Retail vertical for IT cos in slow lane
Discretionary spend in retail continues to fall, while other segment comprising grocery and daily-use items sees good demand
- Inflation hits discretionary IT spend in retail
- However, large retailers may see marginal rise in tech spend
- Retail 2nd biggest vertical after BFSI for Indian IT firms
- Large cost savings deals likely in coming quarters
Brokerage firms pointed that large cost takeout deals are coming to the market, which augur well for big firms
Bengaluru: Retail vertical of Indian IT services companies is likely to see some moderation in growth in 2023 as compared to last year as volumes continue to be under pressure in key markets like the US and Europe owing to high inflation.
However, experts pointed out that while discretionary spend in retail continues to be on a slow lane, other segment comprising grocery and daily-use items see good demand. In this perspective, big retailers’ spending on technology is likely to be sustained despite fall from 2022 level. Brokerage firms pointed that large cost takeout deals are coming to the market, which augur well for big firms.
“Retailers expect their revenue growth to be soft in 2023 over previous year as pressure on volumes continues due to the ongoing high inflation and we believe this may lead to soft revenue growth in retail vertical in this calendar year for Indian IT companies over last year,” ICICI Securities said in a note.
US retailer Walmart said that its capital expenditure in FY24 may go up marginally driven by continued multi-year investment intechnology and innovation for optimising supply chain and stores. Similarly, Home Depot has implemented new tools and technology in stores to improve customer service.
While retail sector growth in the US remained steady, European retailers flagged concerns owing to uncertain economic environment in this region arising from ongoing Russia-Ukraine war. Despite the uncertain demand growth, European retailers including Carrefour, Sainsbury, H&M, Marks & Spencer, Metro AG have said that their investment in the technology areas would continue as they increasingly tap digital channels to drive sales. Spend in data analytics, AI & IT infrastructure areas remains strong.
In the third quarter ended December 2022, large IT firms reported a healthy growth in the retail vertical. This vertical carries a lot of importance given that it contributes the second highest revenue to the top line after the BFSI (banking, financial services & insurance) vertical. TCS bagged deals worth $2.1 billion in retail vertical in the third quarter. Infosys won seven large deals inretail vertical out of total 32 deals. Similarly, HCLTech won a large deal from a Europe-based retailer.
Analysts pointed out that cost pressure brings good news for Indian IT industry, especially for large IT firms as large cost savings deals would come to the market.
“We see a market which is facing some deceleration for everyone, with the cost saving segment coming back strongly. Growth is slowing, but not going away for all firms. The cost cutting market segment which is growing fast and off-setting some of the declines in discretionary digital favours large firms such as TCS, Cognizant, Wipro, and Infosys,” Peter Bendor-Samuel, CEO of global consultancy firm, Everest Group, told Bizz Buzz.