Year: 2014

Biyani’s Brand Factory unfazed by online sales

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October 27, 2014

Raghavendra Kamath, Business Standard
Mumbai,27 October 2014

Kishore Biyani, following the online discount fest that marked the season, has alternated between criticising an e-commerce portal (Flipkart) for undercutting and tying up with another (Amazon) to sell some of Future Group’s private labels.

But Biyani’s discount chain, Brand Factory, is putting up an unaffected front. While e-commerce portals spread an unease among offline retailer of all colours and stripes, Brand Factory’s business head, Suresh Sadhwani, says that an all-year discount chain is better placed than portals to win at the discounting game. "The market is too big (for us) to be affected by online sales. Besides, Indian customer still wants to come and experience the product, that’s where we matter," Sadhwani says. He says that Brand Factory, wuld not, in fact, look to sell online.

Sadhwani, however, adds that e-commerce players buy merchandise in bulk from brands, creating supply issues for brick and mortar discount formats, though he labels it as a temporary challenge.

Competing with the likes of Arvind’s Megamart and Loot, it follows the model of selling branded apparel and accessories that find their way to these formats after the biannual sales in regular multi-brand and single-brand stores. Besides discounting brands between 20 and 50 per cent, it also sells its own private labels.

In 2012, Biyani mentioned his intention to double, in three years, the business of the remaining multi-brand formats that he was left with after selling off Pantaloons to Aditya Birla Group, namely Central and Brand Factory. Company sources claim that Brand Factory is growing at around 15 per cent. Sadhwani affirms, "We are opening new stores and doubling topline will not be a problem."

The chain is now spreading its wings. Having consolidated its presence in the south with its acquisition of a regional discount chain, Coupon, which added 10 more stores taking its count to 39 stores in the south. "So far, we have built a strong presence in the south. Now we are looking to expand in the east and west. Coupon helped up scale u quickly instead of waiting for six-eight months for a store to gain traction," says Sadhwani. Planning about 10 stores in a year, it would open shop in places such as Kozhikode, Patna and Surat.

On the other hand, Brand Factory’s offline rival, Megamart is changing its business model from discount-led stores to value stores. "With the new Megamart stores, we are not dependent on brands. The cash conversion cycle is better," says a senior official with the chain.

It seems that rather than discounting in othe channels, the supply chain issues in the existing offline discount chain are a bigger problem for players like Brand Factory. For a discounting chain, having more of third-party brands don’t make for a profitable model. "How will you make money? Brands are not giving discounts and if you offer high discounts, you have to take a hit on margins. Having more of own brands makes sense," says a CEO of another retail chain, who declined to go on record.

Susil Dungarwal, former CEO of discount chain Loot, which has battled challenges of its own, says that Brand Factory resisting going online would work in the short to mid term. It needs to upgrade its brand mix and come up with new brands of its own to cater to a wider audience and reduce dependence on external brands.

Thirty-seven per cent of Brand Factory’s merchandise is made up of its own labels and it wants to take the share to 45 per cent, that would more of the margins that range from 40 to 45 per cent. Sadhwani says, "See, shoppers walk in to buy big brands and not only private brands, so we can’t completely go with private labels alone." Brand Factory is also coming up with seasonal lines. For instance, for the next season, it is coming up with an entire line of Daniel Hechter, a French brand retailed by Future Lifestyle Fashions.

Devangshu Dutta, chief executive of Third Eyesight, says if offline retailers provide discounting similar to online retailers, shoppers will buy from the former. "With online sellers, there is always a chance of inconsistency with the products as seen online. What is shown is not what you get many times. E-commerce is still a small segment of the market. The e-commerce players are spending a lot of money in acquiring customers but the percentage of sales in physical stores is still larger," says Dutta.

(Published in Business Standard )

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New perspectives needed for food and agricultural growth

Devangshu Dutta

October 25, 2014

These are thoughts shared in an emailed interview with the AgriBusiness and Food Industry magazine (published in the November 2014 issue.)

A Perspective on the Indian market:

Our first word of advice to companies that are looking at India as an evolving and large market, is to acknowledge the fact that that it has very diverse cuisines and food cultures.

Both Indian and international companies wishing to enter this market for the first time need to understand and acknowledge that one-size certainly does not fit everyone.

The variety of finished products needed requires food companies to address smaller quantities and to have flexible production.

Therefore, suppliers of capital equipment and technology also need to be able to think about how they can make their solutions more flexible to adapt to changing market needs, and also to price them appropriately for the Indian market. Simply extending solutions that work in large, developed markets such as Western Europe and North America is not the best approach.

I would use the example of one of our clients, a manufacturer of bakery automation equipment, who have approached the market with an open mind. After initial investigations they have gone back to the drawing board and created production lines that have smaller capacity, can produce multiple products including Indian specialities, and which are techno-commercially more feasible for an Indian customer to adopt.

There is no reason to think that India’s food industry should follow exactly the same development curve as the west. The population is much larger, with significantly lower income, and needs that are far more diverse and changing far more rapidly than in most other economies. The technical and technological models for India need to be strongly focussed on four major attributes:

• Water efficiency
• Energy efficiency
• Flexibility
• Cost efficiency

Agricultural, horticultural and animal husbandry practices and technologies, as well as those in the downstream sectors such as food processing, need to perhaps even look at setting new benchmarks for accessibility and long-term sustainability.

Food processing and the Indian consumer market:

Food processing has been part of human history since we learned to transform hunted, gathered and farmed raw products into new foods through curing, cooking, culturing etc. This processing has been driven by mainly two major factors: to make the raw material into a product that is more palatable and easily consumed (for example, from raw grains to bread), or to extend the storage life of the raw material (for example, in the form of cheese, pickles, or sweets, or using cooling and freezing).

However, during the last century, processing has been driven mostly by “convenience” by providing partly or fully cooked options, to reduce the time spent by individuals in cooking and to instead apply that time to activities outside home. Social structures in India are changing, as individuals are migrating out of their home-towns to other locations within the country. The number of households is increasing dramatically, while cooking time and cooking skills are both declining. With this, out-of-home consumption as well as partially or fully-cooked packaged foods are bound to rise, leading to greater need of food processing capacities.

Also, with increasing industrialisation of food manufacturing, standards have become important both for efficiency and for safety. We’re seeing signs of such development happening in recent years in India as well – expectations of both consumers as well as regulatory authorities are higher with each passing year. The industry needs to invest proactively in better technology and processes in all areas – cultivation, handling, processing, packaging, storage and transportation – to raise the standards of hygiene, safety, traceability etc.

Food productivity needs urgent attention:

India is among the largest producers of many agricultural products. However, our yields per head of workforce, per animal, per hectare, or per litre of water consumed can be improved significantly. Not only is the population growing, but per capita consumption of most products will rise as the economic situation of each family unit changes. Better practices, technologies and know-how need to be acquired and applied to dramatically improve Indian agricultural productivity.

An interesting model of development to look at is the “golden triangle” approach followed by the Netherlands – active and intensive cooperation between the government, academic institutions and the private sector.

So far, by and large, academic institutions in India have limited themselves to “teaching” and have stayed away from actively collaborating with industry. Academic institutions and the industry typically connect only for the occasional “lecture” by senior individual from industry, or during the time of recruitment of fresh talent. Government largely limits itself to creating macro-level policies. More effective communication and coordination between these three legs could help to dramatically improve the standards in the agricultural and food sector in India and make the nation not just self-sufficient but significantly more competitive in both cost and quality of the final products.

Similarly, active collaboration within the industry itself is important to achieve combined growth, which can only happen if companies step beyond the usual industry association framework.

Local production and service of food processing equipment is an important factor:

In cases where the market is large enough, local production of the equipment should certainly be investigated because it can help to bring down the initial capital cost for customers, and also provide a quicker service and support base.

A first step that a company takes is to create a local presence, either through a distributor or agent, or by directly opening a sales and service office of its own. However, most international companies need to gain a certain degree of confidence in the market, both in terms of sustained demand and in terms of operating conditions, before they would invest in manufacturing in India, since it takes a whole different level of management commitment as well as financial involvement.

With the announcement of the government’s “Make in India” initiative, hopefully more international companies will come forward to take advantage of the changing operating environment in the country.

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Flipkart to buy into Jeeves in home appliances push

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October 22, 2014

Mihir Dalal, MINT
Bangalore, 22 October 2014

Flipkart, India’s biggest online retailer, is close to buying a large stake in Jeeves Consumer Services Pvt. Ltd, which provides after-sales services on large home appliances and electronics, two people familiar with the matter said.

Flipkart is buying into Jeeves partly because the company plans to launch its private brands in home appliances such as televisions and refrigerators as well as electronics, said one of the people.

Flipkart has already launched a range of tablets under the Digiflip brand in June and is planning to launch private brands in the large appliances category, one of the persons said. Both of them requested anonymity.

Jeeves, which provides maintenance, repairs, product guarantees and other services, could also help Flipkart deal with pressure or possible moves by offline retailers and brands that have threatened to stop offering guarantees on products sold online. Jeeves has signed up with a network of brands including Samsung, Toshiba, Dell and others to provide after-sales services.

Mint couldn’t ascertain the value of the transaction. Flipkart did not respond to an e-mail seeking comment. Jeeves declined to comment.

Flipkart and other e-commerce firms such as Snapdeal and Amazon are confronting resistance from consumer goods makers and distributors to offline retailers as they try and grab a larger share of the consumer’s wallet by dangling attractive discounts.
Offline retailers are fighting for survival and are lobbying hard with the state governments and Centre to curtail e-commerce companies’ operations while brands complain that the artificially low prices online hurt their image. This hasn’t stopped online retailers from pursuing discount-heavy, high-cash-burn strategy of attracting customers.

India’s e-commerce market, excluding travel, is expected to surge sevenfold to $22 billion in five years from $3.1 billion, according to a November 2013 report by brokerage firm CLSA.

Flipkart, which has raised nearly $1.8 billion from investors since starting out in 2007, including $1.2 billion this year, is looking to aggressively push sales of high-value large appliances such as TVs, refrigerators and air-conditioners.

Having an after-sales service provider such as Jeeves Consumer, especially an efficient one, would help Flipkart build credibility on these products with customers, said analysts.

“There are two factors at work when consumers decide to buy large appliances online. One is price and the other is service support,” said Devangshu Dutta, chief executive at consultancy Third Eyesight.

“After-sales services are crucial to gain customer trust in buying large appliances and electronics, especially as people in the past have bought these kind of products online only to realize that the after-sales support was poor.”

Jeeves Consumer was started by former BPL executives Alok Sen and R.N. Balasubramanya in 2007. The company was financed by Sen, Balasubramanya, some of their employees and relatives until 2012. In May 2012, early stage investor Seedfund agreed to put in about `12 crore in tranches for a stake that could have risen to 30% over time, documents with the Registrar of Companies show.

Few online retailers in India offer large appliances due to difficulties in delivering them to buyers. In April, Flipkart said it started selling television sets on its website, re-entering the large appliances category nearly a year after it was forced to withdraw because of delivery problems.

Rival Amazon Seller Services Pvt. Ltd, the Indian unit of the world’s largest online retailer, said earlier this month it will offer appliances from brands including LG, Samsung, IFB, Panasonic, Voltas and Godrej as well as from retailers such as Viveks and Next.

(Published in MINT)

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Preparing for the big sale

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October 20, 2014

Devina Joshi, Ankita Rai & Sonali Chowdhury, Business Standard

New Delhi , 20 October 2014

Monday, October 6, 2014, was supposed to be India’s answer to America’s ‘Cyber Monday’. It was the day Indian e-tailing giant Flipkart unleashed its Big Billion Day sale, promising unthinkably deep discounts across a host of categories. The day ended up making history for all the wrong reasons – the website’s server crashed frequently, there were complaints of fraudulent pricing, stocks ran out within seconds of the sale launch, there were payment and delivery glitches, and to top it all, an unsatisfactory response mechanism from customer care. In short, Murphy’s Law operated in full force – to Flipkart’s injury and chagrin. Founders Sachin Bansal and Binny Bansal – who had claimed to clock $100 million worth of sales that day – were forced later to issue apology emails to their irate customers for not living up to expectations.

Juxtapose this against the success of Chinese e-tailer Alibaba’s ‘Singles Day’ sale (hosted every November 11 since 2009 to allow singles to pamper themselves). The company earned more than $5.75 billion in its 2013 sale – a record for a single day anywhere in the world, almost three times the sales of American Cyber Monday 2012. Backed by impeccable logistics and technology support, ‘Singles Day’ in 2013 witnessed 254 million transactions and 402 million unique visitors – two-thirds of China’s online population, creating a benchmark for the world.

Like everything else in business, the success of a sale of this scale boils down to delivering on customer expectations that you have set. In India, festivals and shopping go hand in hand – several brands garner 20-40 per cent of their annual sales during Diwali season alone. A retailer, whether it is an e-commerce website or a physical store, needs to be doubly careful about what he promises during a ‘festive’ sale: the damages from a sale gone wrong can be irreparable.

In Flipkart’s defense, it isn’t alone in such a fiasco – even physical retailers globally have witnessed property damage, severe injuries, even deaths, due to unexpected crowd surges, as Devangshu Dutta, chief executive at retail consultancy Third Eyesight, puts it. Recently, Australian retailer Target’s website crashed during a sale, and in the past, even Google and Groupon have had website crashes during peak sales.

What, then, should go into ensuring better preparedness during a discount bonanza in a bargain-frenzy market like India? How should retailers – both in the online and offline world – meet consumer expectations? What elements make for an ideal shopping festival?

Inventory planning

The triggers for consumers to throng a sale are many: frenzy, fear (of losing out on a deal), vanity or plain parsimony. Promotions that work well use the right combination of these buttons. Take Big Bazaar, which has year-round promotions to create occasions of consumption, whether one talks of ‘Sabse saste din’ (January 26 weekend), ‘Maha bachat’ (Independence Day weekend), or its sub-sales like ‘Exchange Mela’ or ‘Monthly Bachat Bazaar’. Once the consumer trigger is established, inventory needs to be planned on the basis of past experience and predictive data analytics, as well as considering macro-economic forecast parameters: festival measures, community measures, mood measures etc. For example, during certain festivals people buy specific kinds of things, or communities buy certain items at some point in the year. Next, Big Bazaar gets the best possible terms from suppliers, following which items are moved into the store at a specific speed. For Big Bazaar, the biggest satisfaction comes not from the quantity of goods that moved during a sale period, but also the velocity at which they moved.

For other retailers like Croma, the starting point is a conversation with brands, two-three months in advance. "We find out which new products/technologies are being planned for launch during the festive season," says Ajit Joshi, CEO and MD, Infiniti Retail. "We then ascertain what sort of marketing support and display they will need. The preview of products is very important."

By this stage, Croma figures out each brand’s ‘fill ratio’, which is the purchase order issued versus the stocks received. That efficiency varies from brand to brand. Big brands have better forecasting and hence better efficiencies. "We are then in a better position to ascertain the frequency with which we will need the stock based on volume projections," says Joshi. A new phone launch in the country will obviously require a bigger inventory than a product that has been around for some time. Croma follows a strict ‘new product introduction’ or NPI process. This becomes especially useful in the case of new products entering India that do not have great familiarity to fall back on and that may or may not do well. Such a product is launched in select stores. If the product does well, Croma is then in a position to place a bigger order and increase its spread to more stores. At a chain level, Croma clocks an 8 per cent inventory turn, that is, its total inventory is rotated a minimum of eight times in a year, while 12 per cent of its sales happen during the festive season.

Take another technology retailer, The MobileStore, which patronises seasonal promotions instead of discounts, including free accidental damage cover, theft insurance, extended warranty, free accessories (screen protector, mobile cover, memory enhancer) etc. Inventory planning is critical in an industry where new products are rolled out by the dozen almost every week. "Whether it is the iPhone 6 or something else, we will ensure these phones are available ‘first day first show’," says Himanshu Chakrawarti, CEO, The MobileStore. The company uses algorithms based on demand forecast inputs to plan inventory.

Online portal Fashionandyou uses data analytics based on four years of sale history and performance of each category, brand and price-point mix across 16 categories, while FabFurnish takes into account the past six months’ sales records and makes forecasts based on demands in each category. "Analytics technology is available far more widely and at a lower cost than ever before. Predictive analytics can be used by retailers to create models for demand patterns, expected traffic, and even provide dynamic pricing based on demand," says Dutta of Third Eyesight. Remember the accuracy of an analysis depends on the input data, the robustness of the algorithms, as well as the company’s ability to apply the output effectively.

Some retailers like Crossword, a popular bookstore, run selective previews of a ‘sale’ specifically for their members, and then open it up for a wider audience. This helps them gauge demand and popularity of products and also avoids the under-inventory issue. The online world can also learn from offline retailers by deploying a time-bound sale preview only for its loyal members. "Also, if you know that the spike in orders could be huge, don’t run the campaign for the full day; run it for a shorter duration," advises Praveen Sinha, co-founder and managing director of online retailer Jabong. The idea is to avoid being over-ambitious. As many marketers and analysts have warned before, it is better to under-promise and over-deliver than to allow that big promise blow up in your face.

Dealing with traffic snarls

Traffic management is key to any sale – online, this translates into website visitors whereas at brick-and-mortar stores, it spells footfalls. In the physical world, jostling for space can be as much a turn-off as server jams on an e-commerce portal. Big Bazaar sales are notorious for their serpentine queues where customers have to wait endlessly to get in or check out. In fact, its yearly Independence Day sale has had to be expanded from one day to a weekend over time because of the huge demand. Now, Big Bazaar is better prepared to handle a disproportionately large number of people to come in during big promotions. Traffic management starts right at the entrance, with barricades and security staff regulating the number of people who go inside at a time. People are usually requested to wait for some time and then they are let inside.

It doesn’t stop at that. The retailer works hard to create the right kind of ambience and visual display at the point of sale.

The ‘hero’ product of the sale will be displayed right at the entrance for example, so that the minute a customer walks into the store, she becomes aware that something special is underway. In case of ‘buy one get one free’ or ‘buy this, get that free’ type of offers, the two items are placed together, possibly gift-wrapped as a package, to make them look enticing.

Offline retailers ensure they decorate their stores attractively during the festive season and train the sales on handling such huge traffic flows without getting frazzled. Interestingly, Croma uses the time before a sale, particularly the month of shradh, to educate sales executives about brands and upcoming launches so that they are ready to answer consumer questions once the sale starts. Ditto for The MobileStore, which uses the period before the promotion to train its shop-floor hands on how to give consumers a live experience of handsets and comparisons.

Anticipating footfalls is mostly about experience and applying that insight to predict future demands. "We have realised over time that things like heavy policing on some days, or the availability of parking spaces etc, has a dramatic effect on footfalls," says Joshi of Croma. Also, it was assumed earlier that on a long weekend, people would flood malls for a sale, but in big cities like Mumbai and Bengaluru, people react differently now by packing up and travelling to, say, their ‘second homes’ on the outskirts or even in other cities.

To avoid queues on the dhanteras day – the day Hindus consider auspicious to buy precious metal or expensive household products – The MobileStore allows consumers to pre-book upcoming launches. Pre-booking is a great mechanism to manage traffic as one can anticipate how many people will walk into the store.

Managing traffic is no less cumbersome online. To improve customer experience on the site, e-tailers should allow customers access to information on inventory and how long it will last right upfront – may be on the home page itself as some companies like Amazon are doing. "When designing a campaign, you have to know at what time the ‘peak’ will come and how the flow will continue," says Sinha of Jabong.

E-retailers should also provide timely information to customers to earn their trust, says Ankur Singla, CEO & founder, Akosha.com, an online consumer forum that aims to resolve customer complaints, adding, "effective customer communication becomes even more important during a sale."

Depending on the SKUs on sale and discounts being offered, one can determine the number of transactions that can happen during the sale. "Based on the past history, find out how many conversions happen on a sale day," advises Pragya Singh, assistant vice-president, retail and consumer products, Technopak. "Design your marketing campaigns keeping in mind the objective, so that you invite only a certain number of people and not the whole world."

Logistically speaking

For an online sale, technology and logistics is an added area for concern. The efficiency and scalability of Alibaba’s network could be gauged from its handling of 156 million packages generated on ‘Singles Day’ in 2013, compared to a daily average of 13.7 million packages generated from transactions in China retail marketplaces (in 2013). Alibaba’s cloud computing platform enabled it to handle the traffic volume generated and manage transactions. The company also stirred demand by sending out $50 million worth of digital coupons prior to the sale. Some of these were specifically designed to drive purchases through mobile devices or on social networks. Free data was also offered to customers in some areas so they wouldn’t exceed mobile data limit while shopping. Strikingly, mobile sales made up 21 per cent of the transactions.

"We support our merchants to carry out seamless delivery of their shipments through our ‘powership programme’," says Shivani Dhanda, head, marketing, eBay India. The service includes product pick-ups from an eBay merchant’s doorstep, automated tracking of shipments and faster deliveries by logistics service providers. The logistics team needs to be prepared to handle additional workload during a big sale. This can mean hiring or outsourcing more staff, getting temporary workers aboard etc.

Sanjiv Kathuria, co-founder and CEO, DotZot (the e-tail logistics arm of DTDC), says, "We assess what the business plan means in terms of the number of shipments, orders sizes, weight of shipments (whether the e-retailer is planning to sell more microwave ovens or mobile phones) and then align ourselves with the retailer and accordingly book space in aircrafts."

Delivery is just one part of it; the logistics partner also has to see how many pick-ups and dispatches are to be done in a day. "If in a regular week, we pick the product from the retailer twice a day, we have to build capabilities to quadruple that for sale periods," says Kathuria. The staff has to be incentivised to work longer hours or handle more packages a day. Unless planned in advance, one can expect a day-long sale to end in minutes, leaving scores of people dissatisfied.

Paying the ‘price’

Pricing can be fixed on the basis of the SKUs selected for sale, category margins, popularity of the product, past revenue from same/similar brands during a sale period and so on. Discounts offered by competition need to be tracked as well.

Indeed, deals and discounts should be thought of well in advance, after discussing them with vendor partners. While offering discounts, e-commerce portals usually get approvals from the vendor. "We provide merchants of all sizes a level-playing field to compete for the share of the buyer’s wallet, which leads to an automatic mechanism of competitive pricing so that the buyer gets the best deal," says Dhanda of eBay.

What is an absolute no-no for a retailer is manipulating prices before offering discounts on them. "For an e-commerce business, the combination of external analytics showing an inconsistent pricing trend and social media to spread negative messages cause the quickest, biggest damage to the consumer’s trust in the brand," opines Dutta of Third Eyesight.

"The intent has to be correct. Perceivably false discounting was the downfall for Flipkart," opines N Chandramouli, CEO, TRA (publisher of the Brand Trust Report). "This is not the information arbitrage age and one can’t falsify data. People search and compare products on the internet before buying them." To regain trust Flipkart will have to tout honest prices, safe transactions and exclusivity of its deals, say analysts.

"Server capacity can be relatively easily enhanced, merchandise availability and service levels can be improved – these aspects have ‘technical’ fixes, but repairs to the reputation take far more effort and involve factors that are outside the company’s control," sums up Dutta.

Get the basics right: Seeraj Katoch

With digital touch points playing a key role in the consumer’s buying decision process, content marketing has to be a key component for brands to create the right content for the right platform that will lead to a surge in the conversation around the brand. Using a combination of platforms and creating relevant content for each of the platform will help drive content during the sales season.

Online companies are increasingly coming up with social media strategies to help brands engage with their consumers to increase sales throughout the remainder of the year. Even before the sale is planned, brands would have their champion products (high selling) which could be derived through data, so marketers can prepare content around that to target consumers. It is crucial to highlight the special product, something where they have a bigger bargain than the others in the market. For instance, during the sales period, you have discounts on several products but always place the champion product at the top of the line. During sales influence marketing plays a crucial role. Influence marketing can be done in various ways – through blogging, Instagram, Facebook and Twitter, but the impact needs to be generated at that point of time when the customer wants to make that purchase.

Top bloggers can be engaged to write reviews about the product and talk about the best features that can influence the market. Even post sales, influence marketing continues to play an important role. We had collected this data once and realised about 80 per cent of the purchase that happened post sale was same as the purchase during the sale season.

You can leverage the power of online social tools that helps drive the market analytics, know what people are talking about on all social platforms, articles, newsletters. The brand cycle and consumer journey can be identified through this. You can also employ online reputation tool to manage reviews, complaints, queries and so on. This tool helps in engaging with the consumer, addressing queries on time and also creating customised messages in line with the consumer interaction and issues in a more personalised manner.

SEERAJ KATOCH
Chief operating officer Tangerine Digital

(Published in Business Standard )

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Amazon and Future Group ink deal to sell goods online; starting with apparel

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October 13, 2014

Sagar Malviya, The Economic Times
Mumbai, 13 October 2014

The complaints by traditional retailers led to the government saying it would examine the policy on ecommerce. Following this, Amazon’s October 10-16 Diwali Dhamaka Week has been a subdued affair with sharp discounts restricted to stock clearances and products only being sold on the site. Under the deal, Amazon and Future will also jointly develop discounting strategy and price tags on their products won’t be very different from rates at stores so that both channels don’t end up cannibalising each other.

In its home market, Amazon had similar alliances with retailers such as Target Corp and Toys R Us in the past decade though both soured over time once the online seller gained scale and attracted other large brands.

Following the India deal, Future Group’s four dozen own brands such as Lee Cooper, John Miller and Indigo Nation will be taken off from other online marketplaces where they are currently being sold.

Amazon’s agreement in India also indicates its aggressive intent to spread itself across many product areas quickly in India — especially foods — a relatively niche category for online retail, which it has only recently entered. In July, the US company announced it would invest $2 billion in India operations that exceeded gross merchandise sales of more than $1 billion within a year of its launch. It completed a year in June this year.

Meanwhile, it was reported recently that Amazon plans to open its first brick-and-mortar store in New York.

The company’s main rivals in India are Bangalore-based Flipkart and Snapdeal, the latter a Delhi-based company that counts eBay, Azim Premji and Ratan Tata as investors.

Together, they have sold goods worth more than $4 billion, with Flipkart alone estimated to have crossed $2 billion. The battle is set to intensify. 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.

In the offline retail market, just three companies — Aditya Birla’s Madura Garments, Arvind Brands and Future Group — either own or sell more than two dozen brands each, thus becoming the preferred options for any online player looking to partner retailers.

The move holds benefits for both sides, but there are pitfalls as well.

"The upside is Amazon getting instant product diversity and capability while Future Group can explore a new channel for sales," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. "However, if the business is not aligned in terms of orientation and customer service, then it could create issues going forward, especially when one of the biggest barriers for online sale is inconsistency of products."

Future Group has more than 75 own brands that earn it at least 15% higher margins on average compared with national brands, which is why Biyani is bullish on private labels across categories. The tie-up means Future Group’s brands that now have a presence in 98 cities and towns will be marketed to 19,000 PIN codes serviced by Amazon across India.

Industry insiders also said the Indian retailer’s move reflects a bid to expand into new distribution channels such as ecommerce in the search for growth. Last month, Snapdeal agreed to create Croma’s Flagship Store on its ecommerce portal to sell electronics items including mobiles, tablets and laptops.

The $3-billion Future Group, on its part, has opted for SAP’s Hybris OmniCommerce solutions and plans to invest nearly Rs 100 crore to beef up its ecommerce venture. It is targeting about 20% of revenue from online sales over the next 18 months. By 2020, the aim is even higher — at 40% of its sales through ecommerce or virtual platforms.

(Published in The Economic Times)