Do you have this feeling that 2018 went by a little too quickly? Well, however quick it seemed, it was certainly momentous for retail in India.
If 2016 was marked by the shock of demonetization, and 2017 by the pains of GST implementation, 2018 highlighted two threads – the obvious convergence of the online and offline world that had been ignored for far too long, and the interest of foreign capital in India’s consumer world.
Walmart bought India’s loss-making ecommerce leader for an eye-popping US$ 20.8 billion valuation, while ecommerce giant Amazon injecting equity into Shoppers Stop, bought Aditya Birla’s More grocery chain (49 per cent through a back-end entity), and held discussions with Future Group to acquire 9.5 per cent in Future Retail. There were rumours of a mega joint venture between Reliance Retail and China’s Alibaba, and media also reported Japan’s Softbank looking at ploughing US$200 million into Firstcry. Both rivals Amazon and Alibaba were reported to be looking at Spencer’s, one of India’s oldest retail chains currently owned by the RP-Sanjiv Goenka group.
Videos of the crush of curious crowds at India’s first, much anticipated Ikea went viral, and the company said it planned to open 40 locations over the next few years, upping its earlier projection of 25. Chinese retailer Miniso basically came out of nowhere and claimed to have clocked sales of ?700 crores in the very first year in the country.
But along with these cross-border “big bangs” we saw domestic confidence also quietly resurging. Indian retailers are not cowering before large foreign retailers and expensive ecommerce advertising splashes; today they are less defensive about their own prospects than they were two years ago. There is also a growing interest among entrepreneurs and corporates to create new retail businesses, which augers well for the diversity of competition and freshness of offerings in the market.
Going into 2019, one thing I can say with certainty is that the weather, economic and political – both in India and elsewhere – will be unpredictable, and might even turn stormy. Externally, retailers should “expect the unexpected”. To ensure that the business remains on track, however rough the track becomes, retailers must centre all major strategies and decisions on the customer. A theme that has been around for centuries, it is surprising how much it gets ignored in this most customer-facing business.
Retailers tend to divide customers into rigid segments. My suggestion would be to look at customers through the behaviour and experience lens and also recognise that the same customer behaves differently at different times and in different contexts – in effect there are no hard boundaries between “segments”.
It is often emphasised is that Indian consumers are “deal-seeking”. I don’t think we should treat this as a uniquely Indian thing: all consumers look for value-reassurance in unpredictable times and in uncertain conditions. Also remember that even in value-seeking, experience still rules. Retailers and brands that are solely focussing on price or price+feature comparisons are turning their business into a commodity. They are missing the long game: of defining the customer’s experience from the first moment of brand contact to the purchase and beyond.
In 2019, if you want to focus on a single competitive strategy, it would be this: for stickiness and sustainability, think about the customer’s experience, and actively design it, in every environment where the customer connects with you.
Lastly, technology is transformative, but tends to get restricted to being the contrast between ecommerce and physical retail. Indian retailers need to embrace technology in all forms, from using the zillions of transactions within the business and with the customer for developing actionable knowledge, to automating processes where unnecessary cost or time makes the business inefficient.
Having said that, keep the previous rule in mind when deploying at customer-facing technology – make customer-interfacing technology as invisible or intuitive as possible. When in doubt, learn from one of the leaders in the sector, Amazon: its 1-click ordering patent 20 years ago gave it a huge advantage over competitors, and it is now aiming to replicate the same seamless, friction-free behaviour physically with its Dash button. Or pick cues even from younger fashion businesses like Rebecca Minkoff, whose focus is on ease and convenience. The key reason for adopting technology is to remove friction for the customer and for processes that serve the customer.
I have no doubt that 2019 will be eventful – let the customer experience be the guiding light to keep our businesses off the rocks and afloat.
(Published in the Financial Express on 4 January 2019, under the title “Retail in 2019: Need for stronger brand-customer connections that go beyond purchase“)
If you’re planning to develop a mall, here’s a short-list of key issues you must address:
Fail-proof the business plan by focussing on the customer: Focus on the development of retail brands and not solely on quick returns on investment. The primary responsibility should be that of catering to the consumer catchment and driving footfalls for the retail occupants. The other requirements follow from this simple premise. Also, a tenant-unfriendly revenue model that overloads the tenant with a high rent (whether fixed or as a percentage of sales) leads to a churn in tenants, and in combination with other factors, keeps the best tenants out of the mall making it unattractive to customer as well.
Do a thorough recce of the catchment: Ask questions like “can the catchment support the development in terms of consumer footfall and spending?”, “Is there a connect between the needs of the immediate catchment and the occupants of the mall?”, “Are there too many malls in the catchment area?”
Offer a good occupant mix: You cannot have mall occupants who have little relevance for the target consumer. Also, the retailers must complement each other in a healthy way rather than cannibalise customers and sales from each other.
Ensure good access: Accessibility and connectivity to get the traffic smoothly in and out of the mall is a must; ensure there is adequate parking space.
Avoid undersizing: A small-sized is a straight handicap because it will lack variety, and you run the risk of getting dwarfed by the next big mall that throws its hat into the ring. [However, the specific size can vary depending on the state of development of your own catchment.]
Focus on design: This involves making the mall brands ‘visible’, ensuring appropriate ‘zoning’ in terms of entertainment, multiplexes, kids’ areas, food courts etc. This will result in better customer flow management. Bad design and poor customer flow management within the mall leaves large parts of mall “invisible” to visiting consumers, or improper zoning that confuses customers and breaks up the traffic.
Finally, remember, it’s not so much about the “square feet”, as about the feet that will occupy it! Focus on the consumers that you want visiting the mall and why they should return again and again.
At the outset, let me say that this is the personal complaint of a consumer. However, I’m airing it here because I believe it is also important to the future profitability of our readers’ businesses.
Over the last few years I have felt increasingly uncomfortable with the noise in public and commercial spaces.
It may be that my sensitivity to this has increased with age, but it is a fact that noise levels have also increased dramatically in every urban public space around us. In fact, it has reached a point where I now feel that people involved in the architecture and design are either addicted to noise or, at the very least, completely immune to it.
I can’t think of any other reason why locations such as retail stores, malls, restaurants, large office receptions, and other public spaces are designed and built so badly from the point of view of handling sound.
The retail soundscape, if I might call it that, is littered with noisy and uncomfortable spaces. Sound levels in busy restaurants and shopping malls can be as high as 70-110 decibels, which is the equivalent of a busy construction site. Sportswear stores play loud and fast-paced music throughout the day; are they trying to make you believe that you are in a nightclub at 11 a.m.? Internal equipment such as air-conditioning and fans add to noise levels. Restaurants and cafes are worse: noise sources include the kitchen, customers using the crockery and cutlery, chairs moving as people sit or leave, apart from the conversations going on.
For sustained exposure, 80 dB is judged to be the outside limit, and we are frequently exposed to sound levels that are higher than that, for long periods of time.
Unfortunately, it is also a vicious upward spiral of sound. Loudness feed loudness. We all raise our voices when we are competing with the surrounding sounds, and only end up adding to the noise further.
Developers spend millions on picking the right stone, fancy fixtures and creative layouts to make the place “look good”. I don’t remember ever coming across a retail space designer in India who says that the space should “sound good”. Even stores selling high-end audio equipment are badly designed and executed!
I remember sitting in a restaurant belonging to a popular Indian quick service chain after a “modern” redesign. No matter how much I tried, I could not understand a word of what my wife is saying (and that’s not just because we’ve been married for so long!). The reason my wife was inaudible was the high level of ambient noise, echoing from all the hard surfaces around us. What was worse was that I could very clearly hear a stranger who was sitting 5 tables away because the false ceiling had dome that perfectly captured his voice and bounced it across the room to me.
Toning it Down
The most basic thing to remember is this: noise has a negative impact. Not only are the customers uncomfortable, high noise levels actually interfere with the staff’s health and performance. Noise increases physical and mental stress.
What’s more, if conversations are not possible at a normal volume and tone, we have to put in more effort into hearing and understanding what the other person is saying. There comes a point when we just give up. Can you imagine what impact that has on a sale?
Studies have shown that noise can drive sales down by more than 80%. On the positive side, if sound is managed well, sales can rise by more than 1,000%! Isn’t that worth looking into?
A plea to architects and retail managers: do consider the fact that customers coming to the mall expect that space to be qualitatively different from an open market. Making a space noisy is not enough to recreate the feel of an open market – it only means that your space is noisy, and probably worse than an open market will be.
Materials selected for building and fitting out the retail outlet, the mall or the restaurant can have huge implications for how sound is handled in that space. A lot of “modern” design depends on hard, polished, reflective surfaces of stone, glass or metal. The floor, the ceiling and the walls, as well as the fixtures are all surfaces from which sound reflects back into the space, not just once but many times before it dies down. So not only do the sounds get amplified in such a space, the reflections also interfere with each other, adding to the problem.
Not Just the Sounds of Silence
Of course, just making every space a quiet “dead” space is not the answer. Sound and silence affect us positively as well as negatively.
The ancients believed that sound could transform the energy of human beings and their surroundings, and from various base sounds they created “simple” beej mantras to complex Vedic chants. Anyone who has chanted or sung hymns, or even an old peppy film soundtrack knows that sound has the power to affect our moods.
At one extreme, most people are uncomfortable in a heavy engineering factory, or for that matter, a modern shopping centre on a busy weekend, without realising why. At the other end, most people would also be uncomfortable in a recording studio, because it suppresses ambient sound as much as possible, leaving the space “empty”.
In some cases (e.g. a night club, or discount store), sounds need to be louder to ensure that the place “feels” lively, even when it is not full to capacity. In some places our enjoyment is enhanced by noise. Watching a cricket match in a stadium while wearing noise-cancelling headphones would hardly be as much fun. A school playground is “happy” when hundreds of children are running around screaming and shouting at the top of their voices, and “solemn” during a quiet morning assembly.
In some cultures and countries, normal social interaction is “louder” than would be acceptable in others. (For example, a British acquaintance mentioned to me how heavily she felt “the sounds of silence” when she moved back to England, after spending many years in Asia.)
So the key is to first define the ambience and the mood that you want to create in your space. What is the objective: who do you want to attract, who do you want to send away? (For example, operators of public transportation systems have successfully used classical music to drive away loiterers who were undesirable.)
Disney offers an inspiring example of how sound can be used. Over the years they have evolved systems combining sophisticated software and hardware in their amusement parks, such that you can walk through the whole park without the decibel-level changing too much. The music sets the appropriate mood for each specific zone. What’s more, the transitions are smooth as you move between zones.
Not everyone needs the sophistication of a Disney amusement park, but I believe it is worthwhile for most retailers to think about how sound is affecting people in their stores.
I would urge you, at the very least, to look at how it impacts conversations between customers, and between the customer and members of the serving staff, because that will definitely impact sales.
A leading cafe chain proclaims: “A lot can happen over coffee”. Yes, it can; but not if you make conversation impossible.
Try it. Tone it down. You’ll see an upswing in productivity, sales and customer satisfaction.
Amazon went public in 1997, when there were a total of 50 million internet users in the world. I remember making my first purchase on Amazon in 1998, and being delighted at the experience of finding something specific, quickly and conveniently. Over the next few months, a “revolutionary” fashion site in Europe – boo.com – raised and spent more than US$ 100 million of venture funding, and heralded a world under the domination of dotcoms.
A few short months later, chatting with a journalist in New Delhi, I found that India too had caught the dotcom bug. We weighed the pros and cons of retail on the internet in India. The previous year, ecommerce sites in India were estimated to have transacted all of Rs. 120-160 million (US$ 2.7-3.7 million) worth of business, but the figure looked set to explode.
I felt then that while the growth could be rapid, even exponential over the next few years, the outcome would still be a very small fraction of the total retail business in the country. We estimated that by 2005 e-commerce in India could be anywhere between Rs 5 billion and Rs. 15 billion on a best case scenario. Despite several apparent advantages in the online business model, the outcome depended on a variety of factors including internet penetration, the appearance of value-propositions that were meaningful to Indian consumers, investments in fulfilment infrastructure and the development of payment infrastructure.
In fact, by the middle of the decade the business had reached just under halfway on that scale, at about Rs 8-9 billion (US$ 180-200 million), despite 25 million Indians being online. Dotcoms became labelled dot-cons, with an estimated 1,000 companies closing down. The retail business discovered a new darling – shopping centres – which pulled funding away for another explosion, that of physical retail space.
The Second Coming
Today, though, dotcoms seem to be back with a vengeance.
The Indian e-commerce sector has received more than US$ 200 million investment in the last couple of years. Now India’s Amazon-wannabe Flipkart alone is looking to raise approximately that amount of money from private equity funds in the next few months, to push forward its aggressive growth plan.
Estimates for internet users in India vary between 80 million and 100 million, and the total business transacted online is projected to cross Rs 465 billion (US$ 10 billion). Online, the Indian consumer seems spoilt for choice, with offers ranging from cheap watches, expensive jewellery, speciality footwear, premium fashionwear, the latest books to feed the intellect, and organic foods to satisfy the body.
However, a closer analysis shows that product sales (or “e-tailing”) are still straggling, being forecast at about Rs. 27 billion (around US$ 550 million) in 2011, which would be merely 6 per cent of all e-commerce, and just about 0.1 per cent of the estimated total retail market. 80 per cent of the business remains travel related, with airline and railway bookings taking the lion’s share, and most of the rest is made up of services that can be delivered online.
The success of online travel bookings shows that the consumer is increasingly comfortable spending online. While a low credit card penetration remains a barrier in India, websites and payment gateways have created alternative methods that give the consumer a higher degree of confidence, including one-time cards through net-banking, direct debits from bank accounts, mobile payments, and, if all else fails, cash on delivery.
An e-tailing presence offers “timeless” access without physical boundaries. For a retail business, reducing and replacing the cost of running multiple stores, with their heavy overheads (rent and store salaries being the largest chunks) seems like a dream come true.
Similarly, merchandise planning and forecasting is typically fraught with error and multiple stores only compound the problem. An internet presence can minimise the number of inventory-holding points, thus reducing the error margins significantly. These factors should, in theory, make the online business more efficient and the value proposition more compelling for the consumer.
Then why isn’t e-tailing growing faster?
Barriers to Growth
The answer is that, while the online population is bigger and payment is no longer the hurdle that it once was, there are two other critical factors that have changed only marginally and incrementally over the years: the consistency of products and how effectively orders are fulfilled. With an airline or a train ticket, one has a reasonable idea of the product or service that will be delivered. Unfortunately this isn’t true of the online merchandise trade, which is plagued by poor products, poor service and, as a result, low consumer confidence.
Individual companies, of course, are spending a large amount of management effort as well as money, to ensure consistency. For instance, the team at Exclusively.in told us how they fretted over design, (including the thread and the number of stitches in the embroidered logo on the T-shirts) to ensure that the final product had a “rich” feel and to ensure that their product in quality to some of the most desirable brands in the market. Flipkart highlights its in-house logistics operations to ensure high service levels, in addition to using traditional courier and postal services.
Unfortunately, the fact remains that the consumer’s confidence can only be built over a period of time, by constantly providing consistent product quality and high levels of service. Businesses need to spend a few years before they achieve a “critical mass” in this area.
This issue of confidence is more of a problem in some products, due to their very nature. For instance, buying fashion and accessories online is very different from buying a book online.
Businesses such as Amazon have made it more convenient for the customer to search for books, compare them with others on the same subject, and read reviews before finally deciding to buy the book. But, even more importantly, they now also allow us to preview some of the pages or sections, so that we can do what we do in a bookshop – flip through the text, to get a sense of whether the book actually speaks to us. However, when we think of putting fashion products online, the problem that immediately comes to mind is that there is no effective way yet of the consumer getting a similar touch-feel experience. Avatars and virtual placement are a poor substitute to holding the product and physically placing it on oneself.
Accessories – such as jewellery and watches – are an easier sell than clothing and footwear, and if we could classify mobile phones and other electronic items also as “fashion accessories”, then we can declare the online accessory market a runaway hit. As long as the product quality and the accuracy of the picture depicting the product are high or consistent with the offer, it is the pricing and convenience that will drive business growth online, and the business can benefit from all the efficiencies inherent in the online model.
However, with clothing and footwear two major concerns remain: sizing and fit. For the answer to why this is so, we need to remember the fact that these are indeed two separate barriers. There are usually anywhere between three to six sizes options in any product, sometimes more (especially if you account for half-sizes in shoes). This translates into 3-6 times the complexity of managing inventory and, at the very least, doubles the possibility of returns (since customers may order multiple sizes to discover one that fits them). However, the other aspect is perhaps even more important and a bigger problem: fit also depends on styling, not just the size. We know from our own experiences in buying clothing and shoes that the same size in two different products does not mean that they will fit in a similar manner. This is less acute for clothing, especially products such as T-shirts, shirts and blouses which may have some allowance around the body, but is absolutely critical for shoes, which must fit close to the feet.
The American online shoe retailer Zappos – also owned by Amazon now – has found a way to overcome this barrier by offering free shipping both ways (i.e. for delivery to the customer and for any products that need to be returned), a 365 day return policy and a process whose final objective is customer-delight. As long as the product is in the same condition as it was when it was first delivered to the customer, Zappos accepts returns at no cost to the customer.
On the other hand, Indian sites Bestylish.com and Yebhi.com (also now owner of Bigshoebazaar.com) have different policies to deal with returns, but both are less flexible and less customer-friendly than the Zappos policy mentioned above.
I’m sure the Indian websites have sound commercial principles and clear strategic reasons for structuring their policies as they have, but it certainly presents a significant barrier to customers who may be debating whether to buy shoes online or buy offline after trying the shoes on. Unfortunately, the convenience factor is just not a big enough driver yet to overcome the fit barrier for most customers.
Among other products, the food and grocery category stands out as having the largest chunk of the consumer’s wallet. However, selling this electronically is a challenge, especially since the biggest driver of purchase frequency is fresh produce that is tough to handle even in conventional retail stores in India, let alone via non-store environments.
However, grocery retailers could ride on the back of standardised products, if they can overcome the challenge of delivering efficiently and quickly.
Another barrier is the desirability of shopping online versus offline. Management pundits may borrow Powerpoint slides from their western counterparts, describing “time-poor and cash-rich” customers for whom the internet is the most logical shopping source. This holds true for a small base of Indian consumers, but for most people product-shopping remains predominantly a high-touch activity and a social experience to be enjoyed with friends and family. In spite of the inconvenience related to driving and parking conditions, the pleasure of walking into a physical store has not diminished. If anything, during the last five years the “retail theatre” has become capable of attracting more customers with better stores and better shopping infrastructure. The convenience of shopping online is just not compelling enough for most of India’s consumers.
On the plus-side, consumers located in the smaller Indian cities, with less access to many of the traditional brand stores, are finding the online channel a useful alternative. However, fulfilling these orders in a timely and cost-effective manner remains a challenge for most companies.
One potential growth area is the “clicks and bricks” combination for existing retailers. Indeed, worldwide, leading retailers have moved on from multichannel strategies to being “omnichannel” – present in every location, format or occasion where their consumer can possibly be reached. Many of the chains in India have gained the trust and goodwill needed to tip the customer over to online shopping. However, for them the challenge would be to ensure that the internet presence is designed for an excellent user experience and serviced in a dedicated manner, just as any flagship store would, rather than as an online afterthought.
Retailers who have achieved a high degree of penetration and consumer confidence can also use a combination of “sell online, service offline” in locations where they have critical mass, as first demonstrated successfully by Tesco in the UK.
Delivery-oriented food services are a potential winner for consumers in urban centres in India who are pressed for time, again on the back of standardised service and product offerings, and their existing delivery mechanisms. For instance, quick-service major Domino’s, which hits 400 outlets this year, already has 10% of its annual sales coming from internet orders within just a year of launching the service, and that share is expected to double in the next year. What’s more, the online orders are reported to be of higher value than its other delivery orders. All in all, a phenomenal shift for the brand that promises delivery within “30 minutes or free”.
There is no doubt that e-tailing will grow in India. The confluence of increasing incomes, a growing online population, improving connectivity, and more businesses starting up on the net will lead to what would be “stupendous” year-on-year growth figures. We can expect the e-tailing revenues to be between Rs. 50 billion and Rs. 80 billion by 2015.
However, we need to remember that this will still be a very small share in the total pie, because the rest of the retail business is evolving and growing rapidly as well. Costs of acquiring and retaining customers will remain high and only increase, cost-effective fulfilment and high service levels will continue to worry most players. Per capita spends are also not going to be helped by discount-driven websites.
It is not a false dawn for e-tailing in India but, to my mind, the sun is as yet below the horizon despite the recent sky-high venture valuations.
Teams that are building for an exit must remember: most are likely to never achieve one. If you are losing money on every transaction, and will continue to do so in the foreseeable future, there is no future. Entrepreneurs and investors who are being over-enthusiastic and blithely ignoring the real costs of doing business may be in for their darkest hour.
However, those who are careful in tending to their flickering flames and have a longer term view of remaining in the business, may get to see their own e-tailing sunrise in the next few years.
(Updated in November 2011.)
There’s some speculation that salespeople in luxury stores are being asked to become more friendly, so as not to turn away and turn off potential customers.
But I think it isn’t just them. I think as the economy slows, possibly everyone might become less abrasive and nicer to each other – less business around so you don’t want to turn off the spenders no matter how they’re dressed – “a king dressed as a beggar” is a good simile.
Actually that reminds me of a story someone told about 20 years ago about an Indian farmer walking into a car showroom and being treated patronizingly by the salesman. The salesman saw a more urbane customer walk in and handed the farmer off to a less agressive colleague, only to see 4 cars being driven off by the farmer’s sons after an all CASH payment.
Maybe the image is not evocative as Julia Roberts in “Pretty Woman”, but still a pretty powerful one, nevertheless.