The Economic Times

Mumbai, 13 November 2014

Several brick-and-mortar retailers are forging exclusive partnerships with e-commerce marketplaces including Amazon, Flipkart and Snapdeal to target the growing base of net-savvy consumers, digressing from their earlier strategy of considering online players as rivals over deep discounting.

Dubai-based retail major Lifestyle International on Thursday entered into an exclusive partnership with Flipkart to sell goods from its value fashion format, Max Retail. And Max is just one of a clutch of brand that made similar deals – Future Group with Amazon, Tata-owned electronics chain Croma with Snapdeal, Amazon and Ebay, FabIndia’s partnership with Myntra and Viveks with Ebay – have all partnered online companies in the last few months.

"Apart from big sales potential, the biggest reason to go online is to target the millennial customers or those below 22 years old, who would first venture into an online store for shopping before hitting out at physical stores," said Lifestyle International executive director (Max Retail division) Vasanth Kumar. Max is targeting nearly 5-6% of its sales through Flipkart’s collaboration.

Nearly 70-75% of e-commerce transactions are being driven by the online marketplaces like Amazon, Flipkart, Snapdeal and Ebay in India. While online sales accounts for nearly 4% of the overall apparel market, it is as high as 15% for smartphones and between 5-10% for flat panel televisions, digital cameras and personal care gadgets.

Hence, experts feel that there is a need for such ‘co-opetition’ where companies engage in both competition as well as co-operation.

Retail consultancy Third Eyesight’s chief executive Devangshu Dutta said offline retailers have now started to acknowledge that online marketplaces are a part of life and it can add bandwidth to their sales. "For e-commerce companies, they need such brands to add critical mass and be trusted as a marketplace," he said.

At the same time, retailers are also safeguarding that merchandise aren’t deep discounted to en extent where it either erodes brand equity or bottom-line. For instance, Croma and Max Retail has mandated strict pricing norms with the marketplaces with whom it tied up. And despite that, Croma clocked a sizeable Rs 30 crore from online mega sale this Diwali.

"The marketplaces are like virtual mall with huge customer traffic which is a huge opportunity," said Ajit Joshi, MD & CEO at Infiniti Retail, which owns the Croma chain. "We don’t see online as a threat but another channel to reach out to customers," he said.

Joshi said Croma has a preferred relationship with Snapdeal and will partner with companies to launch exclusive models like it recently did with a Karbonn smartphone.

Ditto in the case of Max that has mandated Flipkart not to offer more than 10% discount. Though experts feel that after initial exclusive tie-ups, many brands could explore other marketplaces to magnify sales from online channel. "There is usually an exclusivity period for such deals that doesn’t go beyond many months as retailers seek other avenues," added Dutta.

Some retailers however, feel that their partnership could be stretched beyond just listing their wares on portals.

"The deal is deeper than just transactional involvement with Amazon. We are exploring several synergies in data sharing, co-branding, cross-promotion and distribution network sharing through the partnership," Future Group founder Kishore Biyani told ET last month.

(Published in The Economic Times)

Ajita Shashidhar and Arpita Mukherjee, Business Today

New Delhi , 9 November 2014

During the recent Navaratri festivities, a character in a popular fiction show on Star Plus, Yeh Hai Mohabbatein, was shown shopping online for gifts for her family.

She buys a piece of jewellery for her daughter from Amazon, the online retailer. She goes on to educate her daughter about the various facets of online shopping – ease of shopping, cash on delivery and so on. All this was woven into the script of the show.

Similarly, the contestants of reality show Bigg Boss, on Viacom 18’s general entertainment channel Colors, were seen buying household items such as refrigerators, microwaves and mattresses on Snapdeal.com’s Diwali Bumper Sale.

Indeed, as these examples illustrate, e-tailers such as Amazon, Flipkart and Snapdeal, are spending a fortune on television advertising. This is a throwback to 1999-2000 when dotcoms had raised a lot of money from venture capitalists and were spending heavily on advertising.

The advertising splurge this year is also because it is now a three-way fight to be the dominant e-tailer in the country, and all three – Flipkart, Snapdeal and Amazon India – have deep-pocketed backers who are going all out to win this battle. Broadcasters claim that e-tailers have been one of the largest contributors to their advertising revenue this year.

"From just four per cent (of total advertising spends on TV) last year, advertising spends of e-tailers has gone up to 12 per cent this year, making them the third-largest spenders on television," says Rohit Gupta, President, Multi Screen Media (MSM), which runs the Sony channels. The largest contributors continue to be fast-moving consumer goods (FMCG) companies with spends in the region of 35 to 40 per cent of the total advertising pie. Telecom and consumer durable companies contribute around 18 to 20 per cent each.

A 10-second spot on Sony’s game show Kaun Banega Crorepati costs around Rs 6 lakh and Snapdeal has gone in for an in-show integration. It has a Snapdeal-branded question on the show for which it would have to pay a premium of anywhere between 25 to 30 per cent. "E-tailers are increasingly opting for in-show brand integrations. In Bigg Boss for instance, we even had the Snapdeal delivery boys coming into the Bigg Boss house and delivering the merchandise," says Simran Hoon, National Sales Head, Colors.

Snapdeal’s marketing spends have shot up in sync with the multi-fold growth of the business. These kind of integrations convey the message that shopping on Snapdeal’s online marketplace is convenient with a wide variety of products available, says Sandeep Komaravelly, Senior Vice President, (Marketing), Snapdeal.

T. Gangadhar, Managing Director of GroupM’s media agency MEC, says that e-tailers spend on above the line advertising is justified, especially at a time when they are looking at smaller markets. "The next wave of growth will come from smaller towns and television and print platforms are the best way to reach out to these consumers," he points out.

A typical brick-and-mortar retailer, such as Big Bazaar or Reliance Trends, advertises aggressively only during festivals. However, analysts believe that e-tailers, like the FMCG companies, will continue to advertise round the year. "Advertising becomes crucial for an e-tailer as that’s the only way it can make its consumers aware of its products. They are not brick and mortar stores where one can walk in and touch and feel the products," points out Jagat Dave, Managing Director at Ambit Corporate Finance, an investment bank.

Not all e-tailers are going overboard on advertising. eBay, which has been around for nine years in India, doesn’t feel the need to splurge on television. "There was an era where people needed to be educated about online shopping. But I think we’ve passed that phase and now it’s more about how you convert people who are already online and make them online users," says eBay India’s marketing head, Shivani Dhanda.

In fact, Devangshu Dutta, CEO of retail consultancy, Third Eyesight, believes these e-tailers are splurging because they are flush with cash. "They have a lot of capital and they are trying to grab as much land share as quickly as possible. So, they are trying all kinds of advertising and are hoping it works."

How long will the e-tailers be able to sustain their advertising spree? Ambit’s Dave expects ad spends to increase because, he says, investors in e-tailers have also budgeted a huge amount for advertising. But not everyone agrees. Snapdeal is known to have posted a loss of close to Rs 300 crore in the last quarter itself and the financials of the rest of players are supposed to be no better. A lot will depend on whether these companies will continue to get as much funding from venture capital funds and private equity players as they are getting now. Clearly, if they continue to rack up losses, funds are bound to dry up and so will advertising.

(Published in Business Today, issue dated 9 November 2014)

Sagar Malviya, The Economic Times

Mumbai, 7 November 2014

Starbucks, the world’s largest coffee retailer, posted nearly three times more per-store sales than established rivals in India in its first full year of operations in the country.

Tata Starbucks, a joint venture between Starbucks and Tata Global Beverages, generated total revenues of Rs 95.42 crore in the year ended March 2014, according to its annual report filed with the Registrar of Companies (RoC) on Thursday.

With 43 stores until March, a back-of-the-envelope calculation shows that each Starbucks shop sold coffee, snacks and merchandise worth over Rs 2.2 crore last fiscal, significantly higher than the per-store sales of other coffee chains.

Amalgamated Coffee Bean, which runs the country’s top coffeehouse chain Cafe Coffee Day, hasn’t disclosed its latest financials yet. For 2012-13 it had revenues of 1,126 crore including income from its plantations business and sales through 1,400-odd cafes. That translates into not more than 80 lakh annual sales per store.

Starbucks’ per-store sales is, however, a tad lower than Jubilant Foodworks that runs over 752 Domino’s Pizza outlets and Dunkin Donuts and clocked sales of Rs 1,732 crore last fiscal, which means Rs 2.3 crore per outlet on an average.

While the company didn’t comment on financial details, a Tata Starbucks spokesperson said it is humbled by how Indian customers have embraced the Starbucks experience in the two years they have been in the India market. "We believe that over the long-term, India will be among the top 5 markets for Starbucks," said the spokesperson.

Starbucks currently operates 59 stores in the country and plans to close the financial year with 90 doors. Over last year, the coffee chain has more than trebled its authorised capital to 220 crore.

The company may not be able to keep up its high per-store sales as it opens stores in suburbs and towns where most consumers may find Starbucks pricey. Hence, it plans to open many stores that will nearly be three times smaller than its first few stores or half the size of average existing cafes.

"As they move from high traffic and high spends location, revenues or productivity of the stores will come down. Hence, per store sales might come down over the years once they open stores in smaller locations," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight.

Profitability also remains a challenge. In FY14, Tata Starbucks’ loss at Rs 51.87 crore was more than half its total sales.

"They are in growth mode and will have to incur initial losses," Dutta said.

Starbucks, which opened its first India store in October 2012, had posted Rs 14.61 crore in sales for five months ended March 2013.

While its pace of expansion in India has been a record for Starbucks in its 43-year-old history, Cafe Coffee Day has been opening new outlets several times faster – the home-grown chain opened around 150 stores in the past 12 months, taking its tally to nearly 1,500 cafes.

(Published in The Economic Times)

India has a rich culture and ecosystem of social enterprises, non-profits and many other social purpose organisations that serve the needs of many segments of society within a vast landscape. However, for a foreign investor looking for impact investing or other philanthropic opportunities in India, it can often prove to be a challenging journey. Devangshu Dutta (Third Eyesight/PVC Partners) and the Audrey Selian (Artha Platform) together provided a landscape overview of India, highlighted key challenges and pitfalls to look out for, and shared an insider view for international investors in this first part of AVPN’s India series.

Sagar Malviya, The Economic Times
Mumbai, 3 November 2014

Online retail seems to be rapidly coming of age in India — in the financial year ended March, Flipkart’s sales challenged those of its nearest brick-and-mortar rivals, according to filings with the Registrar of Companies, although the segments that they operate in aren’t strictly comparable.

Meanwhile, the marketplaces operated by both Flipkart and Amazon posted losses. Amazon, which entered India a year ago, logged a net loss of Rs 321 crore while Flipkart saw this more than double to Rs 400 crore, according to October 31 filings.

Due to curbs on foreign investment in selling directly to consumers, Flipkart and Amazon run their websites as marketplaces. Hence, the figures relate to commissions from sellers and revenue from advertisements on ecommerce sites. In this respect, Amazon Seller Services posted revenue (commissions) of Rs 169 crore while Flipkart Internet, which manages the portal, had a total income of Rs 179 crore.

However, Flipkart India Pvt Ltd, the website’s wholesale arm, said sales amounted to Rs 2,846 crore in the year ended March, more than double the Rs 1,180 crore a year ago.

Rival Shoppers Stop posted revenues of Rs 2,713 crore through its 73 department chain stores that mostly sell apparel and lifestyle products.

On a consolidated basis though, including electronics chain HyperCity, sales amounted toRs 3,771 crore. The Kishore Biyani-run Future Lifestyle Fashion posted total income of Rs 2,743 crore from its department store formats Central and Brand Factory besides its own labels such as Indigo Nation and John Miller.

Amazon Wholesale didn’t disclose a comparable total. It posted a total income of Rs 1.4 lakh with a net loss of Rs 3.71 crore for the six months ended March. CEO Jeff Bezos had said previously that it exceeded gross merchandise sales of more than $1 billion within a year of launching in India.

Online retailers typically burn through cash as they battle to acquire customers by offering goods at cheaper rates.

"At this moment, most companies are building market share rather than having a phase of harvesting their business model. Lots of money is being spent on building share and cost of acquiring customers has certainly gone up since last year," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. "In addition, online players are investing by building supporting infrastructure, which in turn affects profitability."

According to a report by consulting firm Technopak, the $2.3-billion e-tailing market is expected to swell to $32 billion by 2020 and account for 3% of the total Indian retail sector.

With Snapdeal reportedly posting a net loss of Rs 264 crore, the combined loss, along with Amazon and Flipkart, now stands at more than Rs 985 crore for the last fiscal.

Both Amazon and Flipkart didn’t respond to email queries. India’s largest online retailer expects to start making profits in a few years.

"With further expansion and emphasis on white-label products, your company has derived better margins which in turn shall help company to turn profitable in coming years," Flipkart said in its annual report.

Online retailers have been aggressive about winning customers through discounts but that has led to a backlash from traditional retail.

Flipkart’s Big Billion Day sale prompted brick-and-mortar store owners to lobby the government against what they said was predatory pricing. The government in turn promised to look into the policy regarding online retail.

A key reason for the surge in promotional activity was Amazon’s entry with an intent to spread itself across many product areas quickly in India, threatening the turf of market leader Flipkart. The US company has announced it will invest $2 billion in India. Flipkart has raised over $1.2 billion this year while Snapdeal has received about $850 million, including funding from SoftBank last week.

(Published in The Economic Times)