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Myntra plus Jabong may help Flipkart win the game

Nivedita Mookerji, Business Standard

New Delhi, 27 July 2016

More than two years after Flipkart founders Sachin Bansal and Binny Bansal had announced acquisition of fashion portal Myntra at a high-street restaurant in Bengaluru, the action shifted to New Delhi’s Connaught Place for a similar deal on Monday night. While the Bansals had bought Myntra for $300 million in May 2014 to go strong in fashion, they have acquired German investor Rocket Internet-backed Jabong for $70 million to stamp out competition in the high-margin fashion space.

It’s a wise deal, according to analysts, as fashion is increasingly turning out to be the route to money-making, profitability and success for online players. Not a surprise then that well past dinner time, at around 11 pm, the large conference room of Khaitan & Co, legal advisors to Flipkart, turned into a party place where congratulatory messages came thick and fast. The deal that promises to make Flipkart a leading force in fashion segment — estimated at about Rs 3 lakh crore — came after hectic weekend parleys. About 12 persons representing legal teams, merchant bankers and advisors agreed on the deal while the Bansals called in to say “well done”.

If in 2014, Flipkart had scripted the Myntra deal with an eye on competition from Amazon, this time too it is believed to have kept the same rival in mind. Vinay Joy, associate partner at legal firm Khaitan & Co, said the deal was all about synergy at a time when Amazon is trying to grow strong in fashion vertical and entering new categories. Recently, Amazon announced fresh investment of $3 billion and the global giant has often said that it has an open cheque book for India. Consolidation in the space makes a lot of sense as “Flipkart will become the go-to site for fashion,” Joy added.

Flipkart CEO Binny Bansal stated that the company has created the biggest fashion shopping destination through acquisition of Jabong, a portal that has been on the block for long. “Myntra and Jabong are all set to define the next generation of online shopping offering the best of brands to Indian consumers,” according to Bansal.

Devangshu Dutta, chief executive at consultancy firm Third Eyesight, reasoned that the internal DNA of Jabong and Myntra were more merchandise-oriented than trading-oriented, a differentiation that is of significance to go big in fashion. The fact that fashion is a high-margin sector would mean that any player doing well in this space would make money that much quicker, he said. The margins in fashion could go up to as much as 50 to 60 per cent in case of own labels and at least in low two digits in other formats of fashion, Dutta pointed out. In contrast, margins in electronics are at low single digit.

Kunal Bahl, CEO of Snapdeal, which was seen as a frontrunner in the race to acquire Jabong, however, told Business Standard in a recent interview: “I look at net margin; fashion in India is also sold with plenty of discounting. Selling shoes on a deep discount is like selling mobile phones.” Snapdeal already has a fashion portal Exclusively.in under its banner.

It may take a while for Flipkart plus Myntra plus Jabong to beat physical retailers which are strong in fashion space, but as Arvind Singhal, founder, Technopak, summed up, with the latest deal, Flipkart has prevented Jabong from turning a threat if it was to be acquired by a powerful player. “It’s a very intelligent deal,” said Singhal.

(Published in Business Standard)

Consolidating India’s Online Fashion Players, Myntra Buys Jabong

Mayu Saini, WWD

New Delhi, 26 July 2016

Changing India’s playing field for fashion online, Myntra, a subsidiary of the country’s biggest ecommerce player, Flipkart, on Tuesday acquired rival fashion e-tailer Jabong for an estimated $70 million.

“Fashion and lifestyle is one of the biggest drivers of e-commerce growth in India,” said Binny Bansal, chief executive officer and cofounder of Flipkart, adding that the acquisition would help the group continue to transform commerce in India. “We will now be able to offer to millions of customers a wide variety of styles, products and a broad assortment of global as well as Indian brands.”

Jabong has been expanding across various segments, from private label to global brand partnerships, with more than 150,000 styles from more than a thousand vendors. It has exclusive tie-ups with international brands including Topshop, G-Star Raw, Bugatti Shoes and Dorothy Perkins.

Myntra has been paring back the number of brands it carries from the more than 2,000 at the peak to focus on those that generate the most revenues. In addition to private label and local labels, Myntra sells more than 25 international brands including Nike, Adidas, Puma, Lee, Levi’s, Arrow, Mango, Diesel, CAT, Harley-Davidson, Ferrari, U.S. Polo Association, Forever 21 and Marks & Spencer.

Myntra expects to become profitable in 2017, projecting sales of $1 billion. Industry estimates pegged the deal with Flipkart at $70 million in cash, with additional amounts for inventory and other things.

“The acquisition of Jabong is a natural step in our journey to be India’s largest fashion platform,” said Ananth Narayanan, ceo of Myntra. “Jabong has built a strong brand that is synonymous with fashion, a loyal customer base and a unique selection with exclusive global brands. We see significant synergies between the two companies especially on brand relationships and consumer experience.”

E-commerce in India has been growing rapidly and is expected to increase by more than fourfold in the next four years, from $30 billion this year to $120 billion in 2020. The estimated 51 percent growth will be the highest in the world, according to a recent research paper by industry body the Associated Chambers of Commerce of India (Assocham). India has an estimated Internet user base of 400 million. (In comparison, Brazil has 210 million Internet users and Russia has 130 million.) The report noted that Internet penetration in India is expected to increase from 32 percent in 2015 to 59 percent in 2020, translating to a near-doubling of the Internet user base. Per capita incomes are likely to double by 2025 as well, driving growth in sales and consumption.

Fashion is the second-largest segment in the Indian e-commerce market after electronics, and is estimated to have the highest margins.

Flipkart had already made a significant foray into fashion e-tailing with the purchase of Myntra in May 2014 for $320 million. Since then it has invested heavily to grow Myntra, including in advertising and marketing and price promotions, pushing far ahead of its competitors, including Jabong, which has seen a major decline in valuation over the last year.

In September 2014, Jabong was bought by the U.K.-based Global Fashion Group, which owns five other online fashion retailers in Latin America, Russia, the Middle East, Southeast Asia and Australia, with the overall group valued at 3.1 billion euros, or $3.4 billion, this month. Other other sites that are part of GFG are Dafiti in South America, Namshi in the Middle East, The Iconic in Australia and New Zealand, Zalora in Southeast Asia and LaModa in Russia.

In the past six months, Jabong founder and ceo Arun Chandra Mohan and cofounder Praveen Sinha have left the company and
former Benetton India ceo Sanjeev Mohanty was named ceo.

Jabong had net revenues of 126 million euros, or $131.8 million, in the financial year ending March 31.

“Through this deal, Jabong potentially gets a lease of life, as it was struggling to raise funding from its existing investors, and saw a significant churn recently in its top management. As an upside, it has reduced its emphasis on discounting last year, and if it continues its focus on strengthening its product direction and merchandising capabilities, it may not only do itself a favor, but also its acquirer Myntra/Flipkart. Whether and how much it will retain its operational independence remains to be seen,” said Devangshu Dutta, ceo and founder of Third Eyesight, a consulting firm focused on the retail and consumer products.

The acquisition is expected to heat up the fashion e-tail market in India, with Amazon making a big push for growth over the last 12 months, especially in apparel. Amazon plans to invest $5 billion in India over time, while brick-and-mortar retailers have expanded their own web sites, including Reliance Industries, which launched its own fashion e-commerce site Ajio in April; Tata Cliq from the Tata Group, and Abof from the Aditya Birla Group.

But there have been concerns the e-commerce bubble might burst, even as the number of consumers shopping online continues to grow rapidly. Dutta observed the growth is likely to continue, both in terms of customer numbers and market share, driven not just by pure-play companies, but also by mainstream retailers expanding their web sites.

“Among all categories, fashion and lifestyle goods can offer a buffer against commodification and margin erosion,” he said.

(Published in WWD)

Pokemon GO stokes retailer interest 

Viveat Susan Pinto, Business Standard

Mumbai, 17 July 2016

A week from now, the fans in this city of Pok�mon GO, the augmented reality (AR) mobile game, propose to converge at Churchgate, at the southern end, for a ‘Pokewalk’.

The idea, according to die-hard fans, including children and college-going youth, is to “together” hunt down Pok�mons, basically virtual creatures hiding in public places. These creatures then help the users continue with the game.

As the craze for Pok�mon GO grows worldwide — it is already the largest mobile game in the US within 12 days of launch — it has opened a plethora of branding options. The biggest, explains Anjali Hegde, chief executive officer, Ansible Mobile, the mobile marketing arm of IPG Mediabrands, is for retailers.

“Bars, pubs and pizza joints in the US that fall within the digital map of the game are giving special offers and discounts for Pok�mon GO fans to drive footfalls. Many of them are seeing sales improve, as a result,” she says.

Indian retailers, especially the global quick-service restaurants and cafe chains, are watching the space closely. Ravi Jaipuria, chairman of Gurgaon-headquartered RJ Corp — whose group company, Devyani International, is a franchisee of international brands such as Pizza Hut, KFC and Costa Coffee — says interest among Indian retailers is high. “The game hasn’t been officially launched in India, so many are in wait-and- watch mode. But, if it can help drive footfalls, retailers will come on board,” he says.

Riyaaz Amlani, restaurateur and managing director of Mumbai-based Impresario Entertainment & Hospitality, says he’d be keen to know if his joints — Smoke House Deli, Mocha, Salt  Water Caf�, etc — fall within the digital map of the game. “I think most retailers and restaurateurs, especially in the big Indian cities where the game has already become a rage without even officially launching, will be ascertaining how they can tap into this phenomenon in some way.  I am already doing it,” he says.

Jasper Reid, director at Sierra Nevada Restaurants, which brought the US burger chain Wendy’s and celebrity chef Jamie Oliver’s restaurant brand, Jamie’s Pizzeria, to this country, says the company only last week ran ads on Facebook, inviting Pok�mon GO fans to sample its offering at a new outlet it was opening in Mumbai.

“I expect more of these marketing and promotion activities by retailers,” Reid says over telephone from Delhi. “The fact that people are stepping out to find Pok�mons opens branding options not only for those retailers who fall within the digital map of the game but also for those in the vicinity. So, if a certain spot like, say, a school, temple or park is a PokeStop, a place where you can find Pok�mons, food & beverge joints in the vicinity are likely to benefit if they are able to market themselves well to this audience. We tried doing that last week,” he says.

Experts, however, caution of the health risks attached due to excessive usage, including the danger of road accidents and fans becoming addicted to the game.

“At this stage, the engagement level is high,” says Devangshu Dutta, chief executive, Third Eyesight, adding, “This is typical of games that become an overnight sensation. Over time though, this will plateau, giving stakeholders a chance to objectively evaluate their prospects.”

What most don’t deny, though, is that Pok�mon GO has driven significant interest among Indian advertisers for AR, a technology that has been used in a limited way in the country so far.

“I find clients now more open to the idea of augmented reality and what it can do,” says Ashish Bhasin, ‎chairman & chief executive officer, South Asia, Dentsu Aegis Network.

He further added, “While it remains an expensive exercise, AR and robotics will get cheaper with the evolution of technology, challenging conventional forms of communication. Markets such as Japan, the US and UK are already seeing usage of AR in out-of-home media, with good results.”

(Published in Business Standard)

Zara posts slowest sales growth in India; stiff competition from global rivals like H&M and Gap 

Sagar Malviya, The Economic Times

Mumbai, 13 July 2016

Spanish fashion brand Zara posted its slowest sales growth in India during the year ended March, indicating that its novelty factor may be waning as consumers shift to global rivals such as H&M and Gap, which entered the country last year.

Inditex Trent, the joint venture between Zara brand owner Inditex and Tata Group’s retail arm Trent, clocked a 17% sales growth to Rs 842.5 crore during FY16, Trent said in its annual report on Tuesday.

A year ago, its revenue increased 24% to Rs 721 crore. Zara’s sales growth has been tapering off after stellar performances following its entry into India in 2010. It posted a profit in the first year of operations and doubled sales every two years.

The joint venture plans to open more Zara stores in India over the next three to four years in the major cities, after two additions last year took its total outlet count to 18, the report said. “The primary challenge to faster expansion is the availability of high quality retail spaces, which can be expected to generate reasonable sales throughput,” Trent said.

Zara’s average sales per store was about Rs 47 crore last year, exceeding those of top apparel brands such as Louis Philippe, Levi’s and Marks & Spencer and even slightly higher than department store chains Shoppers Stop and Lifestyle.

“When Zara entered, the novelty factor was humongous but now there is a certain familiarity with the brand. Also, it has moved beyond marquee locations. In addition, aggression by ecommerce companies intensified, too,” said Devangshu Dutta, chief executive officer at Third Eyesight, a retail and consumer goods consulting company.

As the world’s second most-populated country, India is an attractive market for US and European brands, especially with youngsters increasingly embracing westernstyle clothing.

Zara, owned by Inditex, the world’s largest clothing retailer, is facing competition from similarly priced, fashion rivals including Gap, H&M and Aeropostale, which entered India last year.

US clothing brand Gap sold apparel and accessories worth Rs 23 lakh daily on average in June in its first month of operations in India, surpassing all other retailers in the country in terms of sales per square foot. Swedish company H&M clocked more than Rs 1.75 crore in sales on the opening day of its first store in India, almost double what its largest rival Zara sold on its inaugural day five years ago at the same location, Select CityWalk mall.

While sales growth of both these rivals may ease after the initial launch-related surge, experts said the market has room to expand. “Given the response we have had for global brands launched last year, it indicates preference for wellknown international brands,” said J Suresh, managing director of Arvind Retail, which holds the licence to sell brands like Gap and US Polo.

Most of Zara’s back-end logistics and merchandise sourcing are handled by Inditex, while the Tata expertise is mainly for identifying real estate and locations.

(Published in The Economic Times)

Wildcraft: The backpackers with sales worth Rs 300 crore

Anshul Dhamija, Forbes India

Bengaluru, 12 July 2016

Dinesh KS loves the wilderness. And, as an avid mountaineer (he is a certified instructor in climbing and mountaineering), he always found it easy to be close to it. But, in 1990, he suffered an ankle injury which hindered his treks. Dinesh was forced to find another way to stay in touch with his passion. By 1993, he had figured out how: The then 32-year-old Bengaluru resident started to design tents and backpacks, which were manufactured in the city’s industrial hub of Peenya. “I would shop for buckles, zippers and other accessories, fill up my bags with the raw materials, and then ride to Peenya [on my motorbike]. I would spend the whole day there, teaching tailors how to stitch [these products],” recalls Dinesh.

This was at a time when access to such products in the country was limited and, therefore, expensive. In fact, the better quality ones were available across the border in Thamel, the commercial neighbourhood in Kathmandu, the capital of Nepal.
 
Dinesh started small—it would take at least five years before this little venture would become Wildcraft India Pvt Ltd—in 1993 and produced only five to 10 products a day. He would sell them from a friend’s garage in Bengaluru’s southern residential suburb of Jayanagar. Dinesh estimates that he sold between 2,000 to 3,000 units per annum. And he made next to nothing, he says. “It [the money] was like change, so let’s not go there. But I did get a kick out of doing it,” says the 55-year-old. He then adds, laughing, “Kicks were coming from other places also. My parents were always ready with those because all my classmates were in the US and doing well.”

Things were to change, though, especially after 2003, when the company would get its focus right, and move to products from services (more on that later). “Till then, we didn’t even think of it as a business. It was a hobby,” says Gaurav Dublish, co-founder of the reinvented Wildcraft, who joined full-time with his college friend Siddharth Sood, both 40, in 2007.

It certainly isn’t a hobby anymore. The outdoor products brand reported retail sales of Rs 300 crore in FY16, having clocked a CAGR of over 60 percent since 2007. (The company did not disclose profitability numbers.) It sold over 2 million products in the year including backpacks, rucksacks, sleeping bags and tents, cheaters and jackets, and footwear. From the garage it started selling from in 1993, Wildcraft products are today available in 120-plus exclusive stores and over 2,500 multi-brand stores across 400-plus Indian cities.

What has helped in achieving scale is an investment of about Rs 70 crore for an undisclosed minority stake by Silicon Valley-based venture capital fund Sequoia Capital in 2013. There has been no follow-up equity investment since. “The company has grown 3x plus since the investment and has strongly positioned itself as a full-blown outdoor brand across gear and apparel with footwear being added as well,” says GV Ravishankar, managing director, Sequoia Capital India Advisors.

It has been quite the journey, then, for Dinesh. Born and brought up in a middle-class family in Ranchi, he had moved to Bengaluru in 1978 for his Pre-University Course (PUC). After that, he obtained a degree in electronics engineering from RV College in the city. The wilderness was never supposed to have been part of the plans, but here he is, fuelling others’ wild dreams.

Friends In Deed

“When Gaurav and I joined, the revenue of Wildcraft was lesser than the salaries that the two of us earned,” recalls Sood, who had quit his job at GE in Singapore in 2007, and Dublish his at Standard Chartered in Dubai. However, their association with Dinesh and Wildcraft began earlier, in 2000. Back then, besides making outdoor gear, Wildcraft India had a robust services business. This included organising river rafting expeditions at Dandeli, located in the Western Ghats in Karnataka, and conducting outdoor learning programmes for children and corporates, as well as some consultancy services. This constituted 75 percent of the company’s overall revenues at the time.

Sood and Dublish had taken a trip to Dandeli in 2000 and, having enjoyed it, started helping Wildcraft run its services business in their spare time. Between 2000 and 2003, both Sood and Dublish moved from the periphery to getting invested—financially and operationally—in the company’s product business. “We didn’t have any office. All the fights and arguments used to happen at one of our places,” remembers Dublish, now seated in the third floor of the three-storey Wildcraft India headquarters in Bengaluru’s southern suburb of JP Nagar.

In 2003, even as Dublish and Sood were both embarking on international assignments in their respective jobs, they convinced Dinesh to give up his job at the National Outdoor Leadership School (NOLS) in Wyoming, US, and devote all his time to Wildcraft. (For at least six months in a year, Dinesh worked as a climbing instructor at NOLS. In his absence, an accountant-cum-inventory manager oversaw operations.)

Around this time, it was also decided that Wildcraft would let go of its services business and focus on products. “The three of us were convinced that we need to take the product route. So the guys who were associated [and invested in Wildcraft earlier] moved out and took the services business with them,” says Sood. The company took up a 700-odd square feet office space opposite its earlier garage setup, and hired tailors. It opened four retail stores across the city in the key suburbs of Jayanagar, Cambridge Layout, Malleswaram and Rajajinagar.

“We had tied up with vendors who would tap into Korean and Taiwanese suppliers. In 2006, we started sourcing directly,” says Dublish. The business required significant working capital. For a turnover of Rs 50 to Rs 60 lakh, Dublish says, “we used to pour in Rs 30-40 lakh of capital to sustain it because the demand was not outstripping [supply]. And that capital was coming from the three of us.” Annual sales for Wildcraft averaged around 10,000 units then.

Those were also the years of “armchair entrepreneurship” for Dublish and Sood. And even though Dinesh ran the show, for about three to four weeks in a year he would take off to the mountains. This setup needed to change.

The Confidence Game

In 2007, Dublish and Sood decided to come back to India and spearhead operations. It was around the time that Dinesh, who oversees design and product development, was looking for more personal time to explore mountain ranges in India and abroad. Also, “there were question marks on the survival of a design product-led company. At that time, entrepreneurship was still not as fashionable as it is today,” recollects Dublish. But nothing deterred their entrepreneurial spirit or their belief in Wildcraft.

The trio put forth a clear vision for the company: To build the largest outdoor brand in India. While Dublish and Sood settled into their roles of leading marketing and sales, and finance, respectively, Wildcraft began hiring its first set of designers. “Consumption of backpacks as a category wasn’t there. But we believed that the category had a future in this country, and we clearly saw an opportunity,” says Sood. And they were right: The backpack has come to be the company’s largest selling product, considered to have a multi-utility appeal in urban landscapes such as workplaces and schools. An internal assessment by Wildcraft shows that 80 percent of consumers use the backpack for daily commute, while 20 percent carry it for the outdoors.

Also, the overall Indian outdoor gear market is estimated to be over $2 billion in size, and their confidence in being able to tap into that has held the company in good stead. As Ravishankar of Sequoia Capital India Advisors says, “In the beginning, we were not convinced on whether the Indian market had evolved enough to accept the outdoor positioning the company was building on. But every time we met them, we got more and more convinced that this was a special team, who, with their unique insights about the Indian/Asian consumer, had a strong, long-term focus on building a leading outdoor brand out of India.”

Arvind Singhal, chairman of Technopak, a leading retail, textile and apparel consulting firm, has a different perspective. He puts Wildcraft in the category of “being a niche player which has become successful, another example being Fabindia”. Adds Singhal, “Over the years, Wildcraft has built up very strong capabilities in product development, manufacturing and sourcing. That has been their strength.” But he is not convinced that such niche players have the ability to grow and become ten times the size and scale they currently are at.

Ravishankar, though, is confident that Wildcraft’s business can be scaled to Rs 1,000 crore “over the next few years”. “We aspire for Wildcraft to be a truly global brand out of India. And they have taken baby steps in that direction,” he says. In fact, the company has begun to distribute its products to international markets such as the UAE, Saudi Arabia, Oman, Qatar, Singapore, Malaysia, Indonesia and Taiwan.

Climb Every Mountain

Competition for Wildcraft comes from all quarters: Sportswear brands, international sporting goods retailers such as Decathlon, traditional luggage makers such as Samsonite and American Tourister which now offer backpacks, lifestyle brands such as Fastrack from Titan, as well as other outdoor players like Woodland and Timberland.

“Their biggest external challenge comes from brands with deeper pockets that can push ahead with market penetration more aggressively, including the sportswear giants, as well as retailers identifying the category as one where they can undercut brand margins through private labels,” says Devangshu Dutta, founder and chief executive of Third Eyesight, a retail consultancy firm.

But Dinesh isn’t fretting over potential rivalries. The best outcome he had hoped for was “doing business which would give me time and money to pursue activities.” And that is exactly how his story is playing out.

On the one hand, he has the bandwidth to follow his passion: In 2008 and then again in 2011 he climbed some of the Himalayan mountains in Ladakh that stood at 6,600 metres. Mount Everest, which is at 8,848 metres, has never excited Dinesh. “For some people, height matters, but not for me. The challenge is in the kind of routes that you climb,” he says. His next target is to explore the mountain ranges on the eastern side of the Karakoram.

When he is not in the mountains, he helps the 20-odd member Wildcraft design team in product development. This is of no lesser joy to Dinesh. As he points out, “When we started, the garage was our manufacturing unit, head office and retail outlet. And now we’re looking to be counted among the best in the business globally. I’m confident that our best years are ahead of us, and outdoor-lovers are at the heart of this confidence.”

Either way, Dinesh seems to have it all—wild dreams are made of this.

(Published in Forbes India)

Big Bazaar completes integration of Easyday stores 

Rashmi Pratap, The Hindu Businessline
Mumbai, 11 July 2016

Bharti Retail’s hypermarket stores Easyday have now become Big Bazaar outlets as the Future Group has completed their integration following the merger agreement in May last year.

Future Group’s convenience stores — KB’s Fair Price and KB’s Conveniently Yours — are being turned into Easyday supermarket or neighbourhood stores in an attempt to streamline formats and improve customer connect.

“We have done this over the course of the last one year. We have an iconic brand that customers are familiar with and the integration has added strength to it,” Big Bazaar CEO Sadashiv Nayak told BusinessLine.

The retail giant will also not open any new convenience stores under the KB’s Fair Price and KB’s Conveniently Yours brands; future expansion of the neighbourhood supermarket format will be done only as Easyday.

Rising numbers

Already, the group has taken the Easyday supermarket store count from 188 at the time of merger to around 300 now. The new stores have been added mostly in Delhi-NCR, Haryana and Punjab.

“In cities where both brands exist currently, KB’s will be converted to Easyday. However, wherever Easyday does not exist, existing KB’s will continue,” a company official said.

The merger of Bharti Retail and Future Retail resulted in a ₹15,000-crore company, which has now been de-merged into two companies.

The front-end company remains Future Retail while the back-end infrastructure company is expected to be listed next month. Big Bazaar, India’s largest hypermarket chain, is also becoming successful in its attempt to cater to a wider customer segment, which began last year with its Gen Nxt stores.

In the eight months since launch, Gen Nxt stores are attracting youngsters, foreign nationals as well as time-starved working professionals besides the chain’s core shopper group, pointed out Nayak. “It is definitely trending 15 to 20 per cent more than what a new store would do for us,” he said, adding that the group is not looking at these stores from only a numerical perspective.

Four more Gen Nxt stores are in the pipeline. Some are existing stores that will be modelled around Gen Nxt.

Nayak further said the group had accumulated a lot of learning from its retail formats.

“We had gathered insights about retail in food from Foodhall, about electronics from eZone and fashion and lifestyle from HomeTown.

“We have packed the learnings into one and added a layer of engagement for the shoppers in our Gen Nxt outlets,” he said.

In tune with times

Devangshu Dutta, Chief Executive of retail consultancy Third Eyesight, observed that the Future Group has accelerated the change in its retail formats in tune with changing market dynamics.

“In the last 10 years, the Indian market itself has undergone a change, with customers wanting better experience and products. They (Future group) have also learnt from their retail ventures and are accordingly moving up to cater to the changing customer mix,” he sadi.

And in this, Bharti Retail’s international practices — acquired from its erstwhile partner Walmart — will come in handy for Big Bazaar.

(Published in The Hindu Businessline)

Lifestyle International plans expansion as ecommerce threat fades

Sobia Khan & Richa Maheshwari, The Economic Times

Bengaluru, 6 July 2016

Lifestyle International, the Bengaluru-based retailer, has set a target of becoming a billion-dollar (nearly Rs 6,750 crore) turnover company by March 2017 by adding more stores, a top official said.

“This will be the most aggressive expansion for the company post 2010. Our expansion plan is firm, we have been on track. But sometimes malls get delayed,” said Kabir Lumba MD Lifestyle International. The company clocked a turnover of Rs 5,700 crore during the last financial year. Lifestyle International operates stores under Lifestyle, Max and Home Center formats across major cities.

The company plans to open around 25-30 Max stores, 10-12 Lifestyle stores and 3-4 Home Center forums in tier I and II cities including Bengaluru, Delhi, Agra, Indore, Lucknow and Howrah.

“We started getting into tier II towns sometime back and we are seeing healthy traction across all regions for both tier I and tier II cities,” said Lumba. The company currently has around 230 stores across Lifestyle, Max and Home Centre formats in India. The Indian retail sector is seeing huge competition from e-commerce giants like Amazon, Flipkart, Myntra and Snapdeal.

“Overall there is greater confidence among retailers. Earlier, there was threat from ecommerce platforms in terms of discounting, impacting footfalls. But this is diminishing now and is positive for retail industry,” said Devangshu Dutta CEO Third Eyesight, a retail consultancy firm.

Globally, India is among the top 10 retail markets. According to a recent report by Confederation of Indian Industry (CII) and consulting firm The Boston Consulting Group, the retail sector in the country will double to levels of $1.1-1.2 trillion by 2020 from $630 billion in 2015.

(Published in The Economic Times)

Putting mobile wallets through convenience test 

Ankita Rai, Financial Express

New Delhi, 5 July 2016

Think ‘mobile wallet’ and you will probably think of recharges, DTH/bill payments or at the fringes of your mind, even e-commerce sites. But paying for a can of yoghurt at a milk-booth near your home with, say, a Paytm? Not an idea to be scoffed at — this is a reality today. In order to drive the next phase of revenues, the offline ecosystem poses a world of opportunities as far as m-wallets are concerned.

Ranging from the Big Bazaars of the world to the neighbourhood mom-and-pop stores, petrol pumps, auto rickshaws and milk-booths, mobile wallets are available across most retail formats. Top wallet companies are investing heavily in changing customer habits and creating as many use cases as possible which include exclusive tie-ups with merchants, co-promotions with brands, cashbacks and so on.

While currently a mobile wallet business typically covers fund transfers, services related to e-commerce transactions like utility and bill payments, ticketing, and recharges, offline commerce is expected to drive good traction. Research firms peg the current market size of the mobile wallet business at R350-400 crore with volumes expected to touch R1200-1500 crore by 2020.

“Offline transactions are an important step to increase mobile payments penetration as they offer the ability to operate even in zero/low connectivity zones. It also speeds up the transaction processing which is very important in rapid services like mass transport systems,” says Kunal Pande, partner, KPMG India.

Experts say a bulk of the big market for wallets resides at the mid-to-low-end retailers. Recruitment of offline merchants is crucial to the viability of payment solutions, since most consumer transactions still happen offline.

“Payment providers that want to win the game will need to focus on usages that are frequent,” says Devangshu Dutta, CEO, Third Eyesight. So what is the potential of the offline ecosystem as a revenue generator for m-wallets?

The payment industry must overcome the ‘network effect’ while fighting customer inertia to boost adoption. 

“Payments work off the network effect. Without an adequate network of both payers and payees, the currency — or in this case the wallet — is of limited or no value,” says Dutta. Each company has had to build a market for itself, both in terms of consumers using mobilewallets and merchants who would accept m-wallet payments.

Each wallet player has made significant investments in technology, back-end infrastructure and marketing to boost the adoption of wallets in the offline space. And rightly so, as online still constitutes only 2-3% of total commerce.

The latest Paytm Karo commercial not only reflects the adoption of Paytm across multiple age groups, but also highlights its QR code scan feature for easy payments to offline merchants.

While Paytm is spending R50 crore to execute this campaign, which runs till July, its overall marketing budget for this year is R600 crore. “There is a massive fight for the ‘real estate’ on the mobile phone. We need to establish ourselves as a viable alternative to cash and give more use cases to create an ecosystem,” says Shankar Nath, senior VP, Paytm.

For Paytm, recharge is an anchor use case, followed by DTH electricity bills etc. The idea now is to expand offline as that is where the growth is. In the offline space, the traction comes from sub-thousand rupees transactions and out of three million daily transactions on Paytm, offline constitutes 40% according to the company. Paytm currently has four lakh offline merchants using its platform and 125 million wallet users. The wallet can be used at petrol pumps, educational institutes (school/college fee payments), restaurants and large format retailers such as More.

Clearly, the payment business runs on scale with thin margins. So frequency of transactions is the only way to profitability, even if for small ticket sizes. Apart from Paytm, mobile wallet player Freecharge plans to spend R2,000 crore over the next 18 months on marketing.

Freecharge’s last brand campaign Lo. Do. Khatam Karo was released in April  this year during the IPL season to cater to metros and tier-I cities. To facilitate payments through wallets at PoS terminals and online payment gateways, it has partnered with payment aggregators like ePaisa and CCAvenue.

It has also forged partnerships with Shoppers Stop, McDonald’s, Caf� Coffee Day, Cleartrip, RedBus and OYO, and  claims to have crossed a million transactions in February, witnessing a growth rate of 15-20% per month.

“Freecharge features such as on-the-go-pin and chat-n-pay are for peer-to-peer transfer and person-to-merchant payment. It is meant for merchants in the unorganised space who do not have the means to accept the payment,” says Sudeep Tandon, chief business officer, Freecharge. “The chat-n-pay feature is finding wide acceptance among taxi drivers, salons and kirana stores with almost 45% of our customer base using it.”At Freecharge, 85% of the transactions take place through the app and 15% through desktop and web. Currently the wallet can be used to pay at over one lakh merchants, including both online and offline segments. About 50% transactions are from tier-I cities and rest from tier-II and tier-III.

Or take MobiKwik, whose offline journey started about a year back with an association with Future Group’s Big Bazaar. It has top-down strategy for offline expansion starting first with large brick-and-mortar retail and then moving on to unorganised merchants. It has an over 30 million user base, of which 50% is active monthly users.

“Since last July, the biggest focus area has been offline merchants. The MobiKwik wallet is currently accepted at 25,000 retail outlets. The next big use case is unorganised grocery stores,” informs Akash Gupta, GM, marketing, MobiKwik.

To enable expansion, it has also launched cash pick up and loading to support offline consumers in tier-II and tier-III cities. Offline today contributes to 20% of its GMV. The wallet is available at Relaxo showrooms, Burger King outlets and Domino’s’ 1,000 stores, among others. It has also tied up with Madura Garments for its Van Heusen and Peter England stores.

Partnering with large retailers

To be really accepted as a currency and an alternative to debit and credit cards, mobile wallets must evolve from small transactions to larger transactions, thus, also increasing the average ticket size. For example, Future Group has an exclusive tie-up with MobiKwik. Currently, 320 Future Group stores across Biz Bazaar and Central malls accept MobiKwik wallet for payments.

“Mobile wallets bring incremental traffic to the store as consumers tend to use the store connected to their wallets, and we also benefit from the promotions run by MobiKwik,” says Vinay Bhatia, CEO, analytics and loyalty, Future Group.

Big Bazaar is also working with Oxigen for a co-branded wallet to create customer loyalty. Pramod Saxena, founder and chairman, Oxigen Services, says, “This solution is specifically designed for big merchants like Big Bazaar and airlines.”

Oxigen plans to spend Rs. 100 crore on marketing and branding this year. Currently, 150 million customers are transacting at Oxigen retail points and online which includes 25 million wallet users.

The company says it is adding 2-3 million wallet users every month. Then there is Shoppers Stop which entered into an exclusive one-year tie-up with the wallet company Freecharge last year across its 230 stores including Shoppers Stop, Crossword and Hypercity.

“The big advantage is convenience of payment. I see this is a great way ahead for people who don’t have credit cards,” says Govind Shrikhande, customer care associate and managing director, Shoppers Stop.

At Shoppers Stop, card transactions stand at 56% while the rest is cash. “The objective is how much of the cash can be converted to wallet. To enable this, we are targeting young customers at stores who don’t use cards,” he says .

Shoppers Stop is also leveraging wallet data for targeted and personalised promotions. “We are using our physical space to promote Freecharge while Freecharge is using digital to drive traffic at our stores. Therefore, it’s a win-win,” Shrikhande adds.

Caf� Coffee Day (CCD) accepts multiple mobile wallets such as Paytm, Mobikwik and Oxigen. “On the business side, wallets help in reducing the operational cost of handling cash,” says Bidisha Nagaraj, group president, marketing, Coffee Day. CCD has recently launched its mobile app in Bengaluru, Mumbai and Pune with an integrated mobile wallet feature.

Currently, RBI regulations limit digital wallets to transactions worth R10,000 without a KYC. However, a full KYC increases the limit on digital wallets to R1 lakh per month. This can enable high value transactions for customers. MobiKwik has launched Aadhaar-verified eKYC to enable upgrades in real-time.

However, the mobile wallet ecosystem is fragmented with each player operating in a silo. Most non-banks currently offer semi-closed wallets which pose a limitation to the usability of wallets primarily to the ecosystem built by the wallet operator.

Dutta says the Unified Payment Interface (UPI) should boost growth as the backend would be more seamless. “The key for the wallet companies will then be to differentiate themselves in terms of service and to more intensively craft the market for small merchants,” he surmises.
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(Published in Financial Express)

E-commerce: a friend, a foe  

Rashmi Pratap, Hindu BusinessLine
Mumbai, 4 July 2016

Apart from changing business models, mall operators are also benefitting from the challenging times in the e-commerce space. Though online sales are expected to zoom to $55 billion by FY2018 from $14 billion in FY2015 – according to Retailers Association of India – investors in e-retailers are tightening the reins. They are questioning the business models of e-commerce players, who have been forced to re-think their strategy.

Hedge funds have been actively funding Indian start-ups so far. However, with economic slowdown in China and rising interest rates, they have scaled back their investments.

With tightening fiscal environment, the expectations of investors have also undergone a change. “While earlier the expectation was to deliver much more in terms of growth, now they are asking for better balance between growth and profitability,” says Alok Mittal, angel investor and CEO and co-founder of Indifi Technologies.

To add to it, investors are also cutting down valuations of e-commerce ventures. Flipkart’s investor Morgan Stanley marked down the e-retailer’s valuation from $15 billion to $9.39 billion earlier this year.All this means investors are now less bullish on e-commerce firms. And that, mall operators hope, will translate into lower discounts for customers who will throng the malls.

Devangshu Dutta, Chief Executive at retail consultancy Third Eyesight, says e-retailers have a reach that is unlimited by time and geography.

For standard products such as diapers, 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, he adds.

But all this doesn’t mean that e-commerce is no more a challenge to retailers. “I think e-commerce remains a threat to retailers who refuse to change,” adds Dutta.

But for successful malls like Viviana, DLF and Forum, e-commerce has been a teacher. “It has made us re-think some of the ways we do our business. We now know it is important to engage closely with customers,” says Suresh Singaravelu, Head – Retail, Prestige Group.

(Published in The Hindu Businessline)

Mobile wallets bet on offline stores to reach critical mass

Ankita Rai, Financial Express

New Delhi, 3 July 2016

The convenience of mobile wallets is being put to the test, not just with increased competition in the space, but also due to the National Payments Corporation of India’s unified payment initiative (UPI), which is expected to create the next level of growth owing to a more seamless backend. In response to market pressures, m-wallets are expanding their scale of operations and tying up with offline merchants to move beyond recharge-related services, DTH and bill payments. From the likes of Big Bazaars to neighbourhood mom-and-pop stores, petrol pumps, auto rickshaws and milk-booths, mobile wallets are not leaving any offline retail format unexplored.

Clearly, the recruitment of offline merchants is critical to the viability of payment solutions, since most consumer transactions still happen offline. “Payment providers that want to win the game will need to focus on usages that are frequent,” says Devangshu Dutta, chief executive, Third Eyesight, a retail consultancy.

This is exactly what Paytm is doing with focus on small but frequent transactions. Paytm wallets can be used at petrol pumps, education (school and college fees), restaurants, Mother Dairy and large-format retailers such as Spencer’s and More. “The payment business runs on scale. There is a small margin. So the attempt is to create an ecosystem where consumers use wallet for frequent transactions, though small in amount,” says Shankar Nath, senior vice-president, Paytm.

Out of three million daily transaction on Paytm, it claims 40% are coming from offline. Paytm currently has four lakh offline merchants using its platform, including mom-and-pop shops.

To facilitate payments through wallets at PoS terminals and online payment gateways, mobile wallet player Freecharge has partnered with payment aggregators like ePaisa and CCAvenue.

It has also forged partnerships with retailers like Shoppers Stop, McDonald’s and Caf� Coffee Day. It claims to have crossed a million transactions in February, with a growth rate of 15-20% per month. Similar is the case of MobiKwik, whose wallet is currently accepted at 25,000 retail outlets, which includes Big Bazaar and Central Mall. “Since last July, the biggest focus area has been on offline merchants. The next big use case is unorganised grocery stores,” says Akash Gupta, GM, marketing, Mobikwik.

Even as wallet players are tying up with big format retail stores, experts say a bulk of the big market for wallet resides at the mid-to-low end retailers. “Even in China, one-third of wallet transactions are remittances, a third is peer to peer and the remaining one third is commerce. We expect the Indian market to follow a similar lead,” says Pramod Saxena, founder and chairman, Oxigen Services. The volume of transactions through mobile wallets stood at 255 million in FY15. The value of transactions carried out through mobile wallets has grown by 500% between 2014-2016. “In value terms, however, mobile wallets contribute just 0.1% to the consumer payments market. Average transaction size still remains low,” says Kalpesh Mehta, partner, Deloitte.

(Published in Financial Express)