The investment underscores Amazon India’s determination to spare no expenses to fuel growth, outspending rivals that are having to slash budgets and focus on squeezing more revenue per customer. The money will now also be needed for additional compliance-related expenses, said experts.

Amazon this week will complete three years in India, in which time it has bitten off significant market share from domestic rivals who have been around longer. The Seattle-headquartered company in March edged past Soft-Bank-backed Snapdeal in shipments, or volume market share, ET reported in April.

Flipkart , which began by selling books as an online retailer in 2007 and counts Tiger Global as its largest investor, is the market leader in India’s online retail industry.

For Amazon, after losing ground to Alibaba in China, winning in India, the world’s fastest-growing major economy, has become critical. The company in October said it expected India to overtake Japan, Germany and the United Kingdom to become its second-largest overseas market in a few years.

“We have done much more local market customisation in India than we did in China,” Amazon chief executive Jeff Bezos said on Tuesday at the Code/Media conference in California when asked what lessons the company had learnt from China.

Amazon began its India operations by allowing buyers to pay by cash, a novelty for it, and recently has leveraged neighbourhood stores for delivery of goods.

It has introduced a slew of initiatives for merchants including Amazon-Tatkal, so small businesses can get online in under 60 minutes.

Amazon India has also built its own logistics network, which includes 21 delivery or fulfillment centers owned by it and another 50 owned by its sellers. But Bezos also said the Indian and Chinese markets are different, taking a dig at investors who have ploughed sizeable capital into Amazon’s domestic competitors expecting similar successes as seen in China.

“I think some of the investors in India in the early days thought that India might be a replay of China and they have found out that it hasn’t gone that way,” Bezos said at the conference.

Tiger Global and SoftBank have invested about $1billion each in Flipkart and Snapdeal, respectively.

Experts tracking online retail said it wasn’t alien for Amazon to outspend rivals to dominate a market. Amazon in January made its largest single capital infusion into in its India unit atRs 1,980 crore, a month after it sunk inRs 1,696 crore.

“This is only the tip of the iceberg,” said Kartik Hosanagar, professor at The Wharton School of the University of Pennsylvania. “While Flipkart and Snapdeal are struggling to attract new capital, the strategic commitment from Jeff Bezos gives Amazon India a huge advantage.”

Amazon India, however, has to deal with the new guidelines that bar any single merchant from accounting for more than 25% of the sales on an online marketplace and disallow any discounting led by the online platforms.

“The FDI policy has clear implications for Amazon’s growth,” said Devangshu Dutta, CEO of retail consultancy Third Eyesight. “It cannot depend on Cloudtail (Amazon’s leading merchant) to develop its presence beyond 25% of projected revenues, so it does create a huge push for other merchants and brands. This will need significant spending on more manpower, more dispersed delivery infrastructure and higher marketing spends as well. long-term horizon in India.”

A spokeswoman for Amazon India said in an email, “We have witnessed tremendous growth in three years of our operations in India. In 2015, we grew by more than 250% (year-on-year, in terms of shipments) and by over 150% y-o-y in the first quarter of 2016 despite a larger base.”

For all this, however, Flipkart CEO Binny Bansal says he is not worried by Amazon’s pace.

“The more we make quality products affordable and available, that’s the only way to maintain our leadership,” he said in an interview last week when asked if Flipkart was confident about remaining the market leader in 2017. “I am certain that we will remain the largest player by far.” 

(Published in The Economic Times)

Jochelle Mendonca, The Economic Times

Mumbai, 31 May 2016

What does it take to build an ecommerce platform? Well, just on the money side, Tata Unistore, the Tata group’s online sales arm, paid TCS Rs 36.48 crore in the runup to the launch of the website. 

There’s another Rs 20.9 crore of work done in FY16 that is yet to be paid out, TCS’ annual report showed. 

The TataCliQ ecommerce site that launched last week had TCS as its primary technology partner . 

Data analytics for the site will be provided by Tata IQ, the company said in its presentation.

The Group says it is a creating a ‘one-of-its-kind, omnichannel’ marketplace which would allow customers to ship-to-stores, collect-from-stores and return-to-stores.

Experts said the process requires a great deal of technology to connect stores to an online site, because different merchandise inventory systems would need to be connected. The company had to connect its front-end online ordering system, the store points-of-sale and mobile applications to back-systems like its warehouse, inventory management system, customer service and analytics.

“Technology plays a great part, because if you don’t have the technology, the different systems can’t talk to each other and the customer won’t get a seamless experience, which is the basis of omni-channel,” Devangshu Dutta, CEO of retail consultancy firm Third Eyesight, told ET.

Tata CliQ is based on a customised ecommerce platform from SAP called Hybris. The company has an in-house team and 20 technology partners, including some startups such as Chennai-based artificial intelligence startup Mad Street Den. The startup, which has been funded by Reservoir Investments’ Exfinity Fund and GrowX Ventures, provides visual search and visual recommendation solutions to Tata CliQ. “In fashion, if someone is looking at a little black dress, typically it makes sense to show them more offerings of that kind. And then you could have further personalisation, because with artificial intelligence that is possible,” Ashwini Asokan, co-founder and CEO at Mad Street Den, said.

Asokan, who declined to give specifics on the partnership with the Tatas, also works with ecommerce startups such as Voonik and Craftvilla. She added that the pace of technology adoption in the ecommerce market in India was much faster than Western markets.

“The cycle here is two-to-four weeks. Elsewhere you still have to go through a pilot. It will really be interesting to see how this plays out with the Tatas vs Reliance vs the Birlas. In 12-18 months, I think the ecommerce market in India will look completely different,” Asokan said.

(Published in The Economic Times)

Madhav Chanchani & Aditi Shrivastava, The Economic Times
Bengaluru, 31 May 2016

Flipkart’s new big strategy is to cross-sell its services — as well as its customers — to its biggest clients.

Chief Executive Binny Bansal has stitched together a plan to cross-sell Flipkart’s commerce, supply chain and advertising services to its top-selling merchants and deep-pocketed brands such as Samsung . He also wants to monetise Flipkart’s registered customer base of 75 million by selling insights to these merchants and brands on who and where the top-paying buyers are and what kind of products they want.

“We are focussing on cross-selling,” Bansal, who took over as CEO in January, said in an interview last week. There is a “lot of overlap. We have seen brands using our services from across the board. For example, Samsung is using our advertising platform, they sell on Flipkart, and, hopefully in the future, we will power their supply chain”.

Smartphone brands Samsung and LeEco have spent sizable portions of their marketing budgets on Flipkart for the product launches of their latest handsets, also opening brand stores on the platform. Bansal also wants to establish Ekart and Flipkart’s payments business as independent brands focused on business clients.

He said in the interview that he expects Ekart and Flipkart’s fashion website Myntra to become profitable first, while the core commerce business at Flipkart and payments will need more scale to start making money.

The new strategy, if successful, will help Bansal prove to investors that Flipkart has a business model that can stand on its own by generating cash flows from Ekart and the advertising business by next year. While Flipkart has more than $1 billion in the bank, it needs to keep replenishing its war chest to fend off an increasingly aggressive Amazon.

“The focus (on the seller-side) is on large brands that have the deep pockets to pay and the intent to reach scale, collect data and better their product portfolio in an efficient manner,” a person directly familar with Bansal’s plan said, declining to be identified. On the customer-side, the focus is on offering the “best-quality goods at the lowest cost in the least amount of time”.

Flipkart has already begun doing this in categories such as television. Online-focused television brands Vu Technologies and BPL, among Flipkart’s top three brands in the category, sell highly competitively priced sets, leveraging the online platform to overcome distribution costs.

ET reported on April 5 that Flipkart was working closely with its top sellers, who are expected to account for 60-80% of the sales on the platform.

This will help Flipkart comply with recent regulatory guidelines on foreign direct investment in ecommerce that bar a single vendor from accounting for more than 25% of the sales on an online marketplace.

WS Retail, in which Flipkart promoters owned a stake till 2012, is estimated to account for more than 25% of the sales on the marketplace as most of the exclusive merchandise is currently sold through it.

Flipkart is also relying on brands to give discounts now, as the guidelines disallowed online marketplaces from directly or indirectly influencing sale prices. ET reported on May 27 that Flipkart had asked brands to reduce their margins during its latest Big Shopping Days sale on May 25-27.

Experts tracking online retail in India said Bansal’s strategy would help Flipkart manoeuvre around the new policy and at the same time give more control and information to brands. Leading brands have had a fractious relationship with online retailers and in the past have objected to the deep-discounting practices followed by these investor-backed ventures.

“Growing the share of other merchants via the small merchant route in a fragmented market like India is extremely resource-intensive, and availability of both human resource and money is going to get even tighter than it is now,” said Devangshu Dutta, CEO of retail consultancy Third Eyesight.

(Published in The Economic Times)

Raghavendra Kamath, Business Standard
Mumbai, 26 May 2016

For the Aditya Birla group this is a first. Although it has trekked down the acquisitions route to build its fashion empire in the past, be it the buy-out of rival Kishore Biyani’s Pantaloons, or the numerous foreign labels under Madura, the group has steered clear of fast fashion. But with the Rs 200-crore purchase of Forever 21, the group has finally forayed into this big, but notoriously fickle market.

“If you look at fashion globally, fast fashion is largest part of the market. In India also, more women are moving towards western wear. Forever 21 is a renowned brand and its proposition is attractive. It is important for us to expand the portfolio and grow the brand in the long term,” said Ashish Dikshit, business head, Madura Fashion & Lifestyle at Aditya Birla Fashion & Retail in a telephonic interview with Business Standard.

But can Forever 21 deliver the results it is expected to, especially since it competes with global giants Zara and H&M? Both have tweaked their value proposition for India, offering affordable fashion for price conscious local consumers.

Forever 21 entered the country in 2010 with Sharaf Retail, but failed to scale up operations. In 2013, it forged a partnership with DLF Brands to open 40-50 stores in five years in the country, but these plans too hit a roadblock. Currently, the brand has 12 stores and a small online presence and it has been in the hunt for a new partner for a while. In India, the label targets the young urban woman and not just the teen-market.

“The partnership will help establish Forever 21 as one of the largest women’s wear brand in the country,” says Jatin Malhotra, director, global expansion, Forever 21. The Birla group seems to be looking at a similar goal. Dikshit said they would not look at tapping synergies between Birla’s fashion units and Forever 21. “We see it as a standalone large opportunity. We want to build it as a large independent business in the long term,” he said.

Globally the label is known for its large retail stores and its ability to serve up bargain fare for a generation constantly on the look-out for new trends. The brand is also seen as a typical American success story, the journey from a single store set up by Korean immigrants into a multi-million dollar global chain is the stuff of many case studies. However in recent years as digital marketplaces have altered the retail landscape, the label has seen market realities change and has cut down on the size and number of its stores.

In India, the proliferation of e-commerce players has been a big disruptor too; by offering a wider choice of styles and bringing in labels that would otherwise been out of bounds in the country, it has changed consumer behaviour and large chains have had to struggle to understand the shift.

However, on the plus side for traditional retail chains, digital marketplaces have helped expand the market for fashion, especially among young urban women and teens. Possibly global labels such as Forever 21, Zara and H&M offer such chains a way in, as these brands have a high recall among buyers of fast fashion.

The Birla group is not alone in looking for a foothold into this market. Landmark group’s fashion chain Max has also come out with an in-house brand Runway for the same segment. Max has one store in Bengaluru and plans to set up seven to eight such stores. “Till three years ago, fast fashion was out of reach for Indian shoppers. Now with the advent of e-commerce, new brands launching and people travelling abroad, shoppers are getting used to it,” said Vasant Kumar, managing director at Max Fashion.

Kishore Biyani’s Future Group is also looking to launch a fast fashion brand ‘Cover Story’ in Mumbai next month. “Indian companies who have manufacturing background and sourcing capabilities will do a good job in it,” said Jaydeep Shetty, CEO of fashion chain Mineral (Future group has a stake in the company).

Will Forever21 give the Birla group an advantage over the desi brands, which still have to establish themselves in this segment? Whatever the outcome, many believe that it will definitely lead to a tough battle on the streets. “Increased competition in fast fashion means cheaper clothes and cheaper inputs in merchandise. I think share of full price merchandise will reduce from 54 per cent to 47 per cent going forward,” Shetty said. But he adds that it is illogical to presume Indian chains can compete with Zara or Forever 21 as they look at different demographics.

Zara launches new designs twice a week and Forever 21 turns its inventory 14 times a year. “Even in western markets, nobody is able to compete with them successfully,” he added.

However, Devangshu Dutta, chief executive at Third Eyesight believes that fast fashion as a concept does not exist in the Indian market. “In Europe, customers line up every Wednesday or Thursday to buy a new style or line. But here, people wait for three to four months to get discounts on merchandise. You will get very few customers who are ready to pay a certain sum to buy a new style or new line,” Dutta said. He said shoppers in the country are more value conscious than fashion conscious. 

For Forever 21 and the Birla group, it is critical that they learn the rules of the game fast enough, before the brutal world of teen fashion changes yet again. 

(Published in Business Standard)