Sagar Malviya, The Economic Times
Mumbai, 13 October 2014
The world’s largest online store Amazon and India’s largest listed retailer Future Group have signed a deal to jointly sell goods over the Internet amid growing friction between online and offline retailers over heavy discounting.
Future Group will sell more than 45 own labels of apparel initially, followed by in-house brands in the home, electronics and food categories, while the US-headquartered company will handle order fulfillment and customer service for the merchandise on its portal. Both firms will also develop a new line of products across categories to be exclusively sold at Amazon and Future Group’s retail stores. ET was the first to report, on October 3, that Amazon founder Jeff Bezos and Future Group’s Kishore Biyani met in New Delhi to discuss an alliance.
The complaints by traditional retailers led to the government saying it would examine the policy on ecommerce. Following this, Amazon’s October 10-16 Diwali Dhamaka Week has been a subdued affair with sharp discounts restricted to stock clearances and products only being sold on the site. Under the deal, Amazon and Future will also jointly develop discounting strategy and price tags on their products won’t be very different from rates at stores so that both channels don’t end up cannibalising each other.
In its home market, Amazon had similar alliances with retailers such as Target Corp and Toys R Us in the past decade though both soured over time once the online seller gained scale and attracted other large brands.
Following the India deal, Future Group’s four dozen own brands such as Lee Cooper, John Miller and Indigo Nation will be taken off from other online marketplaces where they are currently being sold.
Amazon’s agreement in India also indicates its aggressive intent to spread itself across many product areas quickly in India — especially foods — a relatively niche category for online retail, which it has only recently entered. In July, the US company announced it would invest $2 billion in India operations that exceeded gross merchandise sales of more than $1 billion within a year of its launch. It completed a year in June this year.
Meanwhile, it was reported recently that Amazon plans to open its first brick-and-mortar store in New York.
The company’s main rivals in India are Bangalore-based Flipkart and Snapdeal, the latter a Delhi-based company that counts eBay, Azim Premji and Ratan Tata as investors.
Together, they have sold goods worth more than $4 billion, with Flipkart alone estimated to have crossed $2 billion. The battle is set to intensify. According to a report by consulting firm Technopak, the $2.3-billion e-tailing market is expected to swell to $32 billion by 2020 and account for 3% of the total Indian retail sector.
In the offline retail market, just three companies — Aditya Birla’s Madura Garments, Arvind Brands and Future Group — either own or sell more than two dozen brands each, thus becoming the preferred options for any online player looking to partner retailers.
The move holds benefits for both sides, but there are pitfalls as well.
"The upside is Amazon getting instant product diversity and capability while Future Group can explore a new channel for sales," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. "However, if the business is not aligned in terms of orientation and customer service, then it could create issues going forward, especially when one of the biggest barriers for online sale is inconsistency of products."
Future Group has more than 75 own brands that earn it at least 15% higher margins on average compared with national brands, which is why Biyani is bullish on private labels across categories. The tie-up means Future Group’s brands that now have a presence in 98 cities and towns will be marketed to 19,000 PIN codes serviced by Amazon across India.
Industry insiders also said the Indian retailer’s move reflects a bid to expand into new distribution channels such as ecommerce in the search for growth. Last month, Snapdeal agreed to create Croma’s Flagship Store on its ecommerce portal to sell electronics items including mobiles, tablets and laptops.
The $3-billion Future Group, on its part, has opted for SAP’s Hybris OmniCommerce solutions and plans to invest nearly Rs 100 crore to beef up its ecommerce venture. It is targeting about 20% of revenue from online sales over the next 18 months. By 2020, the aim is even higher — at 40% of its sales through ecommerce or virtual platforms.
(Published in The Economic Times)