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Business News/ Industry / Retail/  Brick-and-mortar retailers rush to expand online
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Brick-and-mortar retailers rush to expand online

As brick-and-mortar chains fall behind e-tailers, they are looking to adopt an omni-channel approach to stay in the game

The share of trade in retail would slip from 17% in 2013 to 13% in 2019, while that of e-tailers would rise from 2% to 11%, according to a report. Photo: BloombergPremium
The share of trade in retail would slip from 17% in 2013 to 13% in 2019, while that of e-tailers would rise from 2% to 11%, according to a report. Photo: Bloomberg

On 24 July, declaring its results for the June quarter, Reliance Industries Ltd (RIL) said it would launch an e-commerce marketplace to take on Flipkart, Snapdeal and Amazon, joining an increasing number of brick-and-mortar retailers going online.

Earlier in the year, retailers DLF Brands Ltd, a unit of DLF Ltd that retails Mango, Mothercare and Forever21 in India, and Arvind Ltd, which manages brands such as Gap, Arrow, US Polo and Calvin Klein, also announced plans to launch online marketplaces.

Suddenly, everyone wants to be online.

“The vision is to cater to the masses and we can penetrate those markets through online now. With our stores, we cater only to SEC A and B consumers," says Dipak Agarwal, chief executive officer, DLF Brands.

The future is online, and retailers have to go where the consumers are, he reasons.

For perspective, Bata India Ltd, India’s largest footwear retailer with a presence in the country since 1932, is only in 500 towns. Raymond Ltd, which was set up in 1925, is in 400 towns.

RIL’s retail arm Reliance Retail has a network of about 2,600 stores across 200 towns and Future Group, the parent of listed retail companies Future Retail Ltd, Future Fashions Lifestyle Ltd and Future Consumer Enterprise Ltd, with chains such as Big Bazaar, eZone, Easy Day and Nilgiris, is present in 244 towns with 1,200 stores.

Meanwhile, flush with investors’ money, e-tailers have already made inroads into the interiors.

Snapdeal, which has 150,000 resellers, plans to increase its base to 1 million resellers in three years. Over 70% of its sales come from tier-II and beyond, said a company spokesperson. It has already reached 5,000 towns and cities across India, the spokesperson said.

Flipkart delivers to 1,100 cities through its 30,000 sellers and plans to reach 100,000 sellers by year end.

In two years since its inception, Amazon, which has outlined plans to invest $2 billion to expand in India, has close to 100,000 sellers registered with it.

The investments by investors in e-tail are equally large. Investors have ploughed in more than $4 billion in Internet businesses in 2014, and that amount is expected to be significantly higher in 2015, Mint reported in a 17 April story.

These numbers are indicative of what Reliance Retail would need to do reach its target of 150,000 small retailers registered on its marketplace.

Physical retailers have experience and supply chain capabilities. What they lack is technology understanding, according to experts.

“This can be built organically by hiring people or through acquisitions," said Amitabh Mall, partner, The Boston Consulting Group, while explaining that for retailers, the online marketplace will be one more sales channel and will allow them to offer consumers another shopping route.

Reliance Retail is also rolling out e-commerce initiatives for the fashion and lifestyle formats before the end of the year. The oil-to-yarn conglomerate is also piloting an e-commerce initiative in grocery, www.reliancefreshdirect.com which competes with online grocers such as bigbasket and localbanya.com.

All these initiatives come at a time when the company is also in the midst of rolling out its fourth generation (4G) telecom service from December.

“Reliance will also leverage its retail reach by integrating its existing Digital and Cash & Carry formats into the marketplace platform," the company said in its June earnings presentation.

Retailers are looking to adopt an omni-channel approach to ensure a seamless shopping experience for a customer, whether he or she is shopping online using a desktop or mobile device, by telephone, or at a bricks-and-mortar store.

Retailers such as Future Group, Shoppers Stop Ltd and Lifestyle International Pvt. Ltd also have partnerships with e-tailers such as Amazon, Snapdeal, Myntra and Jabong to sell their brands online to a wider consumer base.

Going digital is an imperative. E-tail is growing at a faster clip than brick-and-motar retail. The share of modern trade in retail would slip from 17% in 2013 to 13% in 2019, while that of e-commerce companies would jump from 2% to 11% in the same period, according to ‘Think India, Think Retail,’ a February report published by property advisor Knight Frank India Pvt. Ltd and lobby group Retailers Association of India.

Rising competition from the e-commerce companies has dented Reliance Retail’s earnings, said analysts who were disappointed with the tepid numbers for the unit in the June quarter. “Income fell to 4,698 crore in Q1, against 4,788 crore in Q4. Thanks to stiff competition seen from E-Commerce," said S.P. Tulsian, an independent investment advisor, in a note released on Friday.

Considering capital employed of 6,280 crore in retail, annualised pre-interest and pre-tax return of 7% is “extremely pathetic," he said.

However, it will not be easy to take on the e-tailers. Retailers have already burnt their fingers in the past when they took on debt to expand and learned the hard way to focus on profitability.

The norm for online retailers is offering discounts and promotions to gain traction.

This requires a mindset change. “Though it is too far-fetched to make a comment, but what can give us some indication is that retail is a customer-focused business and RIL will have to do what others have done successfully in the sector," said an analyst with an international brokerage.

“If RIL is changing its focus from being a solely business-to-business driven company to a customer-focused company, then it is obvious it will change its approach also," said the analyst, who didn’t want to be named.

That means Reliance Retail would have to match online retailers’ strategy of offering huge discounts to attract shopper, he said.

The key to sustaining promotions and discounts is investors’ money, which has a time frame. “The funding will soon dry out. It’s a matter of time," says Mall of BCG. Once that happens, some online retailers will have to shut, and the discounts and promotions will start to thin.

To be sure, consolidation has already started. In February, the Mahindra Group acquired babyoye.com while restructuring its retail business. In the same month, the Godrej Group acquired Ekstop.com, an online grocery ordering and delivery platform that it merged with its retail chain Nature’s Basket.

For e-tailers, the going is to get tougher.

“Now that conglomerates enter the fray, competitive intensity will further increase. “The existing companies will have to match up to them (conglomerates). They have a solid base," said Anil Tareja, a partner at Deloitte Haskins and Sells.

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Published: 28 Jul 2015, 11:55 PM IST
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