Little Cheer in Yuletide Teleservices Outlook

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Gloomy retail forecasts for the end of the year make the holiday season look scarier than Halloween to some industry analysts.

"I think a lot of us thought that the rebound would have kicked in by the end of this year," said Brian Bingham, manager of CRM services with IDC, Framingham, MA. "I don't know that the economy has rebounded as much as we expected it to."

Analysts expect demand for direct response services, including catalog, direct mail and DRTV, to be flat or worse. The Direct Marketing Association predicts catalog mailings to roughly equal last year, and retailers are reducing mailings and focusing on loyal customers.

Low DRTV media rates might be thought to encourage extra ad spending, but they indicate low demand for airtime, said Alan Creech, an analyst with Emerging Growth Equities, King of Prussia, PA. Fewer DRTV commercials likely mean less work for teleservices agencies that specialize in consumer response.

The teleservices industry, which provides the customer service and response backbone for marketers, depends on the retail economy to generate business, and if the retail economy is down, teleservices tends to go with it, Bingham said.

A poor holiday season would provide an unhappy, but consistent, finish for teleservices in 2002, which has been marked by troubles in the telecom industry and a decline in credit card offers. Both represent the bread-and-butter business of inbound teleservices.

"It's been a difficult year for inbound providers," said David Doft, advertising and marketing services analyst with CIBC World Markets, New York. "We have not seen the business we've seen in the past."

Not all the news is bad. Though demand for traditional direct response services likely will fall, reducing business opportunities for teleservices providers, a successful e-commerce season could be the wild card that gives call centers surprising growth opportunities, Creech said.

Bolstered by the continuing migration away from in-house teleservices operations to outsourced providers, inbound call center operators will continue to enjoy modest growth through the fourth quarter into next year, Creech said.

While economic troubles have clouded the holiday picture for retailers, tough economic times have been a boon to many inbound teleservices providers, Creech said. Cost-conscious managers are tallying the costs of maintaining their in-house call centers and finding the numbers harder to justify.

"The math is really starting to play in their favor," Creech said of inbound providers. "In the next five years, I think 20 to 25 percent of the industry could be outsourced."

Competition for inbound contracts is increasing as more call center operators enter the game, such as ICT Group, which Creech estimated got 20 percent of its business from inbound a year ago and now gets more than half. However, with only 15 percent of inbound teleservices in the nation being performed by outsourced call center providers, according to Creech's estimate, there should be room for new business.

Not all analysts agree even with that modestly rosy vision of the future. Some said that though companies are investigating outsourced teleservices as a cost-cutting measure, few can afford to invest time in such a significant transition, largely because they are occupied with dealing with the shaky fourth-quarter economy.

"They're making inquiries but not signing on the dotted line," Doft said. "It's not helping the industry much."

Any optimism would have been surprising in October, when the nation's retailers, including Wal-Mart, Target, TJX and Kohl's, reported weak sales for the fall season. The miserable back-to-school showing led to many grim expectations for Christmas.


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