Etailers like Lenskart, Pepperfry scaling up physical presence to close in on brick-&-mortar stores

Madhav Chanchani, The Times of India
Bengaluru, 28 June 2016

If traditional retailers weren’t so busy creating digital avatars to take on their new-age rivals, they might have noticed online stores gaining a firm foothold in their territory, one store at a time.

Some of India’s largest online stores including baby products retailer Firstcry, eyewear brand Lenskart and furniture marketplace Pepperfry are beginning to see significant contributions to revenue and bottomline from their physical stores.

“We get significant revenues from our offline business and we are already EBITDA-positive (profitable from core operations) collectively,” said Supam Maheshwari, chief executive of Firstcry, declining to disclose specific numbers. Firstcry was among the earliest online retailers to open offline stores in 2012.

Encouraged, online retailers are preparing to rapidly expand their offline presence in the coming years, opening a new front against traditional brick-and-mortar stores that are struggling to wrest similar success online. India’s largest business groups including Reliance Industries and Aditya Birla have launched online apparel stores in the past year, and Tata Group’s jewellery and watches brand Titan Company is acquiring online jeweller Caratlane.

Firstcry and Lenskart have opened hundreds of stores through franchisees, boosting their sales. The physical stores of companies like Caratlane and online lingerie retailer Zivame function more like showrooms, tending to be smaller than those of their brick-and-mortar peers as they keep limited products and use a central inventory.

More importantly, building a physical presence helps these retailers tap those millions of customers who are still uncomfortable shopping online. Take, for instance, a Firstcry customer who recently posted on the company’s website that ‘Aloe Veda Castor Oil’ was not available at its Ernakulam, Kaloor franchisee in Kerala.

She urged Firstcry to make it available at that store so she could purchase it as “I don’t like online shopping.” To capture these customers, Firstcry plans to ramp up its offline presence to 700 stores in 3-4 years from about 170 now.

“We have seen that offline customers are also transacting online and vice-versa, so joint cohorts are much higher,” said CEO Maheshwari. Cohorts is repeat customer purchase, which helps measure if a company is making a profit on each acquired customer, a metric closely watched by investors.

Firstcry’s offline network is already bigger than its competitor Mahindra Retail’s Babyoye, which was known as Mom & Me before Mahindra group acquired online baby products retailer Babyoye in 2015. Babyoye, which runs 115 owned stores, has announced plans to open new stores through the franchisee route like Firstcry.

Mom & Me made revenue of Rs 210.5 crore and net loss of Rs 118.9 crore in fiscal year 2015, according to Mahindra & Mahindra’s annual report. Firstcry reported revenue of .Rs 118 crore and loss of .Rs 63 crore for the same year. As for Pepperfry, which plans to double its store count to 16 this year, “offline stores are the best marketing channel we have started,” said CEO Ambareesh Murty. “It helps us provide that reassurance to customers that we are a specialised player and translates to trust in the brand.” Also, customers walking into physical stores tend to purchase more often than online buyers and at a higher average price, he said.

Pepperfry opens stores based on customer purchase data of the previous 24 months, which helps it zero in on pin codes with high customer density. By opening stores in such areas, it is also able to drive supplychain efficiencies as more orders from an area translate into lower average cost of delivery.

“These players are already established leaders in online space. The question they are addressing is how do you redefine the market to grow be-cause only 5% of Indian customers have bought online,” said TCM Sundaram, managing director at IDG Ventures India, an investor in Lenskart, Firstcry and Zivame.

Online shoppers in India are expected to increase from 50 million to 150 million by 2020, according to a recent report by Google and AT Kearney, adding that not having an omni-channel presence in categories like consumer electronics, home furniture and personal care could cause retailers “to lose out on 20-30% of potential buyers.” Experts spout the adage that retailers need to be where the customers are rather than choose one basket.

“The retail business is not divided in black-or-white between old-world physical retailers and the upstart online kids – at least the consumer doesn’t think so,” said Devangshu Dutta, CEO at retail consultancy firm Third Eyesight.

Some online retailers agree. “The idea is to create an eyewear brand, and channels keep changing. We want a store in 372 towns in India that have a population of over 50,000,” said Peyush Bansal, CEO, Lenskart.

The company has 200 stores from where customers can book products and pick up later from the store or get these home delivered. The company charges a franchisee fee and pays a commission to store owners on each sale, while it manages the inventory and customer experience. It plans to expand to 400 stores by the end of the year. Lenskart, with annualised revenue of about Rs 300 crore, is targeting Rs 2,500 crore revenue in the next four years. Bansal expects the physical stores to contribute about half the revenue in the next two years. Lenskart competes with Titan’s eyewear business, which earned net revenue of Rs 372 crore in fiscal 2016 from its 404 stores.

(Published in The Times of India)