Madhav Chanchani, The Times of India
Bengaluru, 28 June 2016
If traditional retailers weren’t so busy creating
digital avatars to take on their new-age rivals, they might have
noticed online stores gaining a firm foothold in their territory, one
store at a time.
Some of India’s largest online stores including baby products retailer Firstcry, eyewear brand Lenskart and furniture marketplace Pepperfry are beginning to see significant contributions to revenue and bottomline from their physical stores.
“We get significant revenues from our offline business and we are already EBITDA-positive (profitable from core operations) collectively,” said Supam Maheshwari, chief executive of Firstcry, declining to disclose specific numbers. Firstcry was among the earliest online retailers to open offline stores in 2012.
Encouraged, online retailers are preparing to rapidly expand their offline presence in the coming years, opening a new front against traditional brick-and-mortar stores that are struggling to wrest similar success online. India’s largest business groups including Reliance Industries and Aditya Birla have launched online apparel stores in the past year, and Tata Group’s jewellery and watches brand Titan Company is acquiring online jeweller Caratlane.
Firstcry and Lenskart have opened hundreds of stores through franchisees, boosting their sales. The physical stores of companies like Caratlane and online lingerie retailer Zivame function more like showrooms, tending to be smaller than those of their brick-and-mortar peers as they keep limited products and use a central inventory.
More importantly, building a physical presence helps these retailers tap those millions of customers who are still uncomfortable shopping online. Take, for instance, a Firstcry customer who recently posted on the company’s website that ‘Aloe Veda Castor Oil’ was not available at its Ernakulam, Kaloor franchisee in Kerala.
She urged Firstcry to make it available at that store so she could purchase it as “I don’t like online shopping.” To capture these customers, Firstcry plans to ramp up its offline presence to 700 stores in 3-4 years from about 170 now.
“We have seen that offline customers are also transacting online and vice-versa, so joint cohorts are much higher,” said CEO Maheshwari. Cohorts is repeat customer purchase, which helps measure if a company is making a profit on each acquired customer, a metric closely watched by investors.
Firstcry’s offline network is already bigger than its competitor Mahindra Retail’s Babyoye, which was known as Mom & Me before Mahindra group acquired online baby products retailer Babyoye in 2015. Babyoye, which runs 115 owned stores, has announced plans to open new stores through the franchisee route like Firstcry.
Mom & Me made revenue of Rs 210.5 crore and net loss of Rs 118.9 crore in fiscal year 2015, according to Mahindra & Mahindra’s annual report. Firstcry reported revenue of .Rs 118 crore and loss of .Rs 63 crore for the same year. As for Pepperfry, which plans to double its store count to 16 this year, “offline stores are the best marketing channel we have started,” said CEO Ambareesh Murty. “It helps us provide that reassurance to customers that we are a specialised player and translates to trust in the brand.” Also, customers walking into physical stores tend to purchase more often than online buyers and at a higher average price, he said.
Pepperfry opens stores based on customer purchase data of the previous 24 months, which helps it zero in on pin codes with high customer density. By opening stores in such areas, it is also able to drive supplychain efficiencies as more orders from an area translate into lower average cost of delivery.
“These players are already established leaders in online space. The question they are addressing is how do you redefine the market to grow be-cause only 5% of Indian customers have bought online,” said TCM Sundaram, managing director at IDG Ventures India, an investor in Lenskart, Firstcry and Zivame.
Online shoppers in India are expected to increase from 50 million to 150 million by 2020, according to a recent report by Google and AT Kearney, adding that not having an omni-channel presence in categories like consumer electronics, home furniture and personal care could cause retailers “to lose out on 20-30% of potential buyers.” Experts spout the adage that retailers need to be where the customers are rather than choose one basket.
“The retail business is not divided in black-or-white between old-world physical retailers and the upstart online kids – at least the consumer doesn’t think so,” said Devangshu Dutta, CEO at retail consultancy firm Third Eyesight.
Some online retailers agree. “The idea is to create an eyewear brand, and channels keep changing. We want a store in 372 towns in India that have a population of over 50,000,” said Peyush Bansal, CEO, Lenskart.
The company has 200 stores from where customers can book products and pick up later from the store or get these home delivered. The company charges a franchisee fee and pays a commission to store owners on each sale, while it manages the inventory and customer experience. It plans to expand to 400 stores by the end of the year. Lenskart, with annualised revenue of about Rs 300 crore, is targeting Rs 2,500 crore revenue in the next four years. Bansal expects the physical stores to contribute about half the revenue in the next two years. Lenskart competes with Titan’s eyewear business, which earned net revenue of Rs 372 crore in fiscal 2016 from its 404 stores.
(Published in The Times of India)
Aggregator models and hyperlocal delivery, in theory, have some significant advantages over existing business models.
Unlike an inventory-based model, aggregation is asset-light, allowing rapid building of critical mass. A start-up can tap into existing infrastructure, as a bridge between existing retailers and the consumer. By tapping into fleeting consumption opportunities, the aggregator can actually drive new demand to the retailer in the short term.
A hyperlocal delivery business can concentrate on understanding the nuances of a customer group in a small geographic area and spend its management and financial resources to develop a viable presence more intensively.
However, both business models are typically constrained for margins, especially in categories such as food and grocery. As volume builds up, it’s feasible for the aggregator to transition at least part if not the entire business to an inventory-based model for improved fulfilment and better margins. By doing so the aggregator would, therefore, transition itself to being the retailer.
Customer acquisition has become very expensive over the last couple of years, with marketplaces and online retailers having driven up advertising costs – on top of that, customer stickiness is very low, which means that the platform has to spend similar amounts of money to re-acquire a large chunk of customers for each transaction.
The aggregator model also needs intensive recruitment of supply-side relationships. A key metric for an aggregator’s success is the number of local merchants it can mobilise quickly. After the initial intensive recruitment the merchants need to be equipped to use the platform optimally and also need to be able to handle the demand generated.
Most importantly, the acquisitions on both sides – merchants and customers – need to move in step as they are mutually-reinforcing. If done well, this can provide a higher stickiness with the consumer, which is a significant success outcome.
For all the attention paid to the entry and expansion of multinational retailers and nationwide ecommerce growth, retail remains predominantly a local activity. The differences among customers based on where they live or are located currently and the immediacy of their needs continue to drive diversity of shopping habits and the unpredictability of demand. Services and information based products may be delivered remotely, but with physical products local retailers do still have a better chance of servicing the consumer.
What has been missing on the part of local vendors is the ability to use web technologies to provide access to their customers at a time and in a way that is convenient for the customers. Also, importantly, their visibility and the ability to attract customer footfall has been negatively affected by ecommerce in the last 2 years. With penetration of mobile internet across a variety of income segments, conditions are today far more conducive for highly localised and aggregation-oriented services. So a hyperlocal platform that focusses on creating better visibility for small businesses, and connecting them with customers who have a need for their products and services, is an opportunity that is begging to be addressed.
It is likely that each locality will end up having two strong players: a market leader and a follower. For a hyperlocal to fit into either role, it is critical to rapidly create viability in each location it targets, and – in order to build overall scale and continued attractiveness for investors – quickly move on to replicate the model in another location, and then another. They can become potential acquisition targets for larger ecommerce companies, which could acquire to not only take out potential competition but also to imbibe the learnings and capabilities needed to deal with demand microcosms.
High stake bets are being placed on this table – and some being lost with business closures – but the game is far from being played out yet.
Mumbai, 21 January 2016
Mahindra Retail, a part of the $16.9 billion Mahindra Group, will sell products of US kidswear firm Carter’s Inc. in its chain of BabyOye stores across India and online, the company said on Wednesday.
This will be Atlanta-based Carter’s third attempt at establishing itself in the Indian kidswear market.
Mahindra Retail plans to open 40 so-called shop-in-shop BabyOye stores—where a brand owner or retailer takes space in another retailer’s store—in 15 cities across India in 2016.
In the past, the OshKosh B’gosh kidswear brand, which Carter acquired globally in 2005, tried to make inroads in the Indian markets, first in the 1990s and then in 2008.
“With OshKosh B’gosh it had adopted a premium positioning which did not work in India as kidswear is a competitive segment with well entrenched local players,” said Devangshu Dutta, chief executive officer, Third Eyesight, a retail consultancy firm. According to him, getting the pricing and product right is important in this segment.
Now, Mahindra Retail and Carter’s have entered into a buy and sell arrangement. However, the two companies are looking at partnering beyond the agreement to create the look and feel of the Carter’s retail experience in India, said Prakash Wakankar, chief executive officer, Mahindra Retail.
Also with this partnership Carter’s is hoping to make the brand accessible to India. “We don’t anticipate any pricing discrepancy. We plan to make the brand accessible and have great value offering,” said Keving Corning, Carter’s executive vice-president (international). He did not rule out the possibility of bringing OshKosh B’gosh back to the Indian market in the future.
The Carter’s range will start at Rs.600 and go up to Rs.2,500 and will be available for the just born to 24-month-old toddlers in the brick and mortar stores. Online the company will have products for up to seven-year-olds.
(Published in Mint)
Sagar Malviya, The Economic Times
Mumbai, 19 January 2016
Overseas has crossed Rs 1,000-crore sales mark to become the largest
retail apparel brand in the country, significantly ahead of nearest
rivals Zara and Levi’s India.
During 2014-15, the ethnic wear firm posted a 12% rise in consolidated sales at Rs 1,148 crore with 36% increase in profit before exceptional items at Rs 112 crore. Its domestic business grew 25% to touch Rs 767 crore ahead of largest fast-fashion brand Zara that clocked sales of Rs 720 crore during the same period.
"Customers are moving to one of two responses to retail. Either they are responding to products as commodities, or investing in curated products and experiences. We will continue to focus on the quality of our design and curation," said William Bissell, managing director at Fabindia, which runs more than 205 stores in India. The company also attributes its success to a policy of no discounting and instead build a sustainable cash flow.
Founded in 1960 by Bissell’s father John Bissell to market craft traditions of India, Fabindia started out as a company exporting home furnishings. The first retail store was opened in Greater Kailash, New Delhi, 15 years later. In mid 1990s, William Bissell took over the company.
The company added the non-textile range in 2000, while organic
foods and personal care products were launched nearly a decade
ago. Experts said the brand, which has expanded its portfolio
over the years, has been finding acceptance among younger consumers
since the last decade, a new development in a category earlier
largely restricted to older buyers.
"The brand has been consistent to its core and they have been adding newer categories to remain relevant and also earn higher margins," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. "The challenge is to continue the momentum since their sourcing is dependent on thousands of craftsmen instead of a few large manufacturing units."
Ethnic wear, a segment still mostly fed by the unorganised segment, has been growing at an average of more than 10% a year over the last decade.
Leading department chains such as Shoppers Stop, Lifestyle and Westside are increasing the width of their private label range and offer contemporary styling in the ethnic space, fuelling growth. The ethnic wear segment is also seeing a lot of aggressive expansion from newer players both in online and brick-and-mortar space, something that could hurt Fabindia’s growth prospect going forward. For instance, Kolkata based Manyavar, which had just one store till 2008, has more than 400 stores across the country now and is expanding its portfolio from wedding and special occasions to everyday clothing.
Fabindia, in comparison, opened eight stores last fiscal and has added 14 doors in the current financial year. ET, last month, reported that the private equity arm of Louis Vuitton Moet Hennessy (LVMH), plans to sell its 8% stake in Fabindia.
(Published in The Economic Times)
Retailers seem to be fighting a losing battle against the growth of ecommerce, and it is only the nature of the shopping activity, especially for fashion – interactive, social, and immersive as it is – that has kept many retailers relevant and in business.
However, the defensive stance is changing, and now they’re using technology to get the customers back into the store. Forward-thinking retailers are reimagining trial rooms, stores, business processes and entire business models. It’s not a physical versus virtual approach but an approach that integrates both sides. The idea is to create a more immersive experience than pure digital retail can be, using some of the same tools as ecommerce.
It is important to remember that the whole retail environment is a “suggestive” environment. Due to cost and other operational factors most retailers are ill-equipped to provide appropriate levels of excitement, suggestion and support during the browsing and buying process.
For many, the simplest move could be screens serving up their catalogue to customers within the store. For instance, US department store chain Kohl’s has initiated connected fitting rooms that identify products the customer is carrying, and bring up not only those items onscreen, but additional colours and sizes that are available. If the customer wants an alternative, a message goes to a sales associate who can fetch the requested option. Macy’s and Bloomingdales are using tablets in the trial rooms, while Nordstrom, Neiman Marcus and Rebecca Minkoff are attempting to boost their fashion sales using magic mirrors to provide similar enablement. These devices and the processes empower and involve the customer far more, while leaving store staff free for other activities.
A step up, Puma is using “virtual trials” for its apparel products by having a customer take images of herself in specific positions, and then mapping styles on their own images to visualise how they might look. While this needs more work and investment, this is still only a more developed product browser technique from the customer’s point-of-view.
The next level, augmented reality trials and virtual fit, are significantly more sophisticated at creating simulations of a selected garment image draping and falling on the customer’s body even as he or she moves normally. Imaging and texturing of the simulated garments is technically challenging and expensive, repeated for each new style and option. The imaging also needs to mimic the “wearer’s” movements. Nevertheless, retailers such as Polo Ralph Lauren are finding it worth their while to investigate these new technologies, as these reintroduce the much needed “theatre” that are integral to a successful retailer.
For the customer virtualisation expands the number of items “taken” into the trial room, and creates more convenient product discovery. More products can be seen in the same shopping time, and sharing of images and videos with friends and family, engages them in the shopping process as well.
For retailers, the benefits multiply. Inventory can be optimised, and there is reduced handling and shrinkage. Even without sales associates, it is feasible to prompt for alternatives and related products, improving conversion and transaction values, reducing space and costs of physical trial rooms, and increasing the number of customers serviced especially at peak traffic times.
A phenomenal advantage is the data captured that is relevant while the customer is in the store, but which can be linked to future promotions. Valuable intelligence, such as what is being tried and for how long, can help the retailer to quickly gauge demand patterns, and adjust pricing and promotions. Normally retailers only capture sales transactions (post-fact), and miss out the rich information on in-store behaviour that etailers do collect and analyse.
However, massive hurdles to virtualisation remain, including data input accuracy, product accuracy, and the technical capabilities of the tech solution adopted. A bigger concern is whether technology is intuitive and seamless, or whether it gets in the way of the shopping experience. Further, consumers do have privacy concerns about the images and other data collected.
Its important to remind ourselves that, on its own, technology is just a novelty – huge transformation of business processes, organisational capabilities and behaviours must happen as well.
That is perhaps the biggest mountain to climb.