrastructure to stay competitive with the foreign multinationals that have set base there.”
“Although we follow a traditional ADM model for outsourcing, we are heavily focused on building and delivering domain expertise, and innovation is an extension of our ADM model,” says Joe Gutierez, Director of Marketing, Freeborders that works for leading retailers such as Saks, Sara Lee, Target, Woolrich, Marc Jacobs and Peacocks.
Reiterating this, Cyrill Eltschinger, CEO of I.T. United that works on retail applications for U.S.-based sportswear retailers has an interesting perspective when it comes to innovation in retail IT. “Mobile users are increasing worldwide, and when I think about innovation it is in the integrating of retail and mobile applications,” he says.
