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Flipkart launches 20 stores across India

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July 29, 2015

Sharan Poovanna, Mint
Bengaluru, 29 July 2015

India’s largest e-commerce firm, Flipkart, has launched 20 stores in 10 cities to let its customers collect the items they ordered online at their convenience, mimicking similar moves from Amazon.com Inc.

The initiative aims to address issues such as unavailability of customers during delivery and restricted entry of delivery boys into IT parks, gated communities and educational institutions.

The stores will also be a centrepiece of Flipkart’s rural expansion strategy and will provide a reliable alternative to door delivery in small towns.

“We also plan to offer several value-added services at these experience zones to enhance customer engagement. Services like instant returns, spot trials, open box deliveries and exclusive product demos will also be rolled out in the near future,” said Neeraj Aggarwal, senior director of delivery operations. Flipkart plans to open 100 such stores by March 2016, he said.

The launch, made in partnership with Flipkart’s logistics partner Ekart, comes after the firm saw more than 80% of shipments picked up through the stores during a six-month pilot programme.

The “click and collect” model is not new. Amazon, which has no physical stores, has installed lockers in places ranging from grocery stores to gas stations in several US locations to hold items ordered online. The move improved customer service as it avoided the need for them to have to wait around for ordered items due to a missed delivery.

The first 20 Flipkart “experience” stores will be opened across 20 cities—Bengaluru, Mysore, Ahmedabad, Delhi, Kolkata, Pune, Vellore, Gurgaon, Vadodora and Surat. They will service only Flipkart customers and not those of its Myntra unit. They will be about 500-1,000 sq. ft in size, 70% of which will be used to store goods.

A host of other online chains have also been keen to have some sort of physical presence. FabFurnish, PepperFry, Caratlane and LensKart, among others, already offer offline touchpoints as part of customer engagement efforts.

The trend is here to stay, said Devangshu Dutta, chief executive of retail consultancy Third Eyesight. He expects firms to continue trying to find the right mix of online and physical presence as they look to provide a seamless customer experience.

“Some products are better handled in the physical environment,” said Dutta.

(Published in Mint.)

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Whoever said anti-ageing creams and iPhones are urban fads

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July 20, 2015

Soumonty Kanungo, Daily News & Analysis (DNA)

Mumbai, 20 July 2015

Buying an anti-ageing or anti-wrinkle cream online is no longer an urban phenomenon. A growing number of women from smaller towns are busy placing orders for such products these days, thanks to the increasing rural penetration of e-commerce companies.

If e-retailers are to be believed, customers from tier-3 and tier-4 towns and beyond are growing aspirational and on their shopping lists are products like microwave ovens, dishwashers and high-tech smart phones.

Sridhar Gundaiah, founder and CEO, StoreKing, a Bangalore-based assisted e-commerce company having a large rural and semi-rural target base, told dna, "Around 70% of the country’s $600 billion retail market is in rural belt. People in small towns and villages too are aspirational and have spending power, though the consumption pattern could be different."

The company, which came up with a hybrid model to reach out to rural areas with poor internet connectivity, sells about 100 of anti-ageing creams per day and 100 of microwave ovens per week. Gundaiah said another fast selling product is smartphones, which includes iphones as well.

Expensive smart phones in areas with low net connectivity? Gundaiah says they are mainly purchased for the sake of a good camera. "They want a phone with a good image and video recording option," he said.

Another best selling items are garments. Harish Bijoor, brand-expert & CEO, Harish Bijoor Consults Inc., said, "Rural folk are very excited about two things today – garments of every kind and the mobile phone. Expect this to deepen to adjacent categories very fast."

Thanks to its population and economic development, the small towns and rural India offer a huge growth opportunity which marketers cannot afford to overlook.

Devangshu Dutta, chief executive, Third Eyesight, said, "Rural markets are enormous in terms of population, but there is a supply-side gap in terms of retail stores, brand mix and product range available. E-tailers can expand outreach and create demand among customers who are otherwise under-served."

Ankur Bisen, senior vice-president, retail & consumer products division of Technopak, said, "Nearly 50% of the country’s retail of $589 billion comes from rural India. Right now, the penetration of e-commerce in rural India is zero. So the market opportunity is nearly $300 billion."

In reality, the relevance and fit of the e-commerce model of business, is best attuned for rural markets, feels Bijoor. "Rural people have the money and desire, but are distanced from markets physically. E-commerce can bridge this gap and deliver. The model needs to be tweaked a bit though," he said.

To tap this potential, most players in the e-commerce space are trying to enter the rural market. However, logistics being a challenge, most of these companies have been able to reach out only till tier III and IV towns, which are different from the actual rural markets.

Bisen of Technopak pointed out that rural is defined as clusters where more than 50% of the households depend on agriculture as the primary source of income. Bijoor also said, "Rural is deeper still, tier 3-6, and then R1 to R6. E-commerce can go up to R1 and R2. Beyond that, it is unviable to reach."

The logistic challenge is the main reason why the vast rural market is still under-served by e-commerce companies. Gundaiah of StoreKing said the last mile reach is a challenge and thus cracking it through assisted e-commerce route, where a customer goes to a kiosk, place order and then collects it, is the best way. StoreKing has developed its own logistic network as a third-party courier will never reach a rural market.

Assisted e-commerce, according to Bisen, is a thought in the right direction because it takes care of user experience, customer literacy and helps the customer to overcome many barriers retailed to technology, device, and language, etc. "Such out of the box thinking can only enable initiation of e-commerce in rural India. A cookie cutter urban approach for rural markets will not cut ice," he said.

To bridge the gap, leading online marketplace player Snapdeal is also actively assessing partnerships opportunities in logistics space. The company is betting big on the rural opportunities as well.

According to Dutta of Third Eyesight, to service the demand created by webstore, a cost-effective fulfillment infrastructure is required. "The government-run India Post, with its countrywide delivery capability, has been pitched at various times as a potential delivery partner, but has its own challenges and restrictions," he said.

(Published in DNA.)

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The O2O Retail Model: Will the reverse strategy work?

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July 17, 2015

Mehak Sharma, Indiaretailing.com

New Delhi, 17 July 2015

"Shopping is as much an experiential occasion, as it is a transaction comprising products and money. It is a social, participative activity, which is not replicable to the same degree by online social sharing of browsed products, wishlists and purchases," says Devangshu Dutta, CEO of retail and market analyst firm Third Eyesight.

Dutta’s analysis appears to be echoed in today’s retail environment, where several e-tailers are increasingly looking at establishing offline presence.

In the past few years, a slew of pure-play e-tailing companies, including Lenskart, Healthkart, Fabfurnish and Caratlane, among others, have already or are in the process of opening physical stores.

So why are these online retailers embracing offline stores? Also, will this Online to Offline (O2O) model be an important game-changer for the future of retailing in India?

Why are the reverse traffic?

In the current retail scenario, where developing an omnichannel identity is a must-do for most brick-and-mortar retailers, the rationale for the reverse strategy can be to either augment their online sales or to deliver a more real, ‘five-senses’ experience for customers.

"For products that have a touch-feel element, the physical retail environment continues to be attractive for the customer. Also, an offline store can help to create more credibility and a more direct customer connect, especially in an environment where online sales are dominated by discounts and deals," explains Dutta.

For instance, for the five-year-old kids’ products’ portal, FirstCry, the offline store serves the purpose of providing a ‘touch-and-feel’ experience. "About 85 per cent market is going to remain offline even after five years, however hard we try to push e-commerce. Online shopping is convenient but it does not give that touch and feel experience, which customers in my segment would want," Supam Maheshwari, CEO and Co-Founder, FirstCry, was quoted as saying recently.

FirstCry started its online portal in 2010 and soon went on to launch its first brick-and-mortar store in 2011. The company currently operates through 100 offline franchise stores and has recently raised Series C funding of Rs $ 10 million to fuel its plan to set up 400 offline stores by December 2017.

Given the more engaging experiences that an offline store provides, experts too are convinced about the superior draw of physical stores.

"There are more offline consumers today than online ones," asserts Harminder Sahni of Wazir Advisors.

"While retailers can choose to be exclusively online or offline, the consumers aren’t going to get classified like that. Consumers will shop across offline as well as online. Thus retailers will have to have a mix of both and find their own profitable balance," Sahni adds.

Where FirstCry has opened stores to induce brand trials in a touch-and-feel environment, others have used marketing kiosks in high footfall strategic locations in malls and office spaces. There are other players who have incorporated “try at home” for consumers, prior to making a purchase decision.

E-retailers like Caratlane (jewellery) and Lenskart (eyewear) have opened offline stores to provide hassle-free online purchase options. Through Lenskart’s offline stores, consumers can get their vision checked and enjoy the freedom to buy products from either channel. The modus operandi at Caratlane is similar.

Both Lenskart and Caratlane also provide ‘try at home’ facilities to customers; a customer can choose products online, try some options at home and then place the order online.

Best of both worlds

While some e-retailers are trying their hand at offline retail, experts feel that merely opening offline stores will not deliver substantial benefits; e-tailers must sync online convenience with offline experiences in a useful way.

"Online retailers need to ensure two things before opening offline stores. First, it is imperative for an online retailer to define whether the offline channel’s primary objective is to complement and/promote the online channel or it being a sales driver in itself a primary objective. The offline experience will then need to be built-up accordingly. The other important factor for players will be to figure out the ways in which the offline and online channels can leverage each other and can operate as an integrated multi- channel business," explains retail analyst firm Technopak in India Retail Report 2015.

While time will tell how the O2O model may evolve, experts feel that the future lies where offline and online shopping aren’t two separate business models."The split between offline and online channels is visible currently because traditional offline retailers have been slow to adopt online and mobile shopping environments," Dutta points out.

"As more and more brands and retailers move online, there is bound to be a convergence between channels. Retailers need to — and will — see themselves logically serving customers across multiple channels that are appropriate for their product mix as omnichannel evolves from being a buzzword, to being a reality."

(Published in Indiaretailing.com.)

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Zara becomes the fastest apparel brand in India to cross $100-million sales mark

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July 16, 2015

Sagar Malviya, The Economic Times

Mumbai, 10 July 2015

Spanish fashion brand Zara has become the fastest apparel brand in India to cross the $100-million sales mark, five years after it opened its first shop here.

Inditex Trent, the joint venture between Zara brand owner Inditex and Tata Group’s retail arm Trent, posted 24% annual growth in sales for the year ended March 2015 at Rs 721 crore ($114 million), Trent said in its annual report released on Thursday. In FY13-14, it had sales of Rs 580 crore. However, sales growth has nearly halved from a year ago period when, it was 43%.

Plans are on to open a few more Zara stores in India over the next three to four years in the major cities, 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, it added.

With 16 stores now, average sales per store of Zara is about Rs 45 crore a year, far more than top apparel brands such as Louis Philippe, Levi’s and Marks & Spencer, and even slightly higher than department store chains Shoppers Stop and Lifestyle. Its closest rivals in India — Benetton (wholesale) and Levi’s — had posted around Rs 599 crore each in sales a year ago and haven’t declared their FY14-15 numbers yet. Analysts don’t expect them to overtake Zara though.

“Zara has set a benchmark in terms of both growth and profitability. What has helped it is the brand’s desirability and connect with consumers,” said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. Industry executives said Zara’s per-square-feet sales must have dropped as the novelty factor fades off in bigger markets, especially in Delhi and Mumbai.

Most of Zara’s back-end and merchandise sourcing are handled by Inditex, while the Tata expertise is mainly for identifying real estate and locations. Inditex Trent has replicated in India a model that has worked for Zara globally — creating affordable, copycat versions of the latest fashions or designer wear and making them available to shoppers in double-quick time. Inditex controls almost every bit of its operations, from design to distribution.

If a new style is not a hit within a week, it goes off the shelves of over 2,000 Zara stores worldwide. The brand will face intense competition from similarly-priced, fast fashion rivals such as Gap, which entered a month ago and H&M, which will launch stores soon. As the world’s second most populated country, India is an attractive market for international brands, especially since youngsters in the country are increasingly embracing western-style clothing.

(Published in The Economic Times.)

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An uphill climb

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July 13, 2015

Ankita Rai, Business World

New Delhi, 13 July 2015

To take advantage of the growing demand in the entry-level premium car segment, Maruti Suzuki India (MSIL) has just unveiled a new chain of dealership under the Nexa brand to showcase its premium offerings. MSIL’s desire to serve the premium end of the market is not new – over the years it has launched two products, the Grand Vitara SUV and premium sedan Kizashi, to woo this market segment. Unfortunately, these brands have not been able to make the kind of impact the country’s largest carmaker had hoped for. In a renewed push, MSIL has launched a new brand, S-Cross, and is now overhauling its distribution network.

MSIL is not the first one to try this. Globally, carmakers Nissan, Toyota and Honda have similar distribution models, wherein they sell their luxury cars under Infiniti, Lexus and Acura brands respectively.

And why single out automotive companies? Closer home, players like VIP Industries and Cafe Coffee Day (CCD) have treaded a similar path – matching the premium quotient of a product with the manner in which it is presented to the customer. VIP Industries has a separate chain for its premium brand Carlton, while CCD currently has three different formats for three different customer segments. Says Samit Sinha, managing partner, Alchemist Brand Consulting, "A big part of the experience is, who else is in the showroom. We don’t want to rub shoulders with people whom we don’t think are like us."

Distribution, therefore, becomes crucial for a volume brand trying to climb the ladder to premiumness. So how can a brand gear its distribution to successfully climb the value chain?

Not everyone’s cup of tea: Devangshu Dutta For mass-segment businesses desiring to move up the price curve, it is important to create new channels that can stand apart from the previous offerings and, if feasible, to create entirely different brands as well. From the consumer’s point of view, the expected purchase experience and service levels at the higher price point need to be better. So merely allocating a segment of the existing distribution network will not be enough. The store for the new premium product needs to feel complete in itself. Separate channels are also vital to achieve a service-cost balance and to have consistency within any specific outlet. However, the biggest challenge to a premiumisation attempt by a mass brand is outside its control – whether consumers will accept that new offering as truly premium even though it is from the stable of a mass brand. Having a critical mass is another significant challenge, as the investments in creating and maintaining a premium offering would be significant. The third challenge is creating a culture and processes, at least for a premium-dedicated team that will be alien to the rest of the organisation. This requires willingness to invest, patience and sponsorship at the highest levels of the organisation’s leadership. Devangshu Dutta Chief executive, Third Eyesight

Premium is what premium does

"Maruti has been in the business of selling cars for almost 31 years. The market has evolved and consumer expectations are changing," says RS Kalsi, executive director, marketing and sales, MSIL. "Many of them are third-generation buyers – young achievers who are looking to upgrade to bigger cars."

To woo this customer, the country’s largest car maker will drop the ‘Maruti’ name from the bootlids of its premium products. So the Ciaz and the S-Cross and the forthcoming YBA compact SUV will only see the ‘Suzuki’ part of the badge. The ‘Maruti’ badge doesn’t command enough brand value in the premium (Rs 10 lakh-plus) segment, say experts, and that is where the "Suzuki" or "S" tag will bring in some "pulling" power.

The company also understands that having a handful of new brands will not serve the purpose. The way they are showcased and the manner in which consumer queries are handled will be make or break. It is looking two sort this issue with a two-pronged approach. First, as we have mentioned, the new products will be retailed through a chain distinct from its earlier one. Second, the company will train a new set of people to cater to the needs of the premium consumer.

To begin with, MSIL has hired people from service sectors like hospitality, aviation and financial services and has roped in Dale Carnegie to coach relationship managers on soft skills. These managers are being given product and experiential training, which includes travel by air and luxury hotel stays, so as to acclimatise them with the way the new consumer thinks and acts. So far, MSIL has trained 700 people and plans to train 2,000 more. This financial year, MSIL will roll out 100 showrooms. "Around 70 to 75 per cent of the sales come from top 30 cities and we are targeting them with our new offerings," says Kalsi.

The Nexa showrooms boast of separate lounge areas for customers, a personal relationship manager for the entire lifecycle of the product, paperless interaction and so on. "We want to make the customer feel pampered," says Kalsi.

A sound strategy, going by auto experts. "The maximum growth is at the entry level premium segment, which MSIL has targeted. In this segment, one must note that the ‘brand’ makes more difference than the ‘product’," says Abdul Majeed, partner, PriceWaterhouseCoopers. In a way, MSIL will take the route VIP Industries has taken earlier with its Carlton range, targeted at the premium segment of business travelers. Indeed, VIP doesn’t offer all its products across all channels. It has five luggage brands in its portfolio: Caprese, Carlton, Skybags, Alfa, Aristocrat and Footloose. The premium brand Carlton is available at only at 350 touchpoints, while VIP brands are available at 4,500 touch points. The reason is the same: premium brands demand a premium atmosphere. "We offer Carlton only at our VIP premium lounges. Even at these lounges, there is a separate section for Carlton. We are also opening exclusive stores for Carlton," says Sudip Ghose, vice-president, marketing, VIP Industries. Currently, there is one exclusive Carlton store at the Mumbai Airport and the company will launch another one at the Delhi Airport soon. Carlton contributes 5 to 6 per cent of VIP’s sales and is growing at 40 per cent annually.

VIP also realises that training the sales staff at showrooms is important. "You have to have SEC A, serving SEC A," says Ghose. "The sales managers at premium stores need to be groomed for retail so that he/she asks the right questions when interacting with consumers." For instance, when selling a premium brand, you don’t ask the customer her budget.

Ghose admits it is difficult to ‘turn’ a volume brand into a premium one. "It is better to start afresh without any baggage," adds Ghose, no pun intended.

Coffee chain Cafe Coffee Day (CCD), which has developed multiple formats to differentiate customer segments (such as CCD targeting the value-conscious youth, The Lounge targeting affluent customers and The Square catering to coffee connoisseurs), believes focusing on the uniqueness of the offering and experience are the pillars on which one ought to position a premium brand. "The most important consideration before a brand gets into a premium slot is to evaluate the brand stretch-ability," says Bidisha Nagaraj, group president, marketing, CCD.

CCD’s The Square sets itself apart on service and ambience. The outlet design is minimalist and the furniture contemporary. There are seven Square outlets currently.

Two sides to the coin

Given the high stakes, some experts warn brands from being dazzled by the lure of premiumness. "Most Indian brands fail to recognise that you don’t necessarily have to serve the whole spectrum of the market because it looks attractive," says Saurabh Uboweja, brand strategist and CEO, Brands of Desire.

"If you are true to your definition and keep upgrading brand experiences around your core, you will succeed in the long-term."

In any case, changing consumer perception about a brand is a tough call. "In case of MSIL, the biggest challenge would be how successfully it is able to change the perception of being a budget, family car manufacturer," says Amit Kaushik, principal analyst, IHS Automotive.

Yes, there is a way to do it like VIP has done – by having a different brand altogether. Samsonite, on its part, acquired luxury US brand Hartmann after it failed to create its own luxury brand Black Label. "If Tata Motors created a luxury buying experience in a new dealer format and put the Jaguars to sell underneath, you can imagine the kind of brand dilution it would cause to Jaguar," muses Uboweja. "The secret to long-term sustainable equity creation is "let your brands be, make them strong, make them relevant but don’t change them."

That perhaps is the reason for calling the S-Cross just that and reserving the Maruti-Suzuki tag for the range spanning Alto 800 to the Swift DZire.

(Published in Business Standard.)