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As retailers spend on technology to counter ecommerce, tech firms like IBM, SAP brace for revenue growth

Jochelle Mendonca & Neha Alawadhi, The Economic Times

Mumbai/Delhi, April 30, 2015

Brick-and-mortar retailers are beginning to spend more on technology and omni-channel strategies to combat the growing threat from ecommerce, a boon for tech firms who had seen revenue growth from retail decelerate in the last few years.

About 39 million Indians shop online, according to an April report by research firm AT Kearney. Though it is a small proportion of overall population, it is growing fast. Traditional retailers are realising it is a market they cannot afford to miss. Technology firms such as IBM, Oracle and SAP are gearing up to win new business.

"In last two years, since the recent ecommerce business started, we are seeing brick-and-mortar stores are realising the need for omni-channel offerings. They have started making investments on omni-channel strategies," Kamal Singhani, executive director – enterprise applications and mobility leader at IBM India, told ET. Singhani added that Indian retailers would need another 12-18 months before strategies become competitive.

An omni-channel strategy implies that a retailer’s customers get the same buying experience and treatment in both physical stores, online and through mobile devices. It requires significant investment in the back-end to tie-in inventory and logistics to make it work.

Future Group has been the most vocal with its plan to spend Rs 100 crore on its omni-channel strategy over the next year. CEO Kishore Biyani has said that to implement the strategy, the retail business would have to become more technology and big data-focused. Future Group partnered with SAP to drive its omni-channel venture. Reliance Retail, Shoppers Stop, Pantaloons, and even the Tata Group are investing to win a slice of the online shopping space.

But experts say these are baby steps and retailers still have work to do on technology to compete with deep-pocketed online players such as Flipkart and Amazon. "While retailers are investing in systems, the kind of capital expenditure required to actually build the whole omni-channel experience has not happened yet," said Devangshu Dutta, chief executive at retail and consumer products consultancy Third Eyesight.

"One of the first things is that they should look to move away from in-house hosted systems to cloud-based solutions. Otherwise it is a very, very large investment, and time taken is significant."

A sales executive with a multi-national technology firm said the competition to win deals in the retail space has become increasingly fierce, as companies expect retailers to spend several hundred crores of rupees to boost their online sales.

"For Indian retailers, the writing is on the wall. They have seen some electronics retailers struggle in India since e-commerce arrived, and now they want to defend their turf. Most haven’t pulled the trigger (on giving out contracts) but they will start," a sales executive with a multi-national technology company said. He declined to be identified because he is not authorised to speak to media.

Companies with analytics offering are expected to benefit greatly when the buying process begins. "According to an industry study, the company website is the most-used method for communicating with shoppers.

Sales analytics, customer analytics and web analytics lead the way in priority order for retailers with marketing analytics not far behind," said Mukesh Mathur, executive director at Oracle Retail.

The Indian analytics market is expected to reach $2.3 billion by 2018, according to Nasscom, driven by increasing adoption in retail, ecommerce, banking and telecom.

(Published in The Economic Times.)

The Relationship between Consumers and Brands

Panel Discussion moderated by Mr. Devangshu Dutta, Chief Executive, Third Eyesight at the Indian Retail Congress 2015 (17-18 April 2015). The panel included Mr. Manish Mandhana (Managing Director of Mandhana Industries with the brand Being Human), Mr. Sanjay Warke (Country Head of Toshiba India), Mr. Tanmay Kumar (Chief Financial Officer of Burger King India), Mr. Kinjal Shah (Chief Executive Officer of Crossword Bookstores) and Mr. Ranjan Sharma (Chief Information Officer of Bestseller India, with the brands Vero Moda, Only, Jack & Jones).

Retail India and Etail India conference - Manesar - 2015-04-17

How acquisitions are churning growth in e-commerce

Shipra Srivastava, IMAGES Retail
New Delhi, April 2015

Growing business internally can be time consuming and involves high-risk strategies to excel in a fast-moving business world. This is encouraging entrepreneurs to acquire an existing firm instead building their own from the scratch, as this way they can escape many of the hurdles involved in the process – from developing a new product and hiring the right people to building a sound customer base. Furthermore, this strategy offers entrepreneurs an opportunity to skip the start-up phase and make a breakthrough in a particular field.

These days, the world of e-commerce is also abuzz with news of acquisitions – be it the high-profile Flipkart buying out Myntra, which took the business world with storm last year or the latest acquisition of e-tailer Babyoye by Mahindra Retail. However, in each of the above cases, it is interesting to note that the buyers have chosen to let the acquired entity exist and operate separately. Some such examples include Flipkart’s acquisition of Myntra to Snapdeal’s buyout of Exclusively.com, to the more recent Ola’s (previously Ola Cabs) deal with TaxiForSure (TFS). One of the key reasons for these companies to retain the brand identity of the new company under their aegis may be to keep the brand positioning intact.

The reasons

The question that arises at this point is: When mass market players are selling everything, where is the need for niche players? Countering the question, Harsh Pamnani, former senior manager of TiE Mumbai says: “By being able to sell multiple products to the same customer, mass merchants (generalists) have the advantage of higher lifetime value of the customer. However, to maintain site layout consistency, mass merchants give the same kind of look and feel to all the categories. This way they also manage to meet the objective of profit of overall business, which is dependent on sales of both top selling and niche categories. Mass merchants focus more on top selling categories and are not able to gain specialisation in every category.”

On the other hand, niche players (specialists) have defined target groups, so they differentiate themselves through in-depth understanding of customers’ needs, huge variety, high-quality products, and exceptional services. Niche players have a clear value proposition and a focused positioning. By providing a large range of variety including long tail products, they are able to manage business economics and margins and need a smaller scale to earn profits. They create consistency in communication through all the channels, such as social networks, blogs, site content, etc., and get preference in search results, says Pamnani.

For instance, while Flipkart is known as a horizontal marketplace, focused on books and consumer electronics, Myntra is amongst the biggest names in online fashion retail.

Expressing similar views on this historic merger, consultant Harminder Sahani says: “Flipkart acquired Myntra as it did not have the skills or understanding of apparel business, while Myntra was amongst the best in that category and was a major competitor for Jabong. In the case of Mahindra Group, they have a wide network of brick and mortar stores, and with the acquisition of Babyoye they would try to capture the online consumers as well as increase their reach and penetration. The combined sales of on line and off line will give them greater economy of scale as well.”

A win-win situation for all

In a latest stance, leading e-commerce portal Snapdeal has acquired luxury portal Exclusively.com. Explaining the rationale behind the acquisition, a leading spokesperson from Snapdeal says: “All our acquisitions, including that of Exclusively.com, have been strategic.

Luxury products and services is a US$ 14 billion market in India, growing at 30 per cent year on year, according to a recent KPMG-ASSOCHAM report. More than 70 per cent consumers prefer to shop for luxury products in India rather than abroad. Realising this opportunity, Snapdeal forayed into designerwear in October 2014, with the launch of ‘The Designer Studio’. This acquisition will further strengthen Snapdeal’s presence in the luxury and premium products’ space. We aim to create India’s largest online luxury mall and offer a choice of premium products and services to consumers across the country.”

Explaining further, he informs that as part of this acquisition, Snapdeal will help Exclusively.com scale up and expand its current business and reach. In terms of revenue, the e-commerce giant aims to reach US$ 100 million in gross merchandise volume (GMV) this year and US$ 1 billion in GMV over the next three years. We also plan to add international luxury brands to the existing portfolio in the near future.”

Viability of acquisitions in future

If sources are to be believed, leading marketplace Amazon is showing keen interest in leading fashion portal Jabong.com. In an exclusive conversation with IMAGES Retail, Jabong’s Co-Founder Praveen Sinha has already indicated that Jabong will soon be a part of Global Fashion Group (GFG). One now needs to wait and watch how things take shape from there.

And not to forget the much awaited launch of Reliance’s online venture, which may unfold many new surprises for the retail industry in times to come.

Summing it up, a leading consultant Devangshu Dutta, chief executive of Third Eyesight, says: “Inorganic growth through mergers or acquisitions have happened in the Indian e-commerce space previously due to common investors, who wanted to concentrate their resources by backing fewer horses in the race, and picked the ones that were more likely to win. However, during the last few months, more acquisitions have been happening to acquire different capabilities, whether in terms of technology, product capability or market segment services."

"Acquisitions make sense when it takes significantly more money and more time to build a similar capability within the company. In India’s e-commerce sector, where the market is expanding rapidly and aggressively with each passing day, the space is still very unstable and speed seems to be of much essence. A well-capitalised company would, under such circumstances, look at acquiring strategically important capabilities as quickly as possible because that could mean the difference between being the leader or survivor, or being left behind in the race.

“Also, in the last 2 years, at least some of the e-commerce firms have built both scale and capability that are attractive both for other players within the sector, for companies outside the sector (such as Mahindra) and for companies outside the country,” concludes Dutta.

(Published in IMAGES Retail – April 2015 issue.)

Brick and mortar book retailers revamping strategies to take on online book stores

Swarnpreet Kaur Tuli, The Economic Times
New Delhi, 6 April 2015

Brick-and-mortar book stores are rethinking their strategy to take on competition from online market places, which lure book lovers with attractive discounts.

Owing to the ease of shopping on the internet, higher discounts and availability of books, Indians are increasingly turning to online stores for their book purchases. The trend portends trouble for traditional brick-and-mortar book stores where storage space and margins are less.

"We have lost our customers to e-tailers, mainly because of the high and irrational discounts offered by them. Also, we have witnessed 7-10% decline in our sales," said Ajay Mago, CEO of book store cum publishing house, Om Book Stores.

Crossword, too, is unhappy about the high discounts offered by e-commerce websites. "Slashing prices to more than 50% entices a customer to buy the book online. We, as book stores, cannot offer such high discounts due to higher rentals, manpower and other expenses incurred in opening a book store," said Kinjal Shah, CEO of Crossword.

Anuj Malhotra, who owns a book store in upmarket Khan Market in New Delhi, said that retail is all about services; offering high discounts on online stores cannot replace the services provided in physical book stores.

The book stores, nevertheless, are trying to beat this competition.

Om Book stores is trying to revive sales through activities such as book launches, introduction of special stationary and special discounts on both its offline and online stores, according to Mago.

"We are not afraid of online. We have expansion plans and are going to open stores in more cities like Chennai, Bangalore and Mumbai. We are going to compete and beat e-commerce. Also, we expect 20% increase in sales this year," he said.

Shah shared some strategies adopted by his store to ward off competition from online stores and to sustain profitability.

"At our store we keep a 60-40 mix of books and other categories to sustain profitability. We do various promotions during the year at which we provide some great offers and discounts, organize 10-15 events a month for customers to meet their favourite authors, provide special offers to customers on their special occasions like birthdays, arrange workshops and competitions for children, we do promos focused on certain age groups also during the year such as Children’s Fest (April and May), Annual sale (August) entire store is on sale, and many more," Shah said.

Malhotra said, "Either accept the change or step out of it."

On Flipkart’s books section, Ankit Nagori, SVP – marketplace, Flipkart, said the category is a high-volume driver for the online store. "We have been witnessing a healthy month-on-month growth in terms of sales and traffic. We have over 30 different categories and thousands of interesting titles," he said.

Further he added, "We believe that physical and online book stores will continue to co-exist and grow. The unique book browsing and navigation experience offered by a book store is what appeals to a reader/shopper. The success of a book store is defined by quality of experience and the variety of books that a customer can choose from."

According to Flipkart, the new reach offered by e-commerce marketplaces has encouraged physical book sellers to reinvent themselves and offer a wider range of books to cater to a larger audience base.

On how Amazon offers high discounts, even at the cost of bearing losses, Samir Kumar, director, category management, Amazon India, said, "Prices for products on our marketplace are determined by the sellers. We offer services such as FBA (fulfilment by Amazon) and Easy Ship to sellers on our platform, which enables them to significantly lower their cost of selling and reducing defects as they sell to a nationwide customer base. Sellers pass on these savings as lower prices on the platform."

We launched Amazon.in with books, movies & TV shows back in June 2013, and since then these departments have been growing exponentially, Kumar further said.

NEED FOR GOVERNMENT TO REPLICATE FRENCH RETAIL LAW

French government passed a law last year which prohibits online merchants in France to offer free shipments of discounted books. Also, the government allowed for up to 5% discounting on books. Offline book retailers in India are seeking a similar law to maintain equilibrium in the retail (online and offline) market.

According to Mago, a healthy competition between e-tailers and retailers must exist, but online stores like Amazon and Flipkart should not be allowed to offer such high discounts. The government should set an upper limit for discounts on both online and offline book stores.

He added that people visit his store to scan books and later order it online through e-commerce companies for higher discounts and free delivery.

If online sites offer nominal discounts, both book stores and e-commerce sites can function properly and sell more books to customers, said Shah.

According to Malhotra, 60% of online buyers are from tier I cities, 30% from tier II and 10% from tier III, whereas it should have been 50% in tier III and 25% in both tier I and tier II.

A NEUTRAL VISION

Devangshu Dutta, chief executive, Third Eyesight, gave a neutral insight into the current state of the books market in both e-commerce and physical stores.

According to him, the major factors impacting footfall and sales at brick-and-mortar book retailers are variety offered to the consumer in terms of search and width of choice, convenience in terms of a zero-commute purchase, significant improvements in payment and logistics over the last 2-3 years, and aggressive wooing of customers through discounts.

However, he said, offline retailers still remain the main channel for book sales in India. E-tailers are reducing the discounts offered on books, so the negative impact on physical retailers is now felt most acutely when a specific promotion is carried out by the major websites at any time, rather than through the year.

Landmark book store did not respond to calls and e-mail queries to share the impact of e-commerce on their store.

(Published in The Economic Times.)

Zero discounts on Patanjali products

Ashish Rukhaiyar, The Hindu

Mumbai, 5 April 2016

At a time when both retailers and consumers are hooked to huge discounts on products across categories, one company has braved the ‘zero discount’ strategy, and is stil giving its competitors sleepless nights. Consumers are not complaining either.

Patanjali Ayurved, which is growing at a pace that is unnerving domestic and Multinational players in the fast-moving consumer goods (FMCG) segment alike, has barred its sellers from offering a single paisa of discount on its products. In other words, retailers have to sell every Patanjali product at the maximum retail price (MRP) printed on the packaging.

So serious is the company about this strategy, that even modern players like Big Bazaar and D-Mart, which have built their business on the discounting model, have been barred from offering any discount on Patanjali products.

Labels like ‘Patanjali products are sold on MRP’ greet shoppers at such stores, which have been able to gain market share by offering discounts on various products. For instance, D-Mart has a system of offering at least two per cent discount on the MRP of all products but Patanjali is an exception.

Aditya Pittie, chief executive officer of Pittie Group, the pan-India modern trade distributor for Patanjali products, says the directive has come directly from the company. For good measure, he says, it has reason to do so. “Patanjali products are anyway cheaper than others in almost all segments. As such, there is no need to give a discount. The quality of products makes them sell.”

Indeed, in almost all segments, including fruit juices, soaps, noodles, toothpastes and shampoos, Patanjali products are cheaper than those of other FMCG majors like HUL, Nestle and Colgate.

Sales do not, of course, always ride on discounts and companies can adopt strategies they deem fit to position themselves. “Every brand has to decide the boundaries within which it has to operate, including the positioning and pricing at which it wants to be sold,” says Devendra Chawla, president, brands, food & FMCG, Future Group. “The discount strategy is also decided by brands, and trade partners have to respect it.”

Devangshu Dutta, chief executive of Third Eyesight, a strategy and marketing consultant firm, saysthat every business has to look at brands from the point of view of positioning, customer loyalty, price premium, and the additional benefits it brings to the business, He says, “Patanjali may not be offering discounts, but business is growing with no sign of diminishing demand. The push has been such that there is a lot of brand loyalty. While the perception is that Patanjali products are cheaper, the argument does not hold true for all segments.”

The strategy does seem to be working in Patanjali’s favour.

It clocked a provisional turnover of Rs 3,266.97 crore in the first 10 months of the financial year 2015-16 (FY16), according to a rating rationale document by Brickwork Ratings, a credit rating agency. This is more than double of Rs 1,587.51 crore reported in the corresponding period of the previous financial year.

While Patanjali’s turnover and profit is currently less than that of most FMCG majors, it is growing at a much faster pace. On the profitability front, the company, which has yoga guru Baba Ramdev as its brand ambassador, almost doubled its profit in FY15 to Rs 308.79 crore from Rs 154.70 crore in FY14, according to Brickwork Ratings. Clearly, enough consumers see value in the company’s products.

(Published in The Hindu)

Don’t Resell Yourself Short

Sunitha Natti, The New Indian Express

Chennai, 5 April 2015

Moving out of town, but don’t want to take along your fully functional fridge and ac? Eyeing a 42-inch HD TV but don’t want to shell out a thousand rupees per inch? Or, perhaps, itching to get an iPhone 6 Plus but don’t want to cough up that exorbitant asking price? Don’t worry. Trade portals like Olx, Quikr, eBay and Junglee have not only come to the rescue of price-sensitive Indians, looking for a good bargain in villas as much as veggies, they’ve also made second-hand buying and selling of goods fashionable. It’s a win-win situation, with online buyer-seller platforms convincing consumers of both product quality, and affordability.

“The Indian market always had a healthy second-hand sales culture. But online marketplaces are driving the social acceptability of used goods and have wider and more persistent accessibility than the traditional classified ads,” observes Devangshu Dutta, chief executive of market research firm Third Eyesight. Everything is available at negotiable prices. The only difference between then and now-the once-used products on sale these days are in good working condition, with some even commanding premium prices for their quality.

“The market for used goods is growing. We foresee new types of products being transacted online. Person-to-person sales are on the rise as more individuals understand and transact with ease online,” says Mahendra Nerurkar, general manager and director, Junglee.com, which is part of the world’s largest online retailer Amazon. With acceptability of second-hand goods rising, Amazon entered India in 2012—14 years after it purchased Junglee.

India’s used goods market is likely to touch Rs 1,15,000 crore in 2015 from Rs 80,000 crore in 2014, says Assocham. “Notwithstanding the market appetite, there was a significant trust deficit earlier regarding quality of the goods and reliability of the seller/buyer. Organized players like us and online shopping aggregators are reviving sales of re-used goods,” says Nagendra Palle, CEO, Mahindra First Choice Wheels Ltd, which also use online marketplaces like Olx and Quikr to sell re-used cars. “Currently, 20-25 per cent of our inventory is sold through these online platforms,” Palle explains.

According to a recent OLX CRUST Research, in 2014-15, goods worth Rs 56,200 crore, up from Rs 22,000 crore last year, are lying locked at people’s homes in the urban areas alone. These goods are no longer in use and have the potential to create a sustainable market for second-hand goods market if put on sale. “We have coined the term ‘Brown Money’ to refer to the money locked in goods gathering dust in our homes,” explains Amarjit Singh Batra, CEO, Olx India. Interestingly, one-fifth of the goods being stocked in urban Indian homes have ceased to be relevant to them, he notes.

According to Batra, platforms like Olx, are helping users unlock the money hidden in used items. “From a country of scarcity, we are moving towards a country of abundance, for at least some people. People are buying more, consuming more, and, in the process, wasting more. We want to help people waste less through collaborative consumption and extending the life-cycle of the products,” says Batra.

Interestingly, one out of every two of the 200 million Internet users in India, as per ComScore research, access retail services (websites) online. “The growing Internet base increases visibility, makes trading faster and importantly, improves accessibility,” says Dutta. Another motivational factor for buying used goods is that these products are less expensive than new goods, and yet meet product quality requirements.

For instance, Arvind from Ranchi wanted to sell his two-year-old one tonne Samsung split AC for Rs 13,500, it was viewed 16 times within 10 minutes of posting the ad online.

Considering the used goods market is still evolving, the industry is yet to overcome some challenges. With several classifieds, there is often poor due diligence of the type of advertisement, availability of picture, authenticity of classified, much to the annoyance of genuine customers.This is something, online market aggregators like Junglee, Olx and Quikr are trying to bridge, maintaining site-wide standardization with verification of seller, availability of pictures to ensure reliability of the product.

“All local sellers are verified through a phone verification process. All used product classifieds are screened for pictures and relevance. Thus, customers who may have not originally intended to buy used goods are also exposed to the used goods classifieds,” says Nerurkar.

Currently, automobiles and mobile phones are the widely bought and sold, but of late computer software, consumer electronics, kitchen appliances, clothing, books, mobile phones/smartphones, home appliances, watches, baby & children products, bicycles/two-wheelers, furniture, musical instruments, camera, sporting goods, car accessories and computer hardware are finding traction.

Trading is being actively pursued in cities like Delhi, Mumbai, Chennai, Bengaluru, Hyderabad, Kolkata, Patna, Guwahati, Ahmedabad, Lucknow, Jaipur, Chandigarh, Indore, Kochi, Bhubaneswar and Pune. “Mobile phones have enabled more Tier II and III cities to buy/sell and transact online with ease,” says Mahendra.

(Published in The New Indian Express.)