Several IT companies like Infosys, Wipro, Cognizant, Tata Consultancy Services (TCS), etc., service the retail sector in the US. Analysts claim that the clients of such IT companies could eventually cut IT services budgets, according to a report by The Economic Times.
Moneycontrol could not independently verify the report.
The ongoing coronavirus pandemic has caused several businesses to shut down stores or implement drastic cost-cutting measures like pay cuts or furloughing employees. A prolonged situation could directly affect the business for Indian IT companies who offer services to these companies in the United States.
Several retail stores and other non-essential services have taken a hit in business after the US government imposed several restrictions due to COVID-19.
Neiman Marcus, a luxury fashion retailer based in the US, has reportedly shut more than 40 stores and furloughed thousands of employees as it declared bankruptcy last week. Another prominent retailer, JCPenney, is also reportedly on the verge of filing for bankruptcy after having to shut down several stores in the US.
How does this affect Indian IT companies?
The core store support areas at these retailers – such as support for software used in stores for billing, data management, application testing and management — could drop 50-75 percent over the next three to four months, said Phil Fersht, the chief executive officer of HFS Research.
“The core retailers are all looking to expand reliance on their online retail channels and have all been eagerly engaging with service providers to scope out scaling and expanding capabilities. However, traditional support areas supporting their store operations are going to suffer quite substantially,” said Fersht who expects the overall IT budgets of some retailers could be down by as much as 50 percent in 2020.
Peter Bendor-Samuel, the chief executive of Everest Group, said the slowdown at retailers would have “the effect of initially postponing large projects, then it will likely give way to aggressive cost take out programmes”. Bendor-Samuel also believes that such cost reductions could create an opportunity for some Indian technology services providers.
“They will likely look to cut 20 percent or more from existing service contracts. However, within a year there are likely to be new areas,” he added.
Technology services for online shopping are expected to increase by 10-20 percent and see the deployment of more IT professionals in areas such as e-commerce support, logistics and supply chain support and analytics, according to HFS Research.
Follow our full coverage of the coronavirus pandemic here.
Moneycontrol Ready Reckoner
Now that payment deadlines have been relaxed due to COVID-19, the Moneycontrol Ready Reckoner will help keep your date with insurance premiums, tax-saving investments and EMIs, among others.