As e-commerce gains momentum in India, the headlines are about fat investments and international funding coming in for the sector. While online retail rapidly carves out a share for itself in the market, Henna Achhpal and Saloni Dutta examine how brick and mortar retail is shaping up to take on the digital challenge and find a meeting ground with e-commerce in the hybrid model
First, Television and Print media were threatened by the growth of digital. Now, brick and mortar retail finds itself in a similar situation. It’s a fact that consumers are increasingly shifting online for their buying needs and big investments are flooding the e-commerce domain. But in this survival of the fittest scenario, offline players are capitalizing on the changing market behaviour by providing a more wholesome buying experience. Embracing digital by way of a hybrid or omni-channel strategy, offline retailers are offering their products a click away, but also reassuring the hesitant Indian consumer with an offline presence.
Last month, Flipkart announced funding of a whopping Rs 6,000 crore, only to be trumped by Amazon’s news of investing an additional Rs 12,000 crore in the Indian market. For Amazon, a player that entered the Indian market only last year in June, this is certainly an ambitious move. Flipkart is not far behind in ambition with its co-founders, Sachin Bansal and Binny Bansal, aiming to be the first Internet company worth $100 billion in India.
According to a 2013 report by the Internet and Mobile Association of India and KPMG, the e-commerce market in India has been growing at an average annual rate of 34% since 2009. In 2013, funding in the e-commerce sector almost doubled to Rs 3,300 crore from Rs 1,600 crore in 2012. This year alone, Indian e-commerce has seen at least 20 major investment deals.
E-commerce players, global investors, businesses and consumers alike are discovering the wonders of online shopping. With severe competition keeping industry players on their toes, customers are enjoying flawless after-sales service, easy returns and tempting discounts. A CRISIL Research from February 2014 states: “In terms of size, India’s online retail industry is very small compared with both organized and overall (organized + unorganized) retail in the country. This speaks volumes of its potential. We expect the industry’s revenues to more than double to around 18% of organized retail by 2016 from around 8% in 2013.” So while Flipkart and Amazon India fight it out tooth and nail, we examine how brick and mortar retailers are using the hybrid model to prepare for a digital future.
MARKETERSPEAK: GROWTH & CHALLENGES
In 2013, Canon India received close to Rs 43 crore of business through e-commerce and this year, sales are expected to cross Rs 100 crore. Although making profits, Alok Bharadwaj, EVP, Canon India has his doubts whether this business is a new creation. He says, “I don’t think e-commerce is creating newer markets for us.” Driven by attractive offers and ease of buying, Bharadwaj believes e-commerce is still in the process of evolution. He says, “Right now, the objective of online players is to increase valuation and customer base for which they are banking on discounts and as a result, subsidizing some of our products. The true value creation of e-commerce will happen when this kind of subsidy or reckless discount stops.”
Ajit Joshi, CEO & MD, Infiniti Retail, says, “Price is not maintained in e-commerce, so holding profitability is the biggest challenge. There seems to be some kind of a hurry among online players to break the price, but it is not a sustainable model.”
When it comes to attracting new customers, offline retail works better for Canon. Bharadwaj says, “The true value creation for our business happens when customers are able to experience the products in the store through a demonstration. If the transaction is based purely from an attractive discount model, it negates that experience. If retail rapidly shifts to e-commerce, it may not aid in expansion of market but only shift in market from brick and mortar to online, which is not a very desirable situation for companies like Canon.”
While e-commerce in the FMCG category is at a nascent stage, Reckitt Benckiser (RB) India has witnessed incremental sales month on month through the channel. Selling its power brands in partnership with online players such as Amazon, Flipkart, Snapdeal and Healthkart, RB India currently has a large e-commerce presence and is actively increasing this base every month. “E-commerce is enabling us to uniquely display our products and educate our consumers about them in order to help them make a purchase decision. Products such as Durex, Airwick, Dettol Automatic gadgets have seen a huge demand from Tier II towns and beyond, where availability through brick and mortar is relatively less,” says Nitish Kapoor, GM, RB India. He continues, “Especially in the sexual well-being category, online shopping offers consumers the flexibility to identify, review and purchase the product best suited for their needs.” With no decline in footfalls at retail outlets, e-commerce has resulted in supplemented growth of the consumer base for RB India.
Max Life Insurance entered the e-commerce space in November 2013 and has since witnessed good traction and reached new customer segments. “The e-commerce model has helped generate incremental business and we see the channel becoming vital from a revenue and margins perspective in the near future, as we introduce more products for online sale,” says Anisha Motwani, Director & Head – Marketing, e-commerce & Direct Sales, Max Life Insurance.
While Max Life Insurance currently has only one product available via e-commerce, HDFC Life offers more than 10 life insurance products online. Sanjay Tripathy, Sr EVP & Head – Marketing, Products, Digital & e-Commerce, HDFC Life, believes the transition from bricks to clicks is happening fast. He says, “For organizations to exist and grow, they have to adopt a ‘Digital First’ approach. It is soon going to be the single biggest contributor to the insurance business funnel. The new generation of consumers, born in the post-liberalization era, is coming of age and is most comfortable with technology. Their first point of contact or experience with organizations is most likely to be online.” Speaking of challenges, Motwani points out, “Life insurance in India is primarily sold and not bought. In e-commerce, products that have the ‘pull’ factor see success. Simple and easy to understand products receive a good response, but complex products are still primarily sold by conventional channels.” Tripathy adds, “Changing consumer behaviour online places the new demand of introducing improved measures for servicing, loyalty, experience and customer management.”
THE BEST OF BOTH WORLDS
India is a country rife with dualities. While people in metros are connected 24x7 on multiple devices, there continue to be areas that do not receive 24-hour power supply. Similarly, while e-commerce is flourishing with consumers’ trust in online shopping growing, there are still those who find a transaction incomplete without the ‘touch and feel’ aspect. After a rough ride initially, MakeMyTrip, which was launched in India in 2005, is one of the largest online travel agents in India today. Despite its success, the travel portal continues to maintain a hybrid model consisting of an online presence along with 59 offline stores across 37 cities. In a Forbes Asia report, Deep Kalra, Founder & CEO, MakeMyTrip said: “In smaller places, people trust brick and mortar retail. Customers come to the store the first time, call us the second time and are ready to go online the third time.”
With 50% of the Indian customer base being tech savvy and below 25 years, Thomas Cook India is targeting the young consumer by giving its brick and mortar presence a digital push. “This potent combination of range and reach is the basis of our unique hybrid strategy. Our online platform provides consumers with speed and simplicity whereas our offline network delivers convenience and reassurance through personal interaction,” says Abraham Alapatt, Chief Innovation Officer & Head – Marketing and Service Quality, Thomas Cook India. While digital is a focus area, Thomas Cook India has no plans of abandoning their brick and mortar presence. Alapatt says, “Tier II and Tier III markets are powering the Indian travel growth story. For people from these areas, often first time overseas travellers, it is the hand-holding and reassuring human contact that plays a critical role in closure of sale. Hence, we are focusing on brick and mortar expansion in these potential high growth emerging markets.”
Joshi of Infiniti Retail says, “We look at cromaretail.com as an additional vehicle to reach our customers, it is not the only means for us. We will always have an omni-channel strategy.” While MotoG did a brilliant job of launching exclusively on Flipkart, Joshi doubts a higher priced product such as iPhone would perform similarly. He says, “A lot of cities and towns in India still haven’t experienced what brick and mortar stores such as Croma and e-zone have to offer. Products such as a television or washing machine that involve an emotional connect and lengthy pre-purchase decision will continue to attract offline buyers.” However, an online presence has certainly helped Croma. Joshi says, “Working in partnership with online players such as Amazon has resulted in sales of more than a crore per week.” Observing a unique retail trend, he continues, “From Monday to Friday, online traffic is very high between noon and 4 pm and our offline stores continue to do well on weekends.”
Like Thomas Cook India, the clicks and bricks strategy is helping sportswear brand PUMA to cater to consumers with varied shopping preferences. Rajiv Mehta, MD, PUMA South Asia says, “A bricks and clicks model works well to help us serve customers in all age groups with different shopping behaviour, enabling us to present our brand in its full strength to a larger audience.” PUMA started its online operations through a standalone e-store in early 2012. Since then, the brand has seen an almost double month on month growth in traffic and sales.
Whether consumers make a purchase online or not, the ease of access that digital provides is turning online into the point of initiation in almost every consumer’s buying decision. Today, if a consumer has the whim to buy the latest smartphone at an odd hour like 3 am, it is possible for him to initiate the process and either complete the transaction online or the next day in-store. The contrasts present within the Indian consumer base make it certain that brick and mortar is nowhere close to being banished from the retail space. However, a hybrid model of bricks and clicks helps keep businesses in tune with changing market demands and provides consumers with an all-round shopping experience.
BRINGING SMBS ONLINE
When launching the India Get Your Business Online programme last November, Rajan Anandan, MD, Google India, noted: “While India is home to an estimated eight million Small Medium Businesses, only about 5% have a website.” Online players recognize the fact that India has a dominant business community which could use help in bringing their business online. “Businesses often believe that getting online is too complex, costly and time-consuming; this perception prevents many SMBs from taking the first step towards building an online presence,” says Anandan. Google’s India Get Your Business Online programme offers free website, domain and hosting services to SMBs. Designed with local partners, the programme provides businesses the tools and resources needed to establish a website, find new customers and grow their business.
Last year, Amazon India launched an SMB Accelerator with the sole purpose of helping SMBs get online. Amit Agarwal, VP & Country Manager, Amazon India, says, “Considering that there are a vast number of entrepreneurial SMEs who have never sold online but have great product selection and are motivated to grow, we are working hard to help them succeed online.”
Feedback: henna@exchange4media.com
