With India being a unique market, it has a place for both online and offline players.
Last week, a lobby for India’s brick-and-mortar retailers pulled the Government to court. The Retailers Association of India (RAI), which describes itself ‘the unified voice of Indian retailers,’ argued in its petition that there needs to be a level-playing field in foreign direct investment (FDI) rules for retail. It believes there isn’t one.
Here’s why: current rules place restrictions on FDI into retailers that sell to customers. E-commerce players (the likes of Flipkart and Amazon), the lobby says, bypass those rules by presenting themselves as marketplaces, or technology platforms that don’t sell to customers but enable others to do the selling. The offline retailers can do no such thing.
In recent times, global capital has been elusive or plenty depending on which side of the digital divide you are in the retail industry. The offline retailers have hardly got a taste of it while the e-commerce players can’t just have enough of it. Unfortunately, for the offline retailers, the enormous flow of capital is the fuel that powers huge e-commerce discounts and threatens their time-tested business model.
The Delhi High Court, which was approached by the retailers, has asked the government to consider their plea and get back within four months. But even as the situation presents itself as an offline versus online battle, experts point out their paths are already converging. In other words, they have to learn so much from each other in order to be relevant in a complex market like India.
“That point is already here,” says Ashish Jhalani, founder of e-commerce knowledge platform eTailing India.
Offline players realise they need to be relevant in a market where increasingly price and ease of shopping seem to matter. So what if the world’s youngest population (India) doesn’t have much access to broadband – mobiles are ubiquitous. And so what if money transactions over the internet are rare – e-commerce companies are absolutely fine with cash paid on delivery.
Online players are also more efficient in stocking and moving stock, and use data and analytics to better understand the customer. Add to this the fact that e-commerce companies, despite making huge losses, seem to have a free-flowing pipeline of capital.
“Only one per cent of the retail market in India is online. Still, it has a huge impact on pricing. It affects the 99 per cent that is offline,” says Jhalani. The online juggernaut will continue to roll, if market estimates are anything to go by. Goldman Sachs, in a recent report, estimated India’s e-tail market to grow nearly seven times to $47 billion by 2020.
The tide seems to be with the online companies, if valuations are any indication. Flipkart, for instance, is reportedly now valued at $15 billion, more than ten times that of retail pioneer Kishore Biyani’s businesses.
But that’s just one side of the story. Online players need a lot of offline traction too. Arvind Singhal, Chairman of retail advisory firm Technopak, has been suggesting that e-commerce players should make acquisitions of offline brands. They should not only try to build private labels, he says, but also see if they can connect physically with the customers, both areas where offline players know a trick or two.
There are examples to show how even in developed markets online players can’t really ignore the offline route. Earlier this year, Jeff Bezos’ Amazon opened a pick-up and drop-up facility on the campus of Purdue University, Indiana. In China, media reported last year how Alibaba paid $692 million to buy a quarter of the shares of department store chain Intime Retail. Both markets are far more advanced in the e-commerce space.
China’s Alibaba is the most valuable e-commerce company in the world. And the 21-year-old Amazon has so much momentum in creating technology that makes e-shopping hassle free that it hardly seems to matter that it makes just about fifth of the old-world biggie Walmart’s revenues. Even as brick-and-mortar players folded up in the US, with the onslaught of e-commerce ones, especially Amazon, the likes of Walmart have tried to up their online game. The latest is to an attempt to even better Amazon’s successful free-shipping based programme. That’s even as Walmart sharpens its traditional business. Their rivalry – consisting of talent poaching and lawsuits – showed its aggressive streak even as early as the late ’90s.
India is a completely different market, with a miniscule but extremely aggressive online marketplace. The huge offline market is predominantly an unorganised market. Only about 12 per cent is controlled by the organised retail players. Mr. Singhal says that, of India’s this year merchandise of $550 billion, the top eight players (online and offline) would account for just $30 billion. The unorganised nature adds more complexity to the industry.
Starting last year, the focus has been overwhelmingly on e-commerce companies. There have been big ticket investments, including the $1 billion into Flipkart by investors led by Tiger Global in July 2014. That was a gateway for more billions to flow in. Then, there have been huge billion dollar investment commitments – Amazon and Softbank, for example.
In recent weeks, though, the offline players have finally managed to shift the spotlight on themselves, thanks to some consolidation by the big players. The reference is not only to the big merger between Bharti Retail and Future Retail but also to Aditya Birla’s acquisition of Jubilant’s retail business.
Offline plays a crucial role in the mix, as a KPMG report last year highlighted. The term to emphasise is ROBO (or research online and buy offline). The report started off asking, “Why does London tailor Archer Adams have a branded black cab customers can book to take them to the store?” It then went on to point out how people who ROBO spend three to five times more than when they shop through the website, ascribing the fact to research done by IDC Retail Insights.
That’s why every retailer wants multiple and seamless touch-points with the customer. In retail jargon, it is called omni-channel. Kumar Rajagopalan, CEO of the Retailers Association of India, sees an attitudinal change amongst traditional retailers. He says retailers are getting serious about brands and positioning, mindful that the customers have more information than ever. And he’s confident the offliners could play the online game well. There’s nothing to fear technology. It’s only getting a lot cheaper, he says.
| 1. | The huge offline market is predominantly an unorganised market. Only about 12 per cent is controlled by the organised retail players. |
|---|---|
| 2. | Only one per cent of the retail market in India is online. Still, it has a huge impact on pricing. It affects the 99 per cent that is offline. |
| 3. | Goldman Sachs, in a recent report, estimated India’s e-tail market to grow nearly seven times to $47 billion by 2020. |
sriram.srinivasan@thehindu.co.in
