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Reinventing retail
<b>With the growth of online shopping, traditional brick-and-mortar retailers need to evolve rapidly</b></p><strong><a href="
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A recent report by Technopak, Emerging Trends in Retail and Consumer Products 2013, states that the Indian retail market, currently estimated at $490 billion will grow at a CAGR of 6 per cent to reach $865 billion by 2023. The report further states that e-tailing will emerge as a key retail channel, which will drive the growth of corporatised retail. To be precise, the size of e-tailing is estimated to grow from the current $1 billion at 0.2 per cent of the retail market, to $56 billion (in real terms) at 6.5 per cent of the total market by 2023, driven by an ecosystem favouring the e-tailing market. What will, in fact, fuel the growth of corporate retail in India (it currently holds 8 per cent share of Indian retail and is slated to reach 24 per cent by 2023) will be e-tailing that will emerge as a key alternative retail channel, according to the report. In fact, <b>Technopak</b> predicts that the ecosystem creation for e-tailing will outpace the same for corporatised brick-and-mortar retail and its growth will offer many advantages to the Indian economy, besides bringing in immense benefits to consumers.
As is evident, retail analysts and domain experts not just in India but all over the world are beginning to sound a warning bell to brick-and-mortar retail. Many have started cautioning the big box retailers not to ignore the pure-play e-tailing companies that are fast developing an ecosystem and growing the corporate retail business at breakneck speed. While only a select few are profitable, all of them seem to be on an overdrive to acquire customers and keep them. In fact, the Technopak report quoted earlier states that brick-and-mortar will continue to face structural issues encompassing real estate, labour, sourcing and supply chain that will stunt the growth of the corporatised segment - it will, at best grow from 7 per cent currently to 17 per cent by 2023. The alternative retail landscape (direct selling, home shopping, and e-tailing) will continue to evolve rapidly. Of these, e-tailing is considered most compelling, with its growth pegged at 60 per cent annually compared to 20 per cent in direct selling and home shopping. ( CHALLENGES & OPPORTUNITIES )
Even globally, e-tailing is giving traditional retailers a run for their money. Battered and squeezed by the growing e-commerce business, many traditional retailers in various markets have been forced to shut shop. In Europe, according to a recent survey, one in five high street shops are expected to close in the next five years even as a third of the consumers do their shopping online. A recent article in The Economist summed up the phenomenon succinctly: "…it is tempting to conclude that shops are to shopping what typewriters are to writing: an old technology doomed by a better successor."
Against this backdrop, it is imperative that brick-and-mortar retailers reinvent themselves. Says Pankaj Gupta, practice head, consumer and retail, <b>Tata Strategic Management Group</b>, "Physical stores and retailers cannot avoid or ignore the online market. The online play has to be there." On their part, retailers cannot help but agree that it is time for them to go back to the drawing board and come back with a bang to win back consumers who once scouted and shopped at their physical stores.
<b>The Strategist</b> spoke to experts, some successful e-tailers, and to some of the more successful traditional retailers to find out just how to get their mojo back. We would also like to add here that despite repeated attempts to convince them, some of the big Indian retail companies, including Shoppers Stop, Westside, Landmark and the Future Group refused to participate in the story.
<b>The root issue</b>
Let's understand just why many of these successful retailers haven't managed to taste success on the virtual platform. First, offline and online markets work on very different principles and so the business models have to be totally different. Then, most e-commerce companies have succeeded in offering better price and a larger selection, something that offline retail stores are unable to match. So, while a typical offline retail store wouldn't change their shelves more than four or five times a year, online stores are making changes every day in their offerings, adding new variety and options. Third, brick-and-mortar's limited penetration in the smaller cities and towns where the aspirations of consumers are growing has created a sweet spot for this alternate retail channel to grow and thrive. Nearly half of the sales for e-tailers in India currently come from towns and cities beyond the eight metros. Even in the urban areas, where consumers are becoming increasingly "time poor", the quality of urbanisation (transport, accessibility, work-life balance etc) limits the consumers' ability to shop at will and so non-store retail formats are increasingly becoming a preferred choice to shop. According to the Technopak report, nearly 40 per cent of the orders placed on home shopping networks are placed between 11:00 pm and 6:00 am.
Some traditional retailers are taking note of these issues seriously. Lifestyle retail brand <b>Titan</b>, for instance, felt the heat but unlike the others who are perhaps still preparing their online blueprint, the company went live with its online store six months ago. The planning has taken two years and the online strategy will continue to be unveiled in phases, says Alokedeep Singh, head, e-commerce business, Titan Company. The company, he adds, drafted its online store script after a lot of research. "The DNA of an offline business model and an online business model are completely different," says Singh.
While some of Tanishq's products (the company's jewellery brand) were offered online earlier, the company felt it needed to have a 'unified' approach for all its categories, including watches, eyewear, jewellery, fragrances and so on. Singh says the biggest issue while going online was the prospect of cannibalisation given that the online model is largely discount driven. Titan took the difficult business decision not to have any price variation between the physical and the online stores. Singh says that Titan's online strategy is backed by omni-channeling, the system of marketing and selling products to shoppers through a seamless integration of platforms, including websites, mobile devices, television and radio, direct mail and even social media, in addition to physical storefronts. This helps in keeping a larger inventory and ensures faster delivery in certain cases.
Experts say that omni-channeling is one of the best ways that traditional retailers can compete with successful e-tailers. "For both physical and online stores to co-exist, omni-channeling becomes critical," says Gupta. Simply put, if the consumer goes to the retail brand's physical format store, finds the product that she is looking for, but not in the right size, she should be able to order it online (while standing inside the physical store) via the laptop, mobile, tablet etc and have it delivered at her door step. Or, for that matter, if she is sitting at home, browsing through a retail store's catalogue online, she should be able to order it and have the option of picking it up from the store within a matter of hours. In Gupta's view, retailers have to start identifying needs of the consumers in terms of service and convenience once they decide to go online.
The thing is, omni-channeling is expensive given that the transition requires a new software architecture that can combine online and in-store inventory.
Going forward, many predict that stores will need to be redesigned, team strength beefed up, and faster delivery mechanisms needs to be deployed that can handle packing and delivering orders without a hitch. Then, apps will also need to be developed for smartphones (Titan's on track on this) so that retailers can target customers appropriately and shoppers can track and browse products and the running promotions on them more efficiently.
Here, Indian retailers can take cues from some of the biggest international retailers who are working hard to stave off competition from e-commerce giants like Amazon and eBay. Companies like Nordstrom, Macy's and Wal-Mart Stores are using their stores as the points from which to ship products, to speed up delivery process. In fact, Wal-Mart now fills 10 per cent of its online orders that go to shoppers' homes from its stores. This allows Wal-Mart to optimise delivery and cut down on the attendant costs. The company is now looking at facilities wherein the products ordered by consumers can be picked up at kiosk-like locations that are strategically located without them having to visit any of the main stores.
Others like Kohl's, Macy's and Target, besides some specialty stores and teen chains, are also opting for the 'buy online, pickup in store' route for the seamless integration of the online and offline businesses. Then, in some markets, brands like GAP and Banana Republic are letting consumers reserve items online, even holding them for a set number of hours/days so that consumers can collect them from the stores at a pre-determined time. Tesco allows consumers visiting the stores to scan QR codes of products and get them delivered at home.
<b>The last mile</b>
According to Ajit Joshi, MD & CEO, <b>Infiniti Retail</b>, offline stores going online is a natural extension. "At Croma, the core idea to venture into e-commerce was to extend our reach beyond the boundaries of our brick-and-mortar stores," says Joshi. While the move has allowed Croma to service more than 250-plus smaller towns where he admits the brick-and-mortar stores couldn't reach, the company also allows its customers the option of ordering online and picking up the products from its 100-odd stores.
Aasheesh Mediratta, chief executive, <b>fashionandyou. com</b>, says traditional retail companies should act fast given that many people in the smaller towns and cities will move directly from unorganised retail to e-retail. So, if traditional retail reaches 40-50 cities, even 100-200 at the most over the next two years, online retail is already seeing sales from roughly 4,000 towns, maybe more, as we write this article. Fashionandyou, which sells an array of branded lifestyle products at a discount (products are changed on a daily basis here), works on a managed inventory model wherein it doesn't purchase products right away to be displayed on the site, instead it 'blocks' them and pay the vendor only after a confirmed sale.
Traditional retail stores can trump online by not laying emphasis on discounts but on repertoire, quality and delivery. A good strategy, say experts, is to offer 'basket discounts' on the number on items purchased.
Additionally, retailers can also offer incentives for customers when they go online. For example, a Mumbai-headquartered financial services company recently started charging a certain amount for services offline but gave incentives to consumers to migrate online. Gradually as consumers began adapting to the online interface of the company, it was able to reduce the size of branches and even relocate some branches to off-high street locations to save on real estate costs.
If a full-body plunge into virtual retail seems untenable, some retailers can think of exclusive previews and launches of products on successful e-tailing site to start with. Today we have examples of brands that create exclusive collections to be released only on sites like <b>Jabong.com,</b> says Manu K Jain, co-founder and managing director, Jabong. Offering 90,000 products and over 1,000 brands, the turning point for this company came when it understood that buying power was not restricted to customers in the metros but in Tier-II and Tier-III cities and towns as well. It was then that the company decided to create its own in-house logistics network. Simply put, the company not only does a thorough check of the products in the warehouses in-house, it also has its in-house delivery mechanism in place complete with delivery persons in different towns and cities who reach the products at the customers' doorstep. "This allows for better a turnaround time, tighter quality control, and the open box delivery wherein if the product is not to the customer's satisfaction, it can be returned," he says. Jabong already has a separate mobile site for its consumers to shop on the go.
Lifestyle brand <b>Puma</b> recently launched its own e-commerce website with the belief that buyers on multi-brand websites, who were invariably looking for better deals, were not necessarily engaging with any one specific brand.
Interestingly, some e-tailers are also keen on developing an offline presence. <b>Craftsvilla.com,</b> a popular site selling handicrafts products online, is already looking at an offline franchise route with roughly 50 stores in the next 12-18 months. These will be in the form of kiosks that will have a few sample products, but a laptop-totting salesman will be at call to take the consumers through the full catalogue on the website. "We don't undermine the touch-and-feel aspect that some of these products demand and our next milestone will be reaching out to first-time online consumers so we spot them early and enlist them as loyalists," says Manoj Gupta, co-founder, Craftsvilla.com, which has 30 lakh consumers and a selection of roughly two lakh products.
Evidently, the balance of sales and costs have changed, hence retailers have to look at their business and reinvent their trade. A key component of any growth strategy must remain driving incremental sales by reinvigorating their existing assets - the traditional brick-and-mortar outlets.
<b>EXPERT TAKE:</b> Pragya Singh
<b>A multi-channel transformation</b>
Even though the business of online is still nascent, the revenue numbers small, it is where the big daddies of traditional Indian retail need to focus. The trend of people shopping online is growing. The online business is far more dynamic than offline and operates real-time and has a wider reach. Brick-and-mortar retailers, therefore, need to explore the following strategies to stay in the game:
n Know the DNA: Understand well that the business of online is different from offline. The cost of technology is high and the biggest investment is on the technological interface. For starters, offline retailers can tie up with other online companies and third party distributors for their product range, delivery etc but the investment in technology cannot be neglected
n Adopt an omni-channel strategy: It is no longer the opportunity, it is now a necessity. Offline has to integrate seamlessly with online and offer the best to consumers.
This is a trend that will continue in the retail industry
* Leverage the strength of the existing consumer base: Look for diverse ways to encourage consumers to shop online
* Reinvent the stores: The physical format stores should start acting like mini-distribution centres. Invest in technological interface that makes it easier for consumers to enjoy a better shopping experience
* Look for ways to grow: Offer differentiation in products, look for exclusivity, encourage private labels and make the range more relevant to the target group. Integrate the the online experience with offline
Pragya Singh
Associate director, retail, Technopak</p><strong><a href="
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