Remember the year 2000? After Y2K passed safely, that year some optimistic analysts predicted that India’s modern retail chains would reach 20 per cent market share by 2015. Two years after that supposed watershed, another firm declared that modern retail will be at around that level in 2020 – but wait! – only in the top 9 cities in the country. Don’t hold your breath: India surprises; constantly. As many have noted, “predictions are tough, especially about the future!” What we can do is reflect on some of this year’s developments that could play out over the coming year.
In many minds 2019 may be the Year of the Recession, plagued by discounting, but that demand slowdown has brewing for some time now. However, there’s another under-appreciated factor that has been playing out: while small, independent retailers can flex their business investments with variations in demand, modern retail chains need to spread the business throughout the year in order to meet fixed expenses and to manage margins more consistently.
To reduce dependence on festive demand, retailers like Big Bazaar and Reliance have been inventing shopping events like Sabse Sasta Din (Cheapest Day), Sabse Sachi Sale (Most Authentic Sale), Republic Day / 3-Day sale, Independence Day shopping and more for the last few years. In ecommerce, there’s the Amazon’s Freedom Sale, Prime Day, and Great India Festival, and Flipkart’s Big Billion Day Sale. This year retailers and brands went overboard with Black Friday sale, a shopping-event concept from the 1950s in the USA linked to a harvest celebration marked by European colonisers of North America. (The fact that Black Friday has a totally different connotation in India since the terrorist bombings in Bombay in 1993 seems to have completely escaped the attention of brands, retailers and advertising agencies.) Be that as it may, we can only expect more such invented and imported events to pepper the retail calendar, to drive footfall and sales. The consumer has been successfully converted to a value-seeking man-eater fed on a diet of deals and discounts. With no big-bang economic stimuli domestically and a sputtering global economy, we should just get used to the idea of not fireworks but slow-burning oil lamps and sprinklings of flowers and colour through the year. Retailers will just have to work that much harder to keep the lamps from sputtering.
Ecommerce companies have been in operating for 20 years now, but the Indian consumer still mostly prefers a hands-on experience. The lack of trust is a huge factor, built on the back of inconsistency of products and services. The one segment that has been receiving a lot of love, attention and money this year (and will grow in 2020) is food and grocery, since it is the largest chunk of the consumption basket. Beyond the incumbents – Grofers, Big Basket, MilkBasket and the likes – now Walmart-Flipkart and Amazon are going hard at it, and Reliance has also jumped in. Remember, though, that selling groceries online is as old as the first dot-com boom in India. E-grocers still struggle to create a habit among their customers that would give them regular and remunerative transactions, and they also need to tackle supply-side challenges. Average transactions remain small, demand remains fragmented, and supply chain issues continue to be troublesome. Most e-grocers are ending up depending on a relatively narrow band of consumers in a handful of cities. The generation that is comfortable with an ever-present screen is not yet large enough to tilt the scales towards non-store shopping and convenience isn’t the biggest driver for the rest, so, for a while it’ll remain a bumpy, painful, unprofitable road.
Where we will see rapid pick-up is social commerce, both in terms of referral networks as well as using social networks to create niche entrepreneurial businesses – 2020 should be a good year for social commerce, including a mix of online platforms, social media apps as well as offline community markets. However, western or East Asia models won’t be replicated as the Indian market is significantly lower in average incomes, and way more fragmented.
As a closing thought, I’ll mention a sector that I’ve been involved with (for far too long): fashion. In the last 8-10 decades, globally fashion has become an industry living off artificially-generated expiry dates. A challenge that I have extended to many in the industry, and this year publicly at a conference: if consumption falls to half in the next five years, and you still have to run a profitable business (obviously!), how would you do it? Plenty of clues lie in India – we epitomise the future consumers; frugal, value-seeking, wanting the latest and the best but not fearful about missing out the newest design, because it will just be there a few weeks later at a discount. If you can crack that customer base and turn a profit, you would be well set for the next decade or so.
(Published as a year-end perspective in the Financial Express.)
Much has been written recently, with more than a touch of surprise, about ecommerce companies opening physical retail stores. Whether it is Amazon, Birchbox and Bonobos in the US, Spartoo in France, Astley Clarke in the UK or FirstCry and Flipkart in India, young tech-based ecommerce businesses are adopting the ways of the dinosaur retailers that they were apparently going to drive into extinction.
Perhaps, the seeds of the surprise lie in the perception that the ecommerce companies themselves built for their investors, the media and the public, that it was only a matter of time that the traditional retail model would be dead.
Or perhaps we should pin it on their investors for keeping the companies on the “pure-play” path so far – venture funds that have invested in ecommerce have largely taken the view that the more “asset-light” the business, the better it is; so they’re far happier spending on technology development, marketing, salaries, and even rent, than on stores and inventory.
After a bloody discounting and marketing battle, in a few short years, there are now a handful of ecommerce businesses left standing in a field littered with dead ecommerce bodies, surrounded by many seriously wounded physical retailers who are trying to pick up unfamiliar technology weapons. And their worlds are merging.
Which is a Stronger Building Material – Bricks or Clicks?
Online business models offer some clear strengths. Etailers have a reach that is unlimited by time and geography – the web store is always up and available wherever the etailer chooses to deliver its products.
An ecommerce brand’s inventory is potentially more optimised, because it is held in one location or a few locations, rather than being spread out in retail stores all across the market including in those stores where it may not be needed.
However, we forget that consumers don’t really care to have their choices and shopping behaviour dictated by the business plans of ecommerce companies or their investors. The fact is that physical retail environments do have distinct advantages, as etailers are now discovering.
Firstly, shopping is as much an experiential occasion as it is a transaction comprising of products and money. In fact, the word “theatre” has been used often in the retail business. For products that have a touch-feel element, the physical retail environment continues to be preferred by the customer. Of course, there are products that could be picked off a website with little consideration to the retail environment. For standard products such as diapers or a pair of basic headphones, online convenience may win over the need for a physical experience. However, non-standard products such as apparel or jewellery lend themselves to experiential buying, where a physical retail store definitely has an edge.
Shopping in a physical retail environment is also a social and participative activity. We take our friends or family along, we ask for their opinion and get it real-time. The physical retail environment lends itself to the consumer being immersed in multiple sensory experiences at the same time. These aspects are not replicable even remotely to the same degree by online social sharing of browsed products, wish-lists and purchases, nor by virtual smell and touch (at least not yet!).
In a market that is dominated by advertising noise, a physical store also helps to create a more direct and stronger connect for the consumer with the brand than any website or app can. An offline presence creates credibility for a brand, especially in an environment where online sales are dominated by discounts and deals, and many brands have risen and fallen online in the customer’s eyes during the last 3-4 years.
As a matter of fact, every store acts as a powerful walk-in billboard for the brand. If used well, the store conveys brand messages more powerfully than pure advertisements in any form. This reality has been embraced by retailers for decades, as they have created concept stores and flagship stores in locations with rents and operating costs that are otherwise unviable, except when you see it as a marketing investment.
Showrooming vs. Webrooming
As ecommerce has grown and brands have become available across channels, offline and online, the retail sector has been faced with a new challenge: customers browsing through products in the store, but placing orders with ecommerce sites that offered them the best deal. This obviously meant that retailers were, in a sense, running expensive showrooms (without compensation) on behalf of the ecommerce companies! The industry adopted the term “showrooming” to describe the phenomenon.
However, ecommerce businesses are now getting a taste of their own medicine as retailers are benefitting from a reverse traffic.
Consumers have now started using websites to conveniently do comparative shopping without leaving the comfort of their homes, and collect information on product features and prices but, once the product choice has been narrowed down, the final decision and the actual purchase takes place in a physical store.
This is described with a slightly unwieldy term, “webrooming”. This is one among the reasons that lead to consumers abandoning browsing sessions and carts when they’re online.
Bricks AND Clicks
The wide split between offline and online channels is mainly because traditional offline retailers have been slow to adopt online and mobile shopping environments.
Most physical retailers around the world have approached ecommerce as an after-thought, with a “we also do this” kind of an approach. Ecommerce has typically been a small part of their business, and not typically a focus area for top management. So, in most cases the consumer’s attitude has also reflected these retailers’ own indifference to their ecommerce presence. However, due to the accelerating penetration of mobiles, tablets and other digital devices, a serious online transactional presence is now vital for any retailer that wants to remain top of the consumer’s list.
On the other hand, ecommerce companies, as mentioned earlier, have so far mainly stuck to “pure-play” online presence due to their own reasons. However, with passage of time there is bound to be a convergence and eventually a fusion between channels.
The Journey to Omnichannel
Omnichannel today, in my opinion, is still more a buzzword today than a reality. Being truly omnichannel requires the brand or retailer to offer a seamless experience to the customer where the customer never feels disconnected from the brand, regardless of the channel being used during the information seeking, purchase and delivery process. For instance, a customer might seek initial comparative information online, step into a department store to try a product, pay for it online, have the product delivered at home, and be provided after-sales support by a service franchisee of the brand.
Very few companies can claim to offer a true omnichannel experience, due to internal informational and management barriers. However, having an effective multi-channel presence is the first step to creating this, since operating across different channels needs a completely different management mind-set from the original single-channel business. Having a presence across different channel means that a retailer will need to juggle the diverse needs. Capabilities, processes and systems that are fine-tuned for one channel, may not be fully optimal for another channel. This requires the retailer to restructure its organisation, systems and processes to handle the different service requirements of the various channels.
For instance, brick-and-mortar retailers moving online need to rethink in terms of the service (“always open”), speed (“right now”), and scale (“everywhere”). A traditional retail organisation is seldom agile enough to work well with the new technology-enabled channels as well.
An etailer opening physical stores, on the other hand, needs to embrace product ranging and merchandising skills to allocate appropriate inventory to various locations, as well as the ability to create and maintain a credible, distinctive store environment – in essence, inculcating old-world skills and overheads that they thought they would never need.
The retail business is not divided black-or-white between old-world physical retailers and the upstart online kids – at least the consumer doesn’t think so.
Retailers need to and will see themselves logically serving customers across multiple channels that are appropriate for their product mix. They need to mould their business models until they achieve balance, proficiency and excellence across channels, and eventually become truly omnichannel businesses. It doesn’t matter from which side of the digital divide they began.
Amazon has beta-launched a consumer-facing business in India with its comparison shopping site Junglee.com.
The company has been engaged with India as a support and development centre for several years now, and its traffic and business from India has also grown steadily ever since it started shipping products to the country.
Given the critical mass that is now becoming visible in the Indian e-commerce market, it is logical for Amazon to look at a more direct customer-facing presence here. Its recent moves to set up a fulfillment centre and now the Junglee.com launch certainly look like precursors to a retail launch, whenever the government allows foreign investment multi-brand retail businesses.
Junglee’s current business model is technically not a retail business since the actual transaction would happen on Amazon and websites of other retailers whose product listings it is aggregating.
In the short term, Junglee could be a beneficial partner to existing e-commerce retailers, since Amazon’s robust technology and know-how would become available as a platform, and it would also provide an additional channel for customer traffic. However, with time, Junglee could well become a sizeable competitor for primary traffic which otherwise would have landed directly on the retailers’ own websites. Smaller e-tailers who sign up with Junglee may also find it harder to break away into an independent presence.
The benefit to Amazon, of course, is developing the customer base for a future Amazon-India site, and achieving much deeper insights on customer shopping behavior in India than it possibly gets from the Indian customers transacting on Amazon’s non-Indian websites.
With time, and as Amazon takes a deeper plunge into the market, Indian customers who have enjoyed the Amazon experience remotely can certainly look forward to a wider choice of products at lower costs and with quicker deliveries.
Amazon was among the few US retailers last week to report any growth in the fourth quarter of 2008. There are, possibly, as many opinions about why Amazon has apparently bucked the recession as there are business analysts observing the sector.
I’ve shopped on Amazon.com since the year they launched. Every experience has been completely satisfactory, some delightful. On some occasions Amazon has picked my pocket – made me spend on stuff that I wouldn’t have bought otherwise, by their very helpful suggestions of what others had bought while they were browsing my selections. On other occasions it has saved me money, time and heartburn by providing comprehensive customer reviews at a click.
In my experience, Amazon’s sustainable advantage is their customer-orientation – the technology, the supply chain, the design – everything is geared to making the buying experience as good as possible. A Retail 101 principle that many other retailers – online and offline – seem to ignore every day.