Big is Beautiful

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November 23, 2014

Manu Kaushik and Arpita Mukherjee, Business Today
New Delhi, 23 November 2014

Ahmedabad-based Anish Nagpal has been selling products online since December 2011. He sells clothing, footwear and home decor under his own brands, Cenizas and Macoro.

In October, as festival buying peaked, Nagpal’s company cashed in by selling over 80,000 items, much higher than the average of some 50,000 in other months. However, around 90 per cent of his sales, in terms of the number of items, were on Flipkart and Snapdeal, the two big e-commerce rivals which, fattened with funding, have unleashed high-decibel advertising campaigns.

The others – Naaptol, ShopClues, HomeShop18, Limeroad and Indiatimes – where, too, Nagpal peddles his wares, brought in little more than chickenfeed.

“Large e-commerce sites generate more traffic and therefore we tend to focus more on them,” says Nagpal. On October 6 alone, Flipkart’s Big Billion Day, a discount carnival intended as a tribute to the flat number 610 in which Sachin and Binny Bansal set up the company in 2007, Nagpal sold 11,000 items on the site.

Nagpal, who has nearly 15,000 product varieties and an online stock of 1.5 lakh products, says that even in terms of listings and catalogue he is biased towards large players. “At the end of the day, I have limited inventory and bandwidth. I will put my efforts behind the big names.”

He is not the only one to think like that. In January this year, electrical equipment maker Havells India started selling its 700 products online through tie-ups with Amazon, Naaptol, Pepperfry and Indiatimes. The company quickly realised that the large ones, with their scale, gave more for less. In October, Havells sold 3,000 pieces to these websites out of which 2,500 went to Amazon India. “We have just started selling online and we are still testing this channel. A bigger e-commerce company can help us in understanding the market better,” says a Havells spokesperson.

Likewise, consumers, too, are moving towards the biggies. In Pune, 28-year-old Mohua Mandal was shocked out of her wits when her father’s customary Diwali gift this year, a saree, was delivered to her by Flipkart. Kolkata-based Santosh, Mohua’s father, found it the most convenient way. The choice was vast and the discount deep. And there would be no need for him to find a courier to carry the saree from Kolkata to Pune.

Santosh, a retired railways professional, is hardly the kind that listens to punk rock on headphones and makes online purchases in coffee shops. But the sustained advertising blitzkrieg by the big e-commerce players first made him curious and then a convert.

“There was a tangible decline in footfall and transaction [in malls and offline stores], which was attributed by retailers to the whole e-commerce shebang,” says Devangshu Dutta, CEO of consulting firm Third Eyesight.

According to industry body Gartner, the e-commerce market stands at $3.5 billion, which is expected to reach $6 billion in 2015, a 71 per cent growth.

Experts attribute the growth this year to the publicity around the growing e-commerce market, deep discounts and the ease of purchase. This, along with a one-upmanship battle raging between the big guys – Flipkart, Snapdeal and Amazon – a lot more willing customers are joining the online consumer base.

However, this growth is hardly even. The likes of Flipkart, Snapdeal, Amazon and eBay are taking away the lion’s share of it. Small and niche e-commerce firms such as Infibeam, Naaptol, Tradus, and a plethora of others, seem to have lost ground due to inadequate money power.

eTailing India estimates suggest that the pie this festive season was gobbled up mostly by Flipkart, Amazon, Snapdeal and eBay. While there are no official estimates, the Big Four have together cornered 70 per cent of the e-tailing market, averaging out the sales during the festive and non-festive seasons.

Starting with the Big Billion Sale on October 6, when it sold products worth $100 million in 10 hours and saw a billion hits on the website, Flipkart had a dream run in the month. If traffic is a good proxy to measure sales, Flipkart was far ahead of the others on that day. However, according to Internet agency SimilarWeb, there were 16.4 million visits on Flipkart on October 6. For smaller ones like Homeshop18 and Lenskart, the numbers were merely 543,056 and 120,852.

Throughout October, Flipkart had an average daily traffic of 10 million, compared with six million in the month before. Its October revenue stood at around $400 million, while Snapdeal clocked some $120 million, according to Spire Research and Consulting. Smaller players registered far lower revenues.

Sandeep Sharma, Co-founder and Chief Operating Officer of niche e-commerce portal Yepme.com, accepts that the large players are hogging the limelight. “I think smaller e-commerce players have been overshadowed by the bigger players. Companies such as FashionAndYou, Lenskart, Fashionara and ShopClues don’t have the kind of money that big e-commerce sites have raised or have committed for expansion. Big players have deep pockets which smaller companies can’t match.”

Yepme sells its products on its own website (Yepme.com) as well as other large e-commerce portals such as Flipkart-Myntra and Snapdeal. The buzz created by large players resulted in Yepme clocking higher sales growth on other portals as compared to its own website in October. “The sales growth on other websites was 100 per cent in October, whereas the growth on our own website was just 50 per cent,” says Sharma.

Other small outfits disagree with him. Naaptol, Homeshop18, Mydala and Infibeam say they, too, have grown well. Mydala claims its sales rose 60 per cent during the festive season. “We are not spending anything close to what they are spending,” says its Co-founder and Chief Technology Officer, Ashish Bhatnagar. “We cannot make that big marketing push. Not just because they have deep pockets but also because we do not believe this will give us return on investment.”

Homeshop18 says it wouldn’t be squeezed by the march of the e-commerce biggies because most of its revenues come from television. “The web audience is evolved and can do its own online research. Television audience is different; you need to hold their hand,” says Vikrant Khanna, Chief Operating Officer, TV Business, Homeshop18.

The smaller firms also say that profitability is supreme for them. Infibeam Founder and CEO Vishal Mehta says size is important, but so is profitability. “Those who have the largest market shares will not necessarily be the last men standing.” Infibeam, he says, broke even last year and expects profits this year.

The small outfits say they benefit from the rub-off of the advertising campaigns of the big players. “We see huge traffic whenever big players advertise,” says Sanjay Sethi, Co-founder and CEO, ShopClues.com, an online marketplace.

Advertising spends by e-commerce players this festive season in the week leading up to Diwali were 40 to 60 per cent higher, says ad retargeting company Vizury. Take the case of Snapdeal. A 10-second spot on Sony’s game show KBC costs around Rs 6 lakh, and Snapdeal has gone in for an in-show integration, with a Snapdeal-branded question, for which it would be paying a premium of 25 to 30 per cent.

ShopClues, with much less money to play with, decided to stay away from the print and TV advertising frenzy. As compared to around nine to 12 per cent of the top line for large players, ShopClues spent around 6.5 per cent on marketing in the festive season. It confined itself to a small awareness campaign.

Gaurav Gupta, Senior Director, Deloitte India, says the smaller players will continue to get squeezed. “It requires a large amount of capabilities to become a large player: building brand, product catalogue, offering competitive prices, and customer experience. In all these areas, large players clearly have an advantage.”

Experts believe in specific categories such as fashion, those other than Jabong and Myntra clearly lost out on the discounts battle.

The small players, many of which thrive in niche segments, will face more heat because the big ones have followed them there. Flipkart acquired Myntra this year to widen its apparel offerings. Snapdeal sells furniture, an area that was so far the domain of mainly FabFurnish and Pepperfry.

However, FabFurnish Co-founder Vikram Chopra is unfazed. “The experience that players like us can offer is unmatched. You need specialised experience in running a furniture business online. Walmart sells furniture in its store, but people still go to Ikea.”

That they do, but the moneybags have veered largely towards the big e-commerce players in India. With the recent round of investment of $627 million from Japan-based SoftBank, which it announced on October 28, Snapdeal has now raised about $1 billion from investors such as Temasek, Myriad, Tybourne, and Blackrock.

Flipkart has also raised substantial sums from investors such as Tiger Global, Accel Partners and Morgan Stanley. Then there are the Indian arms of the global biggies Amazon and eBay.

Experts say that e-commerce in India is in a habit forming stage and money will have to flow – in advertising and discounts – to lure more consumers, and bring them online more frequently. That is why investors do not mind punting on the promising ones like Flipkart, which many have taken to calling India’s Amazon, and Snapdeal, its close rival.

The question is, for how long will they continue to pump in money without worrying about profits? For the smaller ones, it is the opposite: how long will they make do with claims of profitability, without worrying about funding?

Additional reporting by Arunima Mishra and Taslima Khan.

(Published in Business Today)

A degree of style

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November 21, 2014

Pradipti Jayaram, Hindu Businessline
Bangalore, 21 November 2014

If you’re someone who has for long harboured the dream of studying at prestigious universities abroad, such as the University of Oxford, Harvard or UCLA, or even someone who just wants to make that impression, merely by owning merchandise from those institutions, there is good news for you.

The University of California and Los Angeles’ merchandise is already available at Lifestyle stores across India. Harvard University has been selling its merchandise online in partnership with Myntra. Likewise, the University of Oxford recently tied up with Franchise India and US-based Bradford Licensing to produce and sell Oxford LLP merchandise India, 2015 onwards. This includes apparel, back-to-school products, mementos and other memorabilia.

Why do these institutions, which don’t have campuses in India, sell their wares here? According to Srinivasa Rao, Head-Marketing, Lifestyle International Pvt Ltd, UCLA-branded goods are popular and are doing very well in terms of sales. “Based on our experience, over the last two years, we feel that this category has good potential and will continue to grow,” he adds.

“University gear began as a means to inculcate a feeling of belonging, fellowship, and college pride among those associated with the university,” says Devangshu Dutta, Chief Executive at consulting firm Third Eyesight. He believes this feeling extends not only to current students, but their families, as well as alumni and their families. “For the more ‘desirable’ campuses the pull even extends to customers who have no direct connection with the university,” he adds.

For Ankit Kapoor, a New Delhi- based high school student, if he could get his hands on some university merchandise in India he would surely buy it. “Harvard and Oxford have an awe-inspiring reputation in India. Many prominent Indians have studied there. I hope to study at either of them, too, one day,” he adds.

“The University of Oxford enjoys a worldwide reputation and could be considered to be as famous as luxury brands such as Louis Vuitton and Ralph Lauren in terms of brand awareness,” says Chris Evans, managing director of Oxford Ltd, the university’s commercial arm, to a news agency.

“We launched UCLA’s gear in India when we realised that collegiate wear, growing in popularity, was an under-serviced category. There is a substantial section of the upwardly mobile urban population that patronises such collegiate wear, as it offers a relaxed wear option with a premium appeal and helps them connect with the institution’s brand,” says Lifystyle’s Rao.

Slice of the pie

In India, the number of current and past students of these foreign universities and their families is too small to form a target group, says Third Eyesight’s Dutta. “The addressable market, therefore, must include consumers without a direct connect, a group that any other international brand is also targeting. Many fashion brands already use faux university logos on their graphic t-shirts, sweatshirts and jackets, as a design feature. So it is reasonable for genuine university merchandise to aim to get some of that business,” he elaborates.

However, he believes that it is the pricing, availability and visibility that will determine the success of such college gear, as it does for any other brand.

According to a recent article in BusinessLine, the apparel range of Oxford University will be placed in the “mid-to-premium range” and categorised in the affordable luxury segment.

“The job of a brand is to create an additional pull, perhaps, provide a price premium or extra margin to the brand. At this time, it’s an open question whether the college logo will pull consumers in the same way or more than an established premium fashion brand, if the college merchandise is priced at par or higher than competing fashion brands,” he adds.

Better visibility

What about alumni of these institutes who wear their foreign education as a badge of pride and revel in the exclusivity it confers? Are they indignant that a mere piece of apparel can smooth over the difference, even though it’s only in appearance?

Rahul Advani, a Singapore-based musician and University of Oxford alumni, says it’s a positive trend and that more people, irrespective of their association with the University, should have greater access to such merchandise. He believes it will contribute to further enhancing the reputation and prestige associated with the universities, and can possibly help attract and increase funding and donors “which universities in the UK need, given the recent cuts in government funding”.

“The more that people know about Oxford, the better,” he adds.

Having said that, don’t these universities’ brands, like all brands, run the risk of over-exposure? For the answer to that one, stay tuned…

(Published in Hindu Businessline)

Booming e-tail sounds death knell for electronic retailers across the country

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November 20, 2014

Rahul Wadke/Rajesh Kurup, The Hindu Businessline
Mumbai, 20 November 2014

Till a couple of months ago, Peshwa Acharya used to call up Shailesh Bhai, owner of a nondescript electronics shop Maruti Infosystem at Lamington Road here to buy mobile phones or laptops.

He would get discounts as high as 12 per cent and home delivery.

But of late, he makes nearly half of his purchases through e-commerce sites; the reason: transparency in pricing, array of choices, convenience of buying and even higher discounts.

“People like me will move over completely to online buying as India is now leapfrogging to e-tailing much faster than expected,” said Acharya, the founder of focused marketing firm ‘Think As Consumer.’

This has already sounded the death knell for traditional electronic retailers in areas such as Lamington Road in Mumbai, Nehru Place in Delhi, Canning Street in Kolkata and Ritchie Street in Chennai.

Plummeting sales

Vendors lamented that their sales have dropped by more than 35-40 per cent during the past three months as online market firms went on a marketing blitz.

“Our bottomline is being hit badly, and sales are dipping by the day. How these companies (online firms) manage to sell below dealer prices is not clear. If this continues, we (retailers) will have to close shop in the next five years,” Chintan Zangda, owner of Computer Section in Mumbai, said.

“Our only recourse is to approach the Competition Commission of India, for violation of the Competition Act,” he added.

There are an estimated one lakh small retailers in the consumer durables, information technology and telecom retail space in India, which is worth Rs. 50,000 crore.

The plight of retailers elsewhere is similar. “I am thinking of quitting this and getting into something else,” Basavraj, a computer trader from Bangalore said, adding his turnover has plummeted to about Rs. 1 crore today from Rs. 5 crore earlier.

Grim scenario

E-commerce firms are flush with cash from multiple rounds of investor funding and are battling for market share. Here, discounted price is the prime differentiator, said Devangshu Dutta, Chief Executive of consulting firm Third Eyesight.

“In our marketplace, products are sold in compliance with the laws of the land. We clearly tell our sellers to sell products in accordance with applicable laws,” a spokesperson for India’s largest online retailer Flipkart said.

“All authorised dealers and middlemen can sell their products on online platforms,” is what Flipkart has to say on the conflict between retailers and online marketers.

For online firms, however, business is not as easy as it seems.

“All the major e-tailers are not just acquiring customers at high costs, there is also a huge customer churn and little loyalty or stickiness,” Dutta added.

All said, e-commerce is a reality that cannot be wished away, at least by retailers.

(Published in The Hindu Businessline)

Wal-Mart denies violating FDI norms, says all rules followed

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November 20, 2014

Hindustan Times

New Delhi, 20 November 2014

Multinational retailer Wal-Mart on Thursday refuted the allegations made by Cobrapost.com of foreign direct investment violation in India and insisted that it regularly conducts membership audit internally to keep a tight vigil and continuously improve strict compliance norms.

Cobrapost, which recorded the entire operation on video, had shared its findings exclusively with HT. Based on that, HT reported on Thursday that Wal-Mart, Metro Cash & Carry and Carrefour, which are allowed to sell goods and merchandise only to wholesale customers in India, are blatantly violating rules and selling to individuals.

Wal-Mart claimed it has deactivated membership of more than 1,50,000 members over the years due to failure to furnish renewed business licenses. “I would like to highlight membership is rejected… terminated… in case it is found that the business license provided by the member is not valid or the member is unable to produce a valid license,” Rajneesh Kumar, vice-president, corporate affairs, Walmart India, in an email response to HT.

On Thursday, Cobrapost.com editor Aniruddha Bahal said: “If a proper investigation is done by the commerce ministry on the membership base, specially focusing on the add-on cards, I am confident there will be a big chunk of people, who would not qualify to be either resellers or institutional investors…”

“Does commerce ministry have a process to monitor what these stores are doing,” Bahal questioned.

Minister of state for commerce and industry Nirmala Sitharaman, when contacted by Hindustan Times, for her response on the issue declined to comment.

“It is not possible for such global firms to violate legal agreements with a sovereign entity…They would have followed all the norms,” said Devangshu Dutta, chairman, Third Eyesight, a retail consulting firm.

However, Wal-Mart refused to respond on how individuals were purchasing from these cash-and-carry stores as shown in the Cobrapost.com video.

“At Wal-Mart, we adhere to very strict compliance processes and have a robust membership process. We are not only fully compliant with the foreign direct investment (FDI) regulations in the country but also remain fully committed to follow the laws of the land,” said Kumar.

Carrefour and Metro had not responded to a detailed questionnaire on the FDI violations at the time of going to print.

(Published in Hindustan Times )

Wipro Consumer Care & Lighting sees a billion-dollar revenue this fiscal year

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November 16, 2014

Varun Sood, The Economic Times

Bengaluru, 11 November 2014

Wipro’s consumer care and lighting business could end this fiscal year with $1 billion (Rs 6,000 crore) in revenue, as the privately-held company expects the Narendra Modi-led government’s promised reforms to start reflecting on the ground, leading to a better second-half of the year for the company.

Wipro Consumer Care & Lighting, which reported a little more than Rs 5,000 crore in revenue in the year ended March 2014, saw a 25% growth in revenue in the quarter ended September, according to a senior company executive. "We did 11% volume growth (in the second quarter)," said Vineet Agrawal, president, Wipro Consumer Care & Lighting, adding that revenue grew 25% in that period on account of the 10-11% price hikes the company undertook.

This growth will be the envy of some of the goliaths, including Hindustan Unilever that saw a 5% growth in volume and homegrown Dabur that saw volume growing at less than 9% in the July-September period.

Significantly, four states—Karnataka, Andhra Pradesh, Maharashtra and Gujarat—account for over 70% of the company’s topline, while the company generates 53% of business from overseas, including China, Indonesia and Malaysia. Since a large chunk of revenues are accounted from international markets, Agrawal shies away from putting a number because a currency depreciation could prove to be the biggest spanner in the company’s e growth. Nonetheless, he remains optimistic that the Modi government will walk the talk and release money for the pending projects, thereby giving a boost to discretionary spending."The bigger struggle for now is liquidity. The money (is stuck) with our traders and distributors. Earlier, if they paid me in 60 days, now they pay me in 90 days," said Agrawal.

The fast-moving consumer sector growth has halved to 9% in 2013 from 18% in 2012 with some experts pencilling-in a lower growth for this year on account of "uneven demand", hurt by below normal monsoon, higher competition among companies and lower economic growth leading to less increments.

"Multiple reasons (including) Intensification of competition among firms, food inflation, lower monsoon and low increments suggest that growth for the sector as a whole will be lower this year," said Devangshu Dutta founder of Third Eyesight, a Delhi-based consultancy.

"So, against that backdrop, Wipro Consumer story is heartening. A lot of this success is also on account of overseas acquisitions made by the company. Also, in the last few years, the company has tried to reposition itself."

Wipro’s lighting and furniture business accounts for 18-19% of the company’s domestic sales of about Rs. 2,400 crore. It recorded a 14% growth during the second quarter. Although Wipro consumer’s two brands account for a large share of revenues, with Santoor alone bringing in 25% business and Yardley accounting for another 15%, Agrawal dismissed any talks of skating on thin ice.

"It is our strength. I would not like to have seven brands which each have a 5% share. For the simple reason, if you are not big, you cannot be profitable, you cannot defend or be aggressive," he said.

The management also believes that India could soon see a lot of more white goods being sold through ecommerce sites as the smartphone penetration increases. In China, which accounts for about 15% of its Rs. 2,600 crore business from overseas Rs markets, Wipro Consumer generates 9% business from internet users.

In India, like in Indonesia and Malaysia, Wipro Consumer currently generates less than 1% of overall business from e-commerce sites.

(Published in The Economic Times)