Anita Babu & Alnoor Peermohamed, Business Standard
Bengaluru, 14 November 2016

Rocket Internet’s $70-million fire sale (the term for doing so at an extremely discounted price, usually under some compulsion) of Jabong has turned out to be a great deal for Flipkart.

The online giant has managed to turn around the fashion portal in four months, scoring a mark over rival Amazon.

It has even surprised Myntra’s chief executive, Ananth Narayanan, who also heads Jabong. He’d earlier found the customer overlap between the two brands, Myntra and Jabong, was no more than 30%. At the time of acquisition, Flipkart’s management had estimated this number to be 50-60%.

“Essentially, this is all extra incremental growth. While the fixed costs like supply chain have not grown dramatically, sales have grown,” said Narayanan.

In October, Jabong saw 50% growth in revenue and managed to become unit economics-positive. The loss-making company, on a downward spiral when Flipkart, pushed by investor Tiger Global, made a fell swoop and took ownership in three days, had once been in talks to sell out to Amazon at a value of $1.2 billion. By any stretch, Jabong was a steal for Flipkart and the recent success is icing on the cake.

“If they are saying the overlap between the customer base of the two companies is only 30%, then acquiring that set of customers is a one-time capital investment and they can milk that over the lifetime of the customer. Moreover, fashion is a category which is margin-friendly; so, it’s going to pay off faster than other categories,” said Devangshu Dutta, chief executive at consulting firm Third Eyesight.

The clean-up of Jabong has been fairly straightforward. The biggest cost-cutting measure has been utilising Ekart (owned by Flipkart) and Myntra’s in-house logistics networks. The company also slashed the discounts being offered by two-three percentage points and introduced its private brands, such as Roadster, on Jabong, yielding higher margins.

Prior to its acquisition, Jabong was one of the first third-party brands to utilise Ekart’s service, something that might have given Flipkart an insight into the brand, leading to its acquisition.

“Having two brands instead of one will help. I think  Jabong customers are a bit more fashion-forward than the Myntra ones,” said Narayanan. The difference between the two brands in terms of the customers they serve is what makes Jabong complementary to Myntra, he added.

With fashion being a category where spec-by-spec comparison is missing, it’s often easier to charge higher margins than in consumer electronics or even large appliances. Going forward, fashion is expected to power profits for e-commerce marketplaces, with Flipkart shoring up on brands to take on Amazon – the latter also recently made a splash in the space with its own private label.

Flipkart currently leads India’s e-commerce fashion segment. It, Myntra and Jabong claim to have two-third of the market.

“It is not a classic market share game, not about who wins the current market. I always think about the next five years; who captures more of the growth. That’s what we want to do with both the brands,” added Narayanan.

Today, both Myntra and Jabong serve a very similar mass-premium market. The company is working on changing that. While there will be more integration in terms of supply chain and sourcing, Narayanan has put together a team that will work on defining each brand’s space over two years.

Ultimately, in the next one year, Myntra’s goal is to turn around Jabong and help use the brand to propel itself toward profitability.

Myntra claims its profit has increased by 20 basis points this year alone, putting the company on track to become profitable towards the end of next year.

(Published in Business Standard)

Sagar Malviya, The Economic Times

Mumbai, 24 October 2016

Procter & Gamble (P&G), the world’s biggest consumer goods company, is exploring a long-term partnership with Kishore Biyani’s Future Group akin to the one it has with Walmart in the US, that could involve joint sales forecasting and planning, exclusive product releases, embedding officials at each others’ headquarters and even supply-chain initiatives.

Top executives of P&G and Future Group have held a series of meetings to take their association beyond retailer-client relationship, two officials aware of the development said. While discussions are at an early stage, a few senior executives from P&G’s global office are expected to meet Future Group officials next month to deliberate on the contours of a long-term joint business plan.

“It could be a similar partnership that P&G has with Walmart in the US where they share data on consumer behaviour, plan product launches and even lean on each other for supply-chain initiatives,” said one of the officials.

A month ago, P&G global chief executive David Taylor visited India and toured a few retail outlets, including Big Bazaar. Last week, Biyani and Future Group’s FMCG president Devendra Chawla visited P&G’s Cincinnati headquarters.

P&G’s three entities in India, which sell products ranging from detergents and shampoo to razors and sanitary napkins, have a combined revenue of under $2 billion, less than 3% of its overall global sales.

The business pales in comparison with Unilever’s that is nearly thrice as big in the country with products across price points. However, unlike its Anglo-Dutch rival, P&G has been more focused on premium products that generate high sales at modern trade outlets in contrast to its rivals who stock several mass brands on retail shelves.

Future Group has the widest network in the country with around 13 million square feet of retail space in 221 cities through a 700-odd store network of supermarket brands such as Big Bazaar, EasyDay and Nilgiris.

“It is standard practice for us to engage with our partners across the retail landscape, including all our partners in modern retail, e-commerce and traditional retail, to develop unique plans that create superior value for the shopper,” a P&G spokeswoman said. Future Group declined to comment.

P&G has invested more than Rs2,000 crore in India in the past three years, mainly to set up manufacturing units to reduce dependence on pricier imports. At present, it has seven manufacturing facilities in six states, accounting for more than 90% of its products sold in the subcontinent. P&G’s strategy in India has been paying off — profit margin is up 750 basis points and the company has gone from losing significant money in the country to triple-digit profits in the last two years.

“As modern trade grows, P&G would want a significant share similar to what it has in developed markets. So, rather than just a distributorled model, it is a smart step to align its needs with that of a retailer. Critical issues such as lower product availability on shelves could also be addressed,” said Devangshu Dutta, CEO at Third Eyesight, a retail and consumer goods consulting company.

(Published in The Economic Times)

Alnoor Peermohamed, Business Standard
Bengaluru, 24 October 2016

E-commerce companies in India are exploring the idea of setting up offline stores in smaller towns as they look to grow their customer base and improve logistics in the unmapped areas.

Rather than investing in their own stores, e-commerce marketplaces are partnering with local merchants who can assist offline buyers in purchasing goods online. Amazon began its assisted commerce programme, Udaan, in 2015 while rival Flipkart is mulling doing the same now. “Project Udaan is going to play a key role in our effort to make Amazon accessible within a few minutes to all our customers. We believe that the initiative has the potential to be a game changer for Amazon in India,” said the US retailer in a statement.

The move to tap offline stores in small towns comes as e-commerce marketplaces begin seeing a larger chunk of their sales coming from outside the six large metros. During its five-day Big Billion Days sale earlier this month, Flipkart said over 65 per cent of its orders came from Tier-II and below towns.

Amazon claims it sees a similar percentage of sales coming from non-metro cities and rural areas. The company said  it received orders from 90 per cent of all serviceable pincodes in India during its five-day festive sale, during which it sold 15 million items on its platform. Udaan is present in 18 states across 188 locations and services over 700 pincodes, according to Amazon.

It has partnered with sellers as well as hundreds of local stores. Amazon trains store owners to help customers browse its website on a PC and buy products online.

Flipkart declined to comment for this story.

“Consumer goods sales are concentrated in bigger cities. This is why it still makes economic sense for a retailer to set up stores in bigger towns even though there’s a lot more competition. But it (online-to-offline retail) is feasible, because you don’t have products sitting in small markets locked away there,” said Devangshu Dutta, chief executive at consulting firm Third Eyesight.

The efficiencies that e-commerce bring in could finally open up India’s rural markets to retail, but there’s still a looming question of whether there is actually any demand here. Dutta adds that a critical mass needs to be reached where availability of products pushes demand and vice versa.

Flipkart and Amazon might be the largest e-commerce players to be exploring taking the offline retail route to enter India’s hinterland, but they aren’t the only ones doing so. Storeking, an e-commerce firm focusing on serving India’s rural areas, has partnered with large players Amazon, Flipkart and Snapdeal to bring online buying to rural areas.

Storeking says it has partnered with over 25,000 offline stores across 100 districts and services around 10 million customers a month. Apart from facilitating commerce, Storeking also gathers intelligence on customer needs in each region, helping it reach brands and cut exclusive deals with them to serve rural customers.

Xiaomi, one of the largest smartphone manufacturers in the world, has partnered with Storeking to bring its Redmi 3S+ smartphone to offline stores in small towns and villages.

E-tailers are not the only ones pushing retail offerings to customers in rural India, with the government being one of the biggest advocates of this. By lending a hand to e-commerce players by giving them store access at its many e-Mitras, the government is looking to kick-start rural commerce and create more employment.

When Amazon signs up a merchant as a partner for Udaan, it trains him and shares  a commission for every sale. In turn, merchants act as a front for customers in small towns and villages to shop online, while their stores act as delivery and pickup points, making it much easier to sell goods.

(Published in Business Standard)

Madhav Chanchani, The Economic Times
Bengaluru, 20 October 2016

Online baby products seller FirstCry is acquiring offline retailer Mahindra BabyOye for Rs 362.1 crore in a primarily stock deal, a development that signals how building an offline presence is becoming important for vertical etailers.

Founded by serial entrepreneur Supam Maheshwari, First-Cry will acquire the unit of $18 billion software-to-automobiles congolmerate Mahindra & Mahindra, which in turn will invest in the Pune-based startup.

FirstCry has now been valued at $300-350 million (Rs 2,000-2,330 crore), according to two sources familiar with the matter. The deal will nearly double its valuation from about $155-160 million last year.

Mahindra’s will get a minority stake in FirstCry as part of the transaction. FirstCry owner Brainbees Solutions will issue shares worth Rs 354.6 crore to Mahindra Group and pay Rs 7.5 crore in cash, according to filings made with stock exchanges.

As a part of the transaction, First-Cry has also raised Rs 226 crore ($34 million) in fresh funding from Mahindra, Switzerland’s asset management company Adveq and Infosys cofounder Kris Gopalakrishnan, besides existing backers like SAIF Partners, IDG Ventures India, NEA, Valiant Capital and Vertex.

The deal will help FirstCry create one of the largest omnichannel distribution plays in India with nearly 300 stores across 125 cities in the country. The company had earlier said that it planned to open 700 franchisee stores in the next 3-4 years and the Mahindra brand will help it build more trust in the market.

“With this transaction, our true omni-channel potential will evolve as we will have a significant network to take the orders online and get them delivered or picked up from stores,” CEO Supam Maheshwari said, adding that customers order 11 times a year from FirstCry. He declined to comment on the valuation. The deal will help First-Cry move faster towards its goal of profitability, as it leverages scale to drive cost efficiencies, rope in more brands and even expand to international markets.

FirstCry will also look at more acquisitions, especially in segments like kidswear brands and digital media startups targeting parents, according to Maheshwari.

FirstCry’s acquisition of Mahindra BabyOye reverses the trend of justoffline players such as Future Retail acquiring Fabfurnish at a distress price of less than Rs 10 crore and Titan Company buying 62% in online jewellery retailer CaratLane for Rs 357 crore.

All vertical etailers, from eyewear player Lenskart, furniture seller Pepperfry and lingerie player Zivame, have built or are building a large offline presence. Even fashion portal Myntra, part of Flipkart, plans to sell its private labels through offline retail.

The move also comes at a time when the world’s largest retailers are looking to build omnichannel players. US brick and mortar retail giant Walmart has made building an online presence a priority, also acquiring etailer Jet for $3.3 billion.

On the other hand, online retail giant Amazon reportedly plans to open retail outlets in the US. The baby and mother-care segment presents a $12-billion market, but it also presents its own challenges given the complexity of products. 

“It holds huge potential but it’s also troublesome to operate as it has a mix of FMCG type of products, then apparel and then also more durable products which do not sell as fast,” said Devangshu Dutta, CEO at retail consultancy firm Third Eyesight.

Mahindra Retail operates stores under BabayOye in two formats, 39 under franchisee agreements and 81 company-owned stores. While FirstCry is acquiring the franchisee division, Mahindra Retail will continue to operate company-owned stores as it becomes master franchisee for the brand. Mahindra Retail will shut down its online commerce business under BabyOye, a startup which it acquired in 2015 in order to build out its online commerce business.

“Fundamentally, Mahindra Retail had a physical presence only and the online business had a very nascent presence,” said Zhooben Bhiwandiwala, president of the group’s private equity unit Mahindra Partners under which the retail business is housed. “It made no sense for both the organisations to be battling each other in the marketplace and burning cash.”

Experts tracking the space said the deal will give FirstCry access to Mahindra Retail’s stores, which are located in more premium or high-street areas, besides international kids brands like Carters. Mahindra BabyOye had seen revenues stagnate between Rs 205 crore and Rs 230 crore for the last three financial years. The business was also reporting losses ranging from Rs 114 crore to Rs 121 crore during the period, and the deal allows the conglomerate to offload a business which was not core.

“With this deal, Mahindra is consolidating its presence in the space, and FirstCry will become most powerful and well-financed entity,” said Bhiwandiwala, who will also join the board of FirstCry.

(Published in The Economic Times)

Alnoor Peermohamed, Business Standard
Bengaluru, 20 October 2016

E-commerce in India has long been accused of being built on massive discounting and catering mostly to well-to-do customers in large metros. While this has been largely true for the past four years or so, today, large e-tailers including Amazon, Snapdeal and Flipkart argue they are at an inflection point where e-commerce becomes universal in the country.

That inflection point came during the festive sales these players held at the start of this month and has been in the making for at least the past nine months. For the first time, more customers outside large metros shopped for products online and were even willing to pay more for convenience – a stark contrast to how the industry has been perceived.

Amit Agarwal, country manager at Amazon India, said: “A week before the Great Indian Festival sale started, a popular comment would have been that e-commerce in India is primarily limited to well-off families in urban India. But more than 65 per cent of our shipments go to Tier-II and below cities and during the festive sale, it was higher – closer to 70 per cent.”

One of the biggest reasons for this has been the trust e-commerce companies have built in consumers’ mind. Cash payments, which allowed customers to pay for goods only when delivered, are at an all-time low, indicating an increase in trust. While not only making it much easier to accept payments, e-commerce companies see this as a way to reduce returns.

During the recent festive sales, which kicked off at the start of this month, Flipkart said cash-on-delivery (COD) accounted for 60 per cent of goods sold on its platform, down from 75 per cent a year ago. Rival Snapdeal pulled off an even better show, claiming that for the first time, more than 50 per cent of all its orders were prepaid.

“The festive season is an inflection point for the growth of e-commerce industry,” Snapdeal said in response to a questionnaire sent by Business Standard. “The increase in smartphone penetration and the explosion of choice at the sub-Rs 10,000 price point shows the importance of digital access for all.”

Flipkart pegged the share of orders coming from Tier-II and Tier-III cities at 65 per cent, saying it was nearly double of last year’s Big Billion Day sale. Snapdeal said 60 per cent of its sales came from outside metros, while Amazon said the number of shoppers from smaller cities grew 30 times during its sale.

While penetration is growing, it’s forcing e-commerce companies to change the way they do business. Marketplaces, by definition, cannot stock their own inventory, so they rely on sellers. But to get products shipped to customers from smaller cities, they’ve now begun stocking their sellers’ inventories at their own warehouses strategically placed to ensure quick deliveries.

“With 27 fulfilment centres across 10 states and among the strongest distribution and delivery network, it is no surprise that this festive sale saw such a strong degree of transactions from Tier-II & -III cities,” said Amazon.

Chief Executive of Flipkart Binny Bansal said in a recent interview more than 60 per cent of the 15.5 million orders the company processed during its five-day Big Billion Day sale were fulfiled by the company itself. This was in stark contrast to just 20 per cent during its sale last year, which led to a massive pileup of deliveries and disgruntled customers because deliveries were delayed.

Experts, however, argue the changes seen this festive season are part of growing sensibilities at e-commerce companies to reduce cash burn. With the new foreign direct investment norms for e-commerce marketplaces disallowing such players from discounting products, it’s gotten much harder to play the price war.

Chief Executive at consulting firm Third Eyesight, Devangshu Dutta, said: “There is a pressure within the e-commerce businesses to discover more margin. Discounting is less aggressive and the focus is as much on building margin during the festive season as on gathering turnover. Product mix and merchants are being reconsidered.”

E-commerce grew in India on the back of books, a model Jeff Bezos had perfected in the US with Amazon years earlier. Books were cheap enough for customers to trust relatively new e-commerce companies with, were easy to ship and had an almost universal demand. In a decade, that story had completely changed.

Indians are now buying everything from smartphones, clothing, consumer durables to even vehicles and homes online. The ticket prices for purchases are on the rise, too, and experts credit this not just to growing income levels, but acceptance by consumers to make larger purchases online. Out of the millions of orders Flipkart got during its sale, for instance, over 100,000 had a value higher than Rs 50,000.

For Amazon, an estimated two million orders out of its 15 million during its sale were subscriptions for its Prime membership. While the membership cost just Rs 499 a year, Prime members in the US spend on an average $1,200 a year on the platform, double what a non-Prime member spends.

Amit Agarwal, who heads Amazon’s India arm, said it was a huge win, indicating that India’s e-commerce market was evolving even faster than what was seen in the US. It took a decade for Amazon to roll out Prime in the US and another decade for it to become a norm – half of all households in the US are estimated to have one Prime member. In India, it’s taken just three years and adoption is already off the charts.

But India’s e-commerce market has been built on an immense amount of capital being pumped into offering discounts to hasten adoption. This could come back to hurt e-commerce companies as all they’re doing is pulling customers away from offline channels with the lure of discounts, and once they stop, people might just go back.

“If the industry insists on having e-commerce being seen as separate from the rest of retail, it will be fighting a battle against itself in which there are no real winners except for advertising media and the last player left standing with money in the pockets,” added Dutta.

(Published in Business Standard)