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August 31, 2024
MG Arun, India Today
Aug 31, 2024
Nearly five years after the Centre brought in norms to rein in multinational e-commerce companies operating in India, Union commerce minister Piyush Goyal sparked fresh controversy by raising concerns over the rapid expansion of e-commerce. He also drew attention to the pricing strategies used by some e-commerce firms, questioning what he termed “predatory pricing”.
“Are we going to cause huge, social disruption with this massive growth of e-commerce? I don’t see it as a matter of pride that half our market may become part of the e-commerce network 10 years from now; it is a matter of concern,” Goyal said at an event in New Delhi last week.
His comments come at a time when the ecommerce business in India is growing exponentially. Estimated at $83 billion (around Rs 7 lakh crore) as of FY22, the market is expected to grow to $150 billion (Rs 12.6 lakh crore) by FY26. The growth will be due to multiple levers: a growing middle class, rising internet penetration, the proliferation of smartphones, convenience of online shopping and increasing digitisation of payments. The overall Indian retail market was pegged at $820 billion (Rs 69 lakh crore) in 2023, according to a report published by the Boston Consulting Group and the Retailers Association of India. E-commerce still comprises only about 7 per cent of that, as per Invest India.
The Indian e-commerce market is dominated by global giants, including Amazon and Walmart (which took over Flipkart in 2018). They, along with domestic players, offer huge discounted prices compared to retail prices, which drives online sales significantly. In FY23, Amazon Seller Services and Flipkart posted Rs 4,854 crore and Rs 4,891 crore losses, respectively. Goyal’s argument is that these losses are due to their predatory pricing.
“Is predatory pricing policy good for the country?” Goyal asked, while stressing the need for a balanced evaluation of e-commerce’s effects, particularly on traditional retailers such as restaurants, pharmacies and local stores. “I’m not wishing away ecommerce—it’s there to stay,” he said. Later, he said e-commerce uses technology that aids convenience. But there are 100 million small retailers whose livelihood depends on their businesses.
The Centre has specific laws that permit foreign direct investment (FDI) in e-commerce exclusively for business-to-business (B2B) transactions. However, according to Goyal, these laws have not been followed entirely in letter and spirit. Currently, India does not allow FDI in the inventory-based model of e-commerce, where e-commerce entities own and directly sell goods and services to consumers (B2C). FDI is permitted only in firms operating through a marketplace model, where an e-commerce entity provides a platform on a digital or electronic network to facilitate transactions between buyers and sellers (B2B).
The country’s laws also stipulate that in marketplace models, e-commerce entities cannot ‘directly or indirectly influence the sale price of goods or services’ and must maintain a ‘level playing field’. Entities in the marketplace model re allowed to transact with sellers registered on their platform on a B2B basis. However, each seller or its group company is not permitted to sell more than 25 per cent of the total sales of the marketplace model entity.
Goyal said certain structures have been created to suit large e-commerce players with “deep pockets”. Algorithms have been used to drive consumer choice and preference. For instance, several pharmacies have disappeared, he said, and a few large chains are dominating the retail space. He invoked the importance of platforms like the Open Network for Digital Commerce where small businesses can sell their products.
E-commerce firms counter the argument on predatory pricing. “It is the sellers’ discretion as to what price they should sell at,” says an industry source. The e-commerce player who provides the platform seldom has a role in it, he explains. “Sellers could be doing clearance sales or liquidation of old products at cheaper prices. Some sellers also source products at manufacturing cost and park it with e-commerce firms instead of involving warehousing agents. This helps cut their overhead costs and allows them to offer lower prices on the platform,” he adds.
Some experts are of the view that the government should not step in with controls and allow the market forces to play their role in determining prices. Price controls may lead to shortages, inferior product quality and the rise of illegal markets. Moreover, the Competition Commission of India (CCI), which is mandated to act against monopolies, may be given more teeth. It is ironical that, on the one hand, the Centre wants more FDI to flow in, but places more and more controls on foreign players on the other hand. At the core are the interests of small traders and retailers, a key section of the electorate.
Others argue that the government has a role to ensure that there is fair competition. “It is not just small retailers the government would be speaking for, but for large domestic players too,” says Devangshu Dutta, founder of consultancy firm Third Eyesight, emphasising that the government’s role should be to establish laws and practices that promote fairness.
According to him, it is no secret that e-commerce has grown through discounts. “For large e-commerce firms, market acquisition happens by acquiring a share of the consumer’s mind and through pricing. When a large sum is spent on advertisements, it is for acquiring the mind share of the consumer,” he says. “Pricing matters in a big way too. Whether you call it predatory pricing or market acquisition pricing depends on which side of the fence you are.”
(This article was originally published in the India Today edition dated September 9, 2024)
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August 9, 2024
Sagar Malviya and Rica Bhattacharyya, Economic Times
9 August 2024, Mumbai
Reliance Industries Ltd. reduced its workforce by 42,000, or nearly 11%, in FY24, in what is being seen as an outcome of a cost-efficiency drive and reduced hiring, especially in its retail segment which also saw store closures and slower expansion.
The employee strength at the country’s largest company by market value, stood at 347,362 in FY24 compared with 389,414 a year ago. The intake of new recruits was slashed by more than a third to 171,116, according to its latest annual report.
“The new lines of businesses (at Reliance) have matured now and have significant support from digital initiatives. Now they are at a stage to better manage the operations with optimum strength,” said an analyst with a leading broking firm, requesting not to be named. “It doesn’t mean that the numbers (of headcount) won’t increase when new business opportunities emerge and strategy changes. They understand very well how to drive cost management and efficiency.”
Most of the job cuts were in its retail business, whose 207,552 employees last fiscal accounted for about 60% of RIL’s total employee strength. The number was 245,581 in FY23.
“Overall voluntary separations in FY24 are lower than FY23. The retail industry typically has a high employee turnover rate, especially in store operations,” RIL said in the report, adding that its employee benefits expense increased by 3% year-on-year to Rs 25,699 crore. In FY23, it had gone up by 33%.
In FY23, Reliance Retail expanded its physical store network, adding more than 3,300 new stores to take the total store count at the end of the year to 18,040. In FY24, the store count stood at 18,836–a net addition of some 800 after factoring in unviable store closures.
Last year, RIL’s online wholesale format JioMart aligned its operations with Metro Cash and Carry, which it acquired. With the addition of Metro’s permanent workforce of 3,500 employees, there was an overlap of roles, both in the backend and online sales operations.
Experts said many of the large conglomerates are rebadging some of the front-end service functions to third-party rolls.
“Many companies in the retail sector have been getting people off their own roles and appointing staffing companies for a leaner structure and efficient management. This may reflect as a drop in headcount (on the company reports) but need not necessarily be loss of jobs,” said Lohit Bhatia, president of workforce management at Quess Corp. “This could include functions such as security guards at the store level, facility management, logistics, picking and packing, etc. That apart, digitisation and tech advancement is also leading to some job roles being redundant across sectors.”
India’s retail sales expansion slowed to 4% last year after a surge in spending across segments—from clothes to cars—in the post-pandemic period, triggered by revenge shopping. Reliance’s retail division, however, grew 18% in sales to Rs 3,06,848 crore.
“Focus on store productivity usually happens in cycles; we have seen consumers unleash their spending post pandemic, which led to retailers expanding their network or square footage. However, if some of the stores are unviable, then management teams are now highly objective, even ruthless, and will shut stores,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “In addition, any company planning to list would like to have healthy and lean operations, although we cannot pin-point it to Reliance in this case.”
Another analyst, who did not wish to be named, said, “Reliance’s annual report reveals that the group, spanning petrochemicals, telecom, and retail, has moved beyond its core investment phase and is now poised to reap substantial benefits from operating leverage, efficiency gains, and investments in technology and talent.”
(Published in Economic Times)
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July 28, 2024
Writankar Mukherjee, Economic Times
Kolkata, 28 July 2024
Top retail chains such as Reliance Retail, Shoppers Stop and Spencer’s Retail are facing a prolonged slowdown in consumption, pushing them to exit unprofitable markets, raise debt and control costs.
India’s largest retailer Reliance Retail shuttered 249 stores in the three months ended June. The company is also going slow on expansion, opening 331 new stores in the quarter compared to 470-800 stores opened every quarter in FY22, FY23 and FY24. The closures mean the retail business of Reliance Industries made 82 net new store additions last quarter–the lowest in 15 quarters.
Spencer’s Retail has decided to completely exit North and South India markets by closing 49 stores in the National Capital Region (NCR), Andhra Pradesh and Telangana. The step will erase Rs 490 crore of annual revenue, but the company is hopeful it will improve profitability.
Shoppers Stop chief executive officer Kavindra Mishra told investors last week that it may have to defer a few store openings this fiscal due to regulatory and other issues. The company will also borrow Rs 100 crore for expansion with demand remaining soft.
Meanwhile, V-Mart Retail has closed 22 stores in the first six months of 2024, as per its latest investor presentation.
“Pruning underperforming locations is a natural reaction during times of demand stress,” said Devangshu Dutta, CEO of retail sector consulting firm Third Eyesight.
Pure Economics
“Demand forecasting can never be perfect due to a lag between demand assessment and supply. Retailers now try to do away with underperforming stores at the bottom of the pile quickly. Earlier there were prestige issues in shutting down stores, but now it’s acceptable industry practice and pure economics,” said Third Eyesight’s Dutta.
Analysts say most retailers expanded rapidly after the pandemic, banking on pent-up demand and revenge shopping at the time. With demand turning sluggish, the industry is now being forced to take various steps to sustain operations. At Reliance Retail, net profit rose by a modest 4.6% from a year earlier in the June quarter to Rs 2,549 crore while revenue grew 6.6% to Rs 66,260 crore. It was the slowest pace of revenue growth and came after a 9.8% increase in Q4FY24. Net profit and revenue from operations fell sequentially in the June quarter.
Spencer’s Retail CEO Anuj Singh told analysts on Thursday the 49 stores it is closing make up nearly 22% of revenue, but also Rs 56 crore of losses at the regional Ebitda level in North and South India. “They were a drag on the balance sheet. We will now focus on Uttar Pradesh and the East where there is a sizable consumption opportunity with a 250 million population,” he added.
Singh said the store rationalisation exercise and about 35% headcount reduction at corporate offices will reduce overheads from 8% operating cost to 6.3% of total sales. “We now expect to achieve Ebitda breakeven by March 2025 which will give us the option to raise capital,” he said.
Mishra at Shoppers Stop said demand remained subdued last quarter due to fewer wedding dates, long election season with polling dates on weekend, heatwaves, and high level of cumulative inflation. All these factors combined hit growth and volume recovery, except in value fashion and beauty.
More stores shut than opened
In fact, the sustained demand slowdown saw chains like Pantaloons, Spencer’s Retail and Nature’s Basket close more stores than they opened last fiscal. Retailers like V-Mart Retail, W, Aurelia and Titan Eye+ had a higher rate of store closures than openings in the March quarter.
(Published in Economic Times)
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July 20, 2024
Gargi Sarkar, Inc42
20 July 2024
The Indian government’s ban on Chinese apps and products in 2020 saw two massive casualties. Everyone knows about TikTok, but fast fashion brand Shein was equally as big in India four years ago.
But the India setback did not halt Shein’s global momentum, just as it did not stop TikTok from becoming what it is today. Shein became the world’s largest online-only fashion company in 2022.
Valued at a staggering $10 Bn, the brand accounted for nearly one-fifth of the global fast-fashion market in 2022, outpacing giants such as Zara and H&M. To put things in context, Shein was founded in 2008, whereas Zara was incorporated in 1975 and H&M in 1947.
In India, Shein set the market on fire. Launched in India in 2018, the brand was already a major player by 2020, dominating online searches and influencer-led content. But the ban in 2020 meant all that came to a halt.
The Indian government’s ban stemmed from fears of Shein’s Chinese parent company storing or transferring data of Indian customers to China. While the ban itself came under a tense geopolitical climate, one could say that Shein’s exit left a gap in India’s fashion market which D2C brands quickly filled.
Brands such as Urbanic, Twenty Dresses, Cilory, attempted to fill the void but couldn’t quite match Shein’s popularity. Indeed, VCs also backed fast fashion and casual wear startups such as The Souled Store, Virgio, NewMe and others which looked to replicate the Shein formula.
Ecommerce unicorn Meesho has also looked to fill the gap with affordable fashion and a similar content-led sales strategy that worked wonders for Shein.
While many of these brands have grown in scale over the past four years, none of them — at least so far — have quite replicated the magic of Shein and how quickly it disrupted the market.
And that’s arguably why Shein’s re-entry into India through a partnership with Reliance Retail is a big deal.
Shein joins the Mukesh Ambani-led conglomerate’s exclusive portfolio of over 50 brands, including Silk Feet, Jivers, Xlerate, Feet Up, Dhuni by Avaasa, Riva, John Player Select, Kidlyboo, and Altair. Besides this, Reliance Retail has similar deals with designer labels such as Kenzo, Y3, Marc Jacobs, Coach, Steve Madden, Kate Spade, among others.
It’s clear why Shein has looked to re-enter India, where the fast fashion industry is projected to reach a size of $30 Bn by FY23, as per a Redseer report. The overall fashion segment grew at a modest 6% YoY in FY24, whereas the fast fashion subsegment surged by up to 40% in the same period. Now, Shein is back to grab a large chunk of the market once again, though there’s definitely a lot different about this Shein.
Reliance Punches Shein’s Ticket To India
The first thing that we need to note is that Shein is not back as a standalone entity, but its products will be available on Reliance Retail’s apps and physical stores. Shein is not operating business in India — Reliance is said to be bringing in former Meta director Manish Chopra to lead the brand.
Shein’s parent entity will receive a licence fee as a share of profits generated solely within India. The operations will be managed by a company wholly owned by Reliance Retail. Crucially, all data and the app itself will be hosted and stored within India, ensuring that Shein has no access to or control over this data.
These are some of the key factors behind Shein’s comeback to India being approved by the government nearly one year ago.
Reliance Retail is set to launch the Chinese fast-fashion label Shein within the coming weeks. Further, to diversify its supply chain and promote domestic industries, Shein reportedly will be sourcing goods from India for its global operation in the Middle East and other markets.
More than anything else, fast fashion brands and indeed other some of the more premium brands need to worry about the Reliance factor. Shein’s brand name and Reliance’s massive resource base are a deadly combo.
Reliance Retail’s fashion ecommerce app Ajio directly competes with Myntra, Nykaa Fashion, Meesho, Amazon India, Flipkart, Tata Cliq, and other platforms. From a distribution point of view, Ajio will be the exclusive storefront for Shein, and exclusivity is a big deal in fashion ecommerce.
Ajio commands around 30% market share based on monthly active users (MAUs), data sourced from AllianceBernstein shows.
Flipkart Group’s Myntra maintains the highest market share in terms of active users, surpassing 50%. However, the report notes a decrease in transaction frequency, with Myntra’s GMV growing only 12% in FY23 compared to 35% in FY22.
“Shein’s re-entry may have a somewhat negative impact on Nykaa Fashion, as Nykaa primarily targets the premium fashion segment. In contrast, Myntra caters to both the mass and premium fashion markets and already has strong brand recognition in the fashion industry. Therefore, the impact on Myntra might be mild, whereas Nykaa Fashion could feel more significant effects,” Karan Taurani, SVP, at Elara Capital said.
He added that Shein is part of a broader strategy by Reliance Retail to expand its portfolio of brands. In that sense, Shein is just another addition to its portfolio.
A Myntra executive admitted to Inc42 that Ajio has an edge when it comes to exclusivity, but added that Myntra has also introduced Gen Z-focussed features which are gaining fast traction. Myntra’s focus on in-house brands or private labels is paying off, however, at the same time, the company is also looking to snap up more exclusive brand partnerships.
Should D2C Brands Worry?
One thing that Ajio cannot afford to do is give Shein more prominence. Fashion ecommerce marketplaces are quick to see gaps in terms of sales of particular brands and look to woo them to their side. In this regard, Shein will be competing with a number of D2C brands as well as international labels in fast fashion.
As per Inc42 data, between 2018 and 2023, D2C fashion brands captured almost 93% of the total funding raised in the Indian fashion ecommerce space.
The Myntra executive quoted above believes that Shein will definitely disrupt D2C fashion brands in India as many of them target the Gen Z audience, but they are also looking to protect margins and break into the premium segment.
The D2C landscape in fashion includes the likes of Andamen, House Of Rare, Bombay Shirt Company, Snitch, Damensch, The Souled Store among others. And there are houses of brands such as Mensa Brands, TMRW and others which combined have dozens of brands across categories in fashion. It’s not easy to stand out, and Shein will have to fight for its space on the aisles.
Most of these brands are looking to widen their net margins by adding premium products. Premiumisation is a major thesis among Indian D2C brands right now as they realise many of them are targeting a very limited cream of the market.
On the other hand, Shein has built its reputation on affordability. So is Shein actually directly competing with these players? Market experts believe that Shein is not successful just because of its pricing, but its use of data.
“Brands with the right product and high-quality service should attract customers who are not price-sensitive. A price-oriented brand is not a major threat; the real risk is if your product fails to keep up with market trends. Fashion-driven brands could take your business away if your product quality and service do not meet customer expectations. However, if your product is trendy, the quality is high, and your service is good, you should be safe in retaining customers who are not focused on price,” Devangshu Dutta, founder and CEO of Third Eyesight, said.
Those in the industry do believe that one brand cannot conquer the fashion market. That simply does not happen with the fashion industry, which is why there is so much depth in the market. Shein’s success will lead to the emergence of more D2C brands that look to mimic the data-led, trend-first model.
“The potential of the Indian market is evident, and it’s becoming increasingly exciting. This means that many companies will emerge in this category to serve this customer base. It validates the hypothesis we had two and a half years ago: the Indian consumer is evolving, and fashion should evolve along with them. From that perspective, Shein’s entry justifies and validates our hypothesis,” the founder of a Bengaluru-based GenZ-focussed fashion brand said.
Good brands always emerge from intense competitive churn, and Indian brands have the potential to go global if they hit it big. “Competing against Shein and building a successful business will open new opportunities for us and strengthen our execution and agility,” the founded quoted above added.
Is Shein Ready For Second Innings?
Now, coming back to Shein, it remains to be seen if it will be able to gain popularity like its first stint in India. One must remember that Shein tried to make a comeback in India in 2021 after the government’s ban through ecommerce giant Amazon, but the brand supposedly did not get much traction.
“I think the case of visibility is different when comparing Amazon and Reliance Retail. Through Reliance Retail, the visibility could be much higher compared to Amazon because Reliance Retail already has a very wide portfolio of fashion brands, including more than 25-30 luxury brands across various categories. It’s all about creating visibility, generating buzz, and going to market together in terms of marketing efforts. Reliance has a very strong omnichannel presence, both online and offline,” Elara Capital’s Taurani said.
While Amazon is, of course, a large ecommerce phenomenon, the platform is not a primary port-of-call for online fashion shoppers. This is why Shein could potentially perform better with Reliance Retail.
“We have to wait and see how Shein performs in India. We will need to observe how this unfolds to comment on its visibility and performance, both online and offline. In marketplaces, brands compete daily, and Shein’s strength has always been its designs. We’ll have to closely watch how Reliance leverages this strength,” an industry analyst said.
(Published on Inc42)
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February 29, 2024
Sagar Malviya & Faizan Haidar, Economic Times
New Delhi, 28 February 2024
Reliance is in exploratory talks with British fashion retailer Primark to bring the label to India, a move that will pit it against Tata’s Zudio, Landmark Group-owned Max and Shoppers Stop’s new value format InTune.
The 55-year-old brand, popular for its moderately priced clothing and shoes, has been evaluating the Indian market for the past few years and may partner Reliance through the joint venture or licensing route, said two people aware of the development.
Most of their stores will be on the high street due to its big box format, unlike other global retailers, which prioritise malls, the executives added.
Primark has been a successful value-priced retailer and its global revenue has exploded in the last few years, aside from two Covid-hit years. Average prices are even cheaper than retailers such as H&M and Uniqlo. While China is the largest source country for Primark, India is second in the number of small to large factories that supply the company. Nearshoring is already embedded in Primark’s supply chain strategy, and it can deliver goods from Indian suppliers directly to a local retail unit for cost control and flexibility while being responsive to local market needs.
As the largest retailer in India and with its portfolio of multiple international brand partnerships, Reliance can provide a significant edge with real estate and operational synergies, said Devangshu Dutta, founder of retail consulting firm Third Eyesight.
“India is an obvious growth market choice for large brands and retailers such as Primark,” he said. “In the end, though, it will come down to how effective the merchandise and the marketing is in connecting with the diverse needs of Indian consumers across the country.”
Primark is owned by London-listed Associated British Foods and has over 400 stores globally with a stated ambition to expand across new and existing markets to reach 530 outlets by the end of 2026. In the lower-priced segment, Reliance has Trends and recently launched fashion and lifestyle store Yousta, which competes directly with fast-fashion brands Zara and H&M in India. Reliance currently has over 18,774 stores-these include supermarkets as well as electronics, jewellery and apparel outlets. It has also either partnered with or acquired over 80 global brands for local sales.
Reliance didn’t respond to queries. A Primark spokesperson said, “As a growing international business, we’re always open to new opportunities. However, we don’t comment on speculation about where we might expand to next.”
Experts said India’s consumption structure has been skewed in the past over a narrow base of richer consumers accounting for a large chunk of market. However, now the opportunity for value-brands is expanding.
(Published in Economic Times)
