Retailer outsources IT to IBM in £360m deal

The US consumer electronics retailer, Circuit City Stores has outsourced the bulk of its IT operations to IBM in a seven-year deal that is aimed to cut 15% from IT costs over the life of the contract.

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The US consumer electronics retailer, Circuit City Stores has outsourced the bulk of its IT operations to IBM in a seven-year deal that is aimed to cut 15% from IT costs over the life of the contract.

Under the outsourcing deal, announced last week, IBM will manage Circuit City's IT systems, security and web site, explained a Circuit City spokeswoman. IBM will also manage Circuit City's help desk operation, she said.

Circuit City Stores said that the outsourcing plan is part of a larger set of restructuring actions, including layoffs of workers in stores and a realignment of its regional organisational structure.

"We are taking a number of aggressive actions to improve our cost and expense structure, which will better position us for improved and sustainable returns in today's marketplace," said Philip Schoonover, chairman, president and CEO of Circuit City, in a statement. "These actions represent the execution phase of the work initiated this winter to accelerate Circuit City's transformation. We expect to deliver improvements in our selling, general and administrative expense rate while maintaining appropriate investments to drive our key strategic initiatives such as digital home services, multi-channel and home entertainment."

The spokeswoman said that the outsourcing pact will affect about 130 IT staff at the company's headquarters. About 60 of the IT workers will become IBM employees, and the rest will be laid off with severance packages calculated based on years of service, she said. She said that the company expects IBM to be running IT operations by the start of the holiday sales season.

Evan Schuman, a retail industry watcher and blogger, noted that while retail companies often outsource some IT operations, the Circuit City pact is larger than most. "Certainly, outsourcing IT projects is nothing new with large retailers, but to outsource this much is a big step," he said.

He believes other retailers can be expected to follow Circuit City's lead, particularly as in-store technologies become more sophisticated and require internal IT employees to focus on them rather than on the more mundane infrastructure management tasks.

Patrick Thibodeau contributed to this story.

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