The Next New Thing: A Retail Store

Devangshu Dutta

July 30, 2015

Much has been written recently, with more than a touch of surprise, about ecommerce companies opening physical retail stores. Whether it is Amazon, Birchbox and Bonobos in the US, Spartoo in France, Astley Clarke in the UK or FirstCry and Flipkart in India, young tech-based ecommerce businesses are adopting the ways of the dinosaur retailers that they were apparently going to drive into extinction.

Perhaps, the seeds of the surprise lie in the perception that the ecommerce companies themselves built for their investors, the media and the public, that it was only a matter of time that the traditional retail model would be dead.

Or perhaps we should pin it on their investors for keeping the companies on the “pure-play” path so far – venture funds that have invested in ecommerce have largely taken the view that the more “asset-light” the business, the better it is; so they’re far happier spending on technology development, marketing, salaries, and even rent, than on stores and inventory.

After a bloody discounting and marketing battle, in a few short years, there are now a handful of ecommerce businesses left standing in a field littered with dead ecommerce bodies, surrounded by many seriously wounded physical retailers who are trying to pick up unfamiliar technology weapons. And their worlds are merging.

Which is a Stronger Building Material – Bricks or Clicks?

Online business models offer some clear strengths. Etailers have a reach that is unlimited by time and geography – the web store is always up and available wherever the etailer chooses to deliver its products.

An ecommerce brand’s inventory is potentially more optimised, because it is held in one location or a few locations, rather than being spread out in retail stores all across the market including in those stores where it may not be needed.

However, we forget that consumers don’t really care to have their choices and shopping behaviour dictated by the business plans of ecommerce companies or their investors. The fact is that physical retail environments do have distinct advantages, as etailers are now discovering.

omnichannel-2

Firstly, shopping is as much an experiential occasion as it is a transaction comprising of products and money. In fact, the word “theatre” has been used often in the retail business. For products that have a touch-feel element, the physical retail environment continues to be preferred by the customer. Of course, there are products that could be picked off a website with little consideration to the retail environment. For standard products such as diapers or a pair of basic headphones, online convenience may win over the need for a physical experience. However, non-standard products such as apparel or jewellery lend themselves to experiential buying, where a physical retail store definitely has an edge.

Shopping in a physical retail environment is also a social and participative activity. We take our friends or family along, we ask for their opinion and get it real-time. The physical retail environment lends itself to the consumer being immersed in multiple sensory experiences at the same time. These aspects are not replicable even remotely to the same degree by online social sharing of browsed products, wish-lists and purchases, nor by virtual smell and touch (at least not yet!).

In a market that is dominated by advertising noise, a physical store also helps to create a more direct and stronger connect for the consumer with the brand than any website or app can. An offline presence creates credibility for a brand, especially in an environment where online sales are dominated by discounts and deals, and many brands have risen and fallen online in the customer’s eyes during the last 3-4 years.

As a matter of fact, every store acts as a powerful walk-in billboard for the brand. If used well, the store conveys brand messages more powerfully than pure advertisements in any form. This reality has been embraced by retailers for decades, as they have created concept stores and flagship stores in locations with rents and operating costs that are otherwise unviable, except when you see it as a marketing investment.

Showrooming vs. Webrooming

As ecommerce has grown and brands have become available across channels, offline and online, the retail sector has been faced with a new challenge: customers browsing through products in the store, but placing orders with ecommerce sites that offered them the best deal. This obviously meant that retailers were, in a sense, running expensive showrooms (without compensation) on behalf of the ecommerce companies! The industry adopted the term “showrooming” to describe the phenomenon.

However, ecommerce businesses are now getting a taste of their own medicine as retailers are benefitting from a reverse traffic.

Consumers have now started using websites to conveniently do comparative shopping without leaving the comfort of their homes, and collect information on product features and prices but, once the product choice has been narrowed down, the final decision and the actual purchase takes place in a physical store.

This is described with a slightly unwieldy term, “webrooming”. This is one among the reasons that lead to consumers abandoning browsing sessions and carts when they’re online.

Bricks AND Clicks

The wide split between offline and online channels is mainly because traditional offline retailers have been slow to adopt online and mobile shopping environments.

Most physical retailers around the world have approached ecommerce as an after-thought, with a “we also do this” kind of an approach. Ecommerce has typically been a small part of their business, and not typically a focus area for top management. So, in most cases the consumer’s attitude has also reflected these retailers’ own indifference to their ecommerce presence. However, due to the accelerating penetration of mobiles, tablets and other digital devices, a serious online transactional presence is now vital for any retailer that wants to remain top of the consumer’s list.

On the other hand, ecommerce companies, as mentioned earlier, have so far mainly stuck to “pure-play” online presence due to their own reasons. However, with passage of time there is bound to be a convergence and eventually a fusion between channels.

The Journey to Omnichannel

Omnichannel today, in my opinion, is still more a buzzword today than a reality. Being truly omnichannel requires the brand or retailer to offer a seamless experience to the customer where the customer never feels disconnected from the brand, regardless of the channel being used during the information seeking, purchase and delivery process. For instance, a customer might seek initial comparative information online, step into a department store to try a product, pay for it online, have the product delivered at home, and be provided after-sales support by a service franchisee of the brand.

Very few companies can claim to offer a true omnichannel experience, due to internal informational and management barriers. However, having an effective multi-channel presence is the first step to creating this, since operating across different channels needs a completely different management mind-set from the original single-channel business. Having a presence across different channel means that a retailer will need to juggle the diverse needs. Capabilities, processes and systems that are fine-tuned for one channel, may not be fully optimal for another channel. This requires the retailer to restructure its organisation, systems and processes to handle the different service requirements of the various channels.

For instance, brick-and-mortar retailers moving online need to rethink in terms of the service (“always open”), speed (“right now”), and scale (“everywhere”). A traditional retail organisation is seldom agile enough to work well with the new technology-enabled channels as well.

An etailer opening physical stores, on the other hand, needs to embrace product ranging and merchandising skills to allocate appropriate inventory to various locations, as well as the ability to create and maintain a credible, distinctive store environment – in essence, inculcating old-world skills and overheads that they thought they would never need.

The retail business is not divided black-or-white between old-world physical retailers and the upstart online kids – at least the consumer doesn’t think so.

Retailers need to and will see themselves logically serving customers across multiple channels that are appropriate for their product mix. They need to mould their business models until they achieve balance, proficiency and excellence across channels, and eventually become truly omnichannel businesses. It doesn’t matter from which side of the digital divide they began.

Ecommerce, tech companies are the biggest lessors of office space

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July 29, 2015

Ravi Teja Sharma & Rasul Bailay, The Economic Times
New Delhi , 29 July 2015

Riding on the back of humongous investments and rising valuations, ecommerce companies and technology startups outpaced IT/ITeS firms for the first time as the biggest office space taker in the country in the first half of the year.
Companies in this segment leased more than 6 million square feet of office space, or over 35% of the total, according to property research firm Knight Frank. Flipkart leased 3 million sq. ft. in Bengaluru with Embassy Office Parks, Amazon took 1.3 million sq. ft. in Bengaluru, Snapdeal 5 lakh sq. ft. in Gurgaon, Housing.com 1.5 lakh sq. ft. in Mumbai and Zomato recently leased 1.2 lakh sq. ft. in Gurgaon.
"The difference between startups of 1999-2000 dotcom boom and now is that this time these startups have raised large sums and business is actually happening. This is propping up the commercial office space market in India at the moment," said Viral Desai, national director – office agency at Knight Frank India.

The ecommerce industry has attracted large amounts of funding over the past few years. Funding in the sector increased to $4.3 billion in 2014 from $800 million in 2013. In the January-June 2015 period, investors have already put in $1.8 billion in ecommerce companies.

Flipkart has so far raised $3.4 billion in the eight years since it was formed, with the latest $700 million infusion valuing it at $15 billion. Amazon is readying a $5 billion war chest for its Indian operations.

Desai said Bengaluru and Gurgaon are where the most action is from these ecommerce and tech startups.

The money raised by ecommerce companies has been deployed essentially in two places, marketing and backend infrastructure, which includes people, said Devangshu Dutta, chief executive officer of retail consultancy Third Eyesight.

"A lot of them have widened their product portfolio and deepened the markets access and their businesses have grown tremendously. So while we may say it is a technology-based business, the execution of the business is dependent on people to a large extent, in terms of product sourcing and in terms of vendor management, supply chain, customer support, etc. With that growth in the team, it is very natural, and it is also an indication of what they expect in terms of future growth," he said.

(Published in The Economic Times.)

Flipkart launches 20 stores across India

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July 29, 2015

Sharan Poovanna, Mint
Bengaluru, 29 July 2015

India’s largest e-commerce firm, Flipkart, has launched 20 stores in 10 cities to let its customers collect the items they ordered online at their convenience, mimicking similar moves from Amazon.com Inc.

The initiative aims to address issues such as unavailability of customers during delivery and restricted entry of delivery boys into IT parks, gated communities and educational institutions.

The stores will also be a centrepiece of Flipkart’s rural expansion strategy and will provide a reliable alternative to door delivery in small towns.

“We also plan to offer several value-added services at these experience zones to enhance customer engagement. Services like instant returns, spot trials, open box deliveries and exclusive product demos will also be rolled out in the near future,” said Neeraj Aggarwal, senior director of delivery operations. Flipkart plans to open 100 such stores by March 2016, he said.

The launch, made in partnership with Flipkart’s logistics partner Ekart, comes after the firm saw more than 80% of shipments picked up through the stores during a six-month pilot programme.

The “click and collect” model is not new. Amazon, which has no physical stores, has installed lockers in places ranging from grocery stores to gas stations in several US locations to hold items ordered online. The move improved customer service as it avoided the need for them to have to wait around for ordered items due to a missed delivery.

The first 20 Flipkart “experience” stores will be opened across 20 cities—Bengaluru, Mysore, Ahmedabad, Delhi, Kolkata, Pune, Vellore, Gurgaon, Vadodora and Surat. They will service only Flipkart customers and not those of its Myntra unit. They will be about 500-1,000 sq. ft in size, 70% of which will be used to store goods.

A host of other online chains have also been keen to have some sort of physical presence. FabFurnish, PepperFry, Caratlane and LensKart, among others, already offer offline touchpoints as part of customer engagement efforts.

The trend is here to stay, said Devangshu Dutta, chief executive of retail consultancy Third Eyesight. He expects firms to continue trying to find the right mix of online and physical presence as they look to provide a seamless customer experience.

“Some products are better handled in the physical environment,” said Dutta.

(Published in Mint.)

Whoever said anti-ageing creams and iPhones are urban fads

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July 20, 2015

Soumonty Kanungo, Daily News & Analysis (DNA)

Mumbai, 20 July 2015

Buying an anti-ageing or anti-wrinkle cream online is no longer an urban phenomenon. A growing number of women from smaller towns are busy placing orders for such products these days, thanks to the increasing rural penetration of e-commerce companies.

If e-retailers are to be believed, customers from tier-3 and tier-4 towns and beyond are growing aspirational and on their shopping lists are products like microwave ovens, dishwashers and high-tech smart phones.

Sridhar Gundaiah, founder and CEO, StoreKing, a Bangalore-based assisted e-commerce company having a large rural and semi-rural target base, told dna, "Around 70% of the country’s $600 billion retail market is in rural belt. People in small towns and villages too are aspirational and have spending power, though the consumption pattern could be different."

The company, which came up with a hybrid model to reach out to rural areas with poor internet connectivity, sells about 100 of anti-ageing creams per day and 100 of microwave ovens per week. Gundaiah said another fast selling product is smartphones, which includes iphones as well.

Expensive smart phones in areas with low net connectivity? Gundaiah says they are mainly purchased for the sake of a good camera. "They want a phone with a good image and video recording option," he said.

Another best selling items are garments. Harish Bijoor, brand-expert & CEO, Harish Bijoor Consults Inc., said, "Rural folk are very excited about two things today – garments of every kind and the mobile phone. Expect this to deepen to adjacent categories very fast."

Thanks to its population and economic development, the small towns and rural India offer a huge growth opportunity which marketers cannot afford to overlook.

Devangshu Dutta, chief executive, Third Eyesight, said, "Rural markets are enormous in terms of population, but there is a supply-side gap in terms of retail stores, brand mix and product range available. E-tailers can expand outreach and create demand among customers who are otherwise under-served."

Ankur Bisen, senior vice-president, retail & consumer products division of Technopak, said, "Nearly 50% of the country’s retail of $589 billion comes from rural India. Right now, the penetration of e-commerce in rural India is zero. So the market opportunity is nearly $300 billion."

In reality, the relevance and fit of the e-commerce model of business, is best attuned for rural markets, feels Bijoor. "Rural people have the money and desire, but are distanced from markets physically. E-commerce can bridge this gap and deliver. The model needs to be tweaked a bit though," he said.

To tap this potential, most players in the e-commerce space are trying to enter the rural market. However, logistics being a challenge, most of these companies have been able to reach out only till tier III and IV towns, which are different from the actual rural markets.

Bisen of Technopak pointed out that rural is defined as clusters where more than 50% of the households depend on agriculture as the primary source of income. Bijoor also said, "Rural is deeper still, tier 3-6, and then R1 to R6. E-commerce can go up to R1 and R2. Beyond that, it is unviable to reach."

The logistic challenge is the main reason why the vast rural market is still under-served by e-commerce companies. Gundaiah of StoreKing said the last mile reach is a challenge and thus cracking it through assisted e-commerce route, where a customer goes to a kiosk, place order and then collects it, is the best way. StoreKing has developed its own logistic network as a third-party courier will never reach a rural market.

Assisted e-commerce, according to Bisen, is a thought in the right direction because it takes care of user experience, customer literacy and helps the customer to overcome many barriers retailed to technology, device, and language, etc. "Such out of the box thinking can only enable initiation of e-commerce in rural India. A cookie cutter urban approach for rural markets will not cut ice," he said.

To bridge the gap, leading online marketplace player Snapdeal is also actively assessing partnerships opportunities in logistics space. The company is betting big on the rural opportunities as well.

According to Dutta of Third Eyesight, to service the demand created by webstore, a cost-effective fulfillment infrastructure is required. "The government-run India Post, with its countrywide delivery capability, has been pitched at various times as a potential delivery partner, but has its own challenges and restrictions," he said.

(Published in DNA.)

The O2O Retail Model: Will the reverse strategy work?

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July 17, 2015

Mehak Sharma, Indiaretailing.com

New Delhi, 17 July 2015

"Shopping is as much an experiential occasion, as it is a transaction comprising products and money. It is a social, participative activity, which is not replicable to the same degree by online social sharing of browsed products, wishlists and purchases," says Devangshu Dutta, CEO of retail and market analyst firm Third Eyesight.

Dutta’s analysis appears to be echoed in today’s retail environment, where several e-tailers are increasingly looking at establishing offline presence.

In the past few years, a slew of pure-play e-tailing companies, including Lenskart, Healthkart, Fabfurnish and Caratlane, among others, have already or are in the process of opening physical stores.

So why are these online retailers embracing offline stores? Also, will this Online to Offline (O2O) model be an important game-changer for the future of retailing in India?

Why are the reverse traffic?

In the current retail scenario, where developing an omnichannel identity is a must-do for most brick-and-mortar retailers, the rationale for the reverse strategy can be to either augment their online sales or to deliver a more real, ‘five-senses’ experience for customers.

"For products that have a touch-feel element, the physical retail environment continues to be attractive for the customer. Also, an offline store can help to create more credibility and a more direct customer connect, especially in an environment where online sales are dominated by discounts and deals," explains Dutta.

For instance, for the five-year-old kids’ products’ portal, FirstCry, the offline store serves the purpose of providing a ‘touch-and-feel’ experience. "About 85 per cent market is going to remain offline even after five years, however hard we try to push e-commerce. Online shopping is convenient but it does not give that touch and feel experience, which customers in my segment would want," Supam Maheshwari, CEO and Co-Founder, FirstCry, was quoted as saying recently.

FirstCry started its online portal in 2010 and soon went on to launch its first brick-and-mortar store in 2011. The company currently operates through 100 offline franchise stores and has recently raised Series C funding of Rs $ 10 million to fuel its plan to set up 400 offline stores by December 2017.

Given the more engaging experiences that an offline store provides, experts too are convinced about the superior draw of physical stores.

"There are more offline consumers today than online ones," asserts Harminder Sahni of Wazir Advisors.

"While retailers can choose to be exclusively online or offline, the consumers aren’t going to get classified like that. Consumers will shop across offline as well as online. Thus retailers will have to have a mix of both and find their own profitable balance," Sahni adds.

Where FirstCry has opened stores to induce brand trials in a touch-and-feel environment, others have used marketing kiosks in high footfall strategic locations in malls and office spaces. There are other players who have incorporated “try at home” for consumers, prior to making a purchase decision.

E-retailers like Caratlane (jewellery) and Lenskart (eyewear) have opened offline stores to provide hassle-free online purchase options. Through Lenskart’s offline stores, consumers can get their vision checked and enjoy the freedom to buy products from either channel. The modus operandi at Caratlane is similar.

Both Lenskart and Caratlane also provide ‘try at home’ facilities to customers; a customer can choose products online, try some options at home and then place the order online.

O2O Retailers
Name
Year of Inception
Offline Launch
Offline Presence
FabFurnish
2012
2012
Operates 4 offline stores
Healthkart
2011
2012
Operates 4 offline stores
FirstCry
2010
2011
Operates more than100 physical store through the franchise model
Lenskart
2008
2012
Runs 100+ stores through franchise model
Caratlane
2008
2012
Operates 10 experiential lounges. Offers "Try-At-Home" option to consumer before buying

Best of both worlds

While some e-retailers are trying their hand at offline retail, experts feel that merely opening offline stores will not deliver substantial benefits; e-tailers must sync online convenience with offline experiences in a useful way.

"Online retailers need to ensure two things before opening offline stores. First, it is imperative for an online retailer to define whether the offline channel’s primary objective is to complement and/promote the online channel or it being a sales driver in itself a primary objective. The offline experience will then need to be built-up accordingly. The other important factor for players will be to figure out the ways in which the offline and online channels can leverage each other and can operate as an integrated multi- channel business," explains retail analyst firm Technopak in India Retail Report 2015.

While time will tell how the O2O model may evolve, experts feel that the future lies where offline and online shopping aren’t two separate business models."The split between offline and online channels is visible currently because traditional offline retailers have been slow to adopt online and mobile shopping environments," Dutta points out.

"As more and more brands and retailers move online, there is bound to be a convergence between channels. Retailers need to — and will — see themselves logically serving customers across multiple channels that are appropriate for their product mix as omnichannel evolves from being a buzzword, to being a reality."

(Published in Indiaretailing.com.)