TCS in retail: OK for now

UK: TCS’s retail revenues continue to grow despite the slowdown in the global economy in general and the retail industry in particular. The bulk of this near-term growth comes from TCS’s BPO offering and services around analytic solutions.

ERP adoption is creating BPO opportunities for TCS

The retail BPO market is growing thanks to the selective outsourcing of finance & accounting (F&A) and HR functions. This in turn can be attributed to the implementation by retailers of enterprise resource planning (ERP) solutions. The rise of BPO in retail is linked to the adoption of ERP within the industry.

Historically, retailers lacked confidence in BPO vendors, believing that outsourcers couldn’t be trusted to run mission-critical processes or to manage data from complex business processes in the timeframes required. But the growing use by retailers of ERP solutions, from suppliers such as SAP and Oracle, is changing that. The use of ERP solutions increases confidence that mission-critical processes are being run as retailers require.

ERP solutions also simplify a retailer’s complex processes, making it possible for BPO vendors to select suitable processes for outsourcing. Inefficient, labour-intensive and routine F&A and HR functions are now more easily outsourced, and TCS has been among the leaders in jumping into this space.

The F&A functions where TCS has seen the greatest opportunities are accounts payables and receivables, ledgers, financial reporting, purchase order payment and invoice matching; and in HR: payroll, policy administration, training and recruitment, functions where TCS has been able to draw on its experience and assets in other verticals.

TCS needs to forge a stronger partnership with Oracle

Analytics is the other line where TCS is seeing growth in retail. Analytics for SKU-level data analysis, such as assortment by store and item management in the supply chain, and for consumer-level data, such as buying patterns, loyalty and demographics, offer rapid ROI. So, even when IT budgets are feeling the pinch, as they are in the current economic climate, the business case for services around analytics is not a difficult one for CIOs to make.

TCS has a partnership with SAS which accounts for much of TCS’s retail analytics revenues. But SAS doesn’t provide the price optimisation solutions that offer retailers the fastest ROIs. The market leader in price optimisation is Oracle and its ProfitLogic suite. In the current economic situation, with retail margins narrower than they’ve been in years, getting retail pricing right is crucial. TCS needs to build its services around price optimisation solutions, and therefore with Oracle.

Retailers putting other IT projects on the back burner will impact TCS

The global economic slowdown is forcing retailers to delay or cancel IT projects that aren’t mission critical, offer tangible cost savings or rapid ROI. These cutbacks are affecting hardware, software and services vendors. For vendors with little exposure to the retail vertical, these cuts don’t matter much. But for vendors such as TCS, with significant retail exposure, they do.

Approximately 9 percent of TCS’s total revenues are from retail. So, the rate of decline of IT spend in the retail industry over the course of the downturn is of concern to TCS. The counter-cyclical opportunities arising from BPO and analytics provide TCS with a safety net in retail, but it will still feel the pinch of dwindling discretionary spend as national economies slide further into recession.

Before the credit crunch hit, many retailers were talking about transformational infrastructure projects and ‘nice to haves’ such as digital signage. Those projects have largely been set aside. Plans to broaden mobile device use on the shop floor to offer mobile POS (point of sale/service) and price checking have also been mothballed, as have in-store merchandise management solutions.

The author is senior analyst at Ovum, UK