At a recent round table meet in Delhi, the top management of one of India's largest marketplaces, Snapdeal.com, were all smiles conveying how product categories sold online are increasing and next on their list is selling bathroom fixtures on the web store. The 30,000 sellers on their platform will soon burgeon to more than 1 lakh. The expanding online seller and buyer base is also revamping the website, from English only to offering Hindi and Tamil interfaces as well.
"Around 60% of our sales are beyond the top 10 cities. Our reach is more than that of organized brick-and-mortar retail. We believe online shopping business will be bigger than offline retail by 2015," said Kunal Bahl, co-founder, Snapdeal.com, whose list of investors include eBay, Temasek, Black-Rock, PremjiInvest and other venture funds. Bahl feels this growth will be driven mostly by tier II shoppers and beyond. In these areas (like Mysore, Nagpur) organized retail has limited or no presence.
In Mumbai, Kishore Biyani, founder CEO, Future Group, one of the country's largest brick-and-mortar retailers, is unfazed by competition from online startups. "Online selling, the way venture funded startups are doing it, is a gross margin negative business and not sustainable. I don't see ourselves competing with online sellers as both models — online and offline — will converge. Not everything will be sold only online or only offline."
In the $490 billion India retailing business organized brick and mortar retail and online shopping account for less than 10% or about $35-40 billion of the pie at present. In a decade, consultancy firm Technopak estimates organized retail — both online and offline — will be a little over $200 billion and both formats are trying equally hard to get a larger share of the buyer's wallet. The likes of Jabong, Flipkart, Amazon are honing algorithms to sharpen their knowhow on what the shopper is looking for; and the likes of Future Retail, Croma and Shoppers Stop are moving to omnichannel models — selling both on and offline — while improving the experience of shopping within their stores.
Says Ajit Joshi, MD and CEO, Infiniti Retail (which runs Croma stores), "In India people are yet to experience good shopping (a mall experience and large stores). It's not that people will buy everything online. While there is growing competition from online retailers, the brick-and-mortar stores are also expanding."
Croma has 97 operating stores, down from 101 six months back. Four non-profitable stores were shut down.
Online vs offline
In an expanding market both models have room to grow, each offering its unique strengths and weaknesses. Online scores on reach, shipping products to remote corners of the country, while offline is a largely urban, big city phenomenon. According to Technopak, 56% of the business of organized retailers comes from top 24 cities, while for web stores, the buyers are across the country.
Says Sachin Bansal, co-founder and CEO, Flipkart.com, "E-commerce solves the problem of access by making millions of products available to shoppers with a few clicks." Besides, online shoppers don't have time and place limits. On the other hand people going to shops get instant gratification, can touch and feel the products; and for some brands, like Zara, buyers have no choice but to purchase them offline. Adds Bansal: "Those who prefer to touch and feel products, and that is still a majority of shoppers, will go to the shops."
Biyani of Future Group believes any product that can be identified by a model number will be sold more online than offline. For instance, Motorola phones were sold online by Flipkart and not in any retail outlet.
While there is room for both models to exist and expand, each is looking at new ways to increase clicks and footfalls. Online sellers are adding new categories — what started with books and music now includes furniture and jewellery. For their part offline retailers, worried about business being hijacked by online startups, are selling via their own websites as well.
Omnichannel strategy
In Mumbai, Delhi and Bangalore buyers can shop on the Croma website and get products delivered the same day (if the order is placed before 2pm). The price they pay is similar to what they would if they walked into a Croma outlet. Croma products also get sold on marketplaces like Amazon.in and eBay.in. Says Joshi: "We have an omnichannel strategy. Online is another arm of Croma. But the prices on our site and in our stores will be the same."
Adds Biyani: "We see a convergence of models — physical and digital stores will converge. That's the next round in retailing. There are some products that will be sold online only (like computers, smartphones and books). We will unveil our omnichannel strategy in September." Sites like Jabong.com also sell Future Group products.
However, when selling from their own sites retailers like Croma and Future Group will not offer discounts over their shopfloor prices, and this is where pure online marketplaces have an edge.
Says Pragya Singh, assistant vice president, retail and consumer products, Technopak: "E-tailers will overtake offline retailers in some product categories. The challenge for brick-and-mortar is high rentals — 1.5x to 2x more than the global average. Offline scores in experience, touch, feel and instant gratification. Products like grocery (about 55% of retail) are more likely to be sold offline."
Online marketplaces are new to India, the trend having picked up only in the past 12-18 months. Global trends favour traditional retailing more than online shopping. For example in the US, China, South Korea online selling is less than 15% of the total retail business. In India it is 0.2% of organized retail, and despite a 50% growth rate per year (according to Technopak) online retailing will account for just about 5% of organized retail by 2023.
In the US, Dixons and Best Buy continue to be large retailers of electronic products. Says Joshi, "They did close unprofitable stores and that's the strategy we will follow in India. In mature markets penetration of online is not more than 10-11% and we see a similar trend here."
Adds Vishal Tripathi, principal research analyst, Gartner, an advisory firm: "The price advantage is with online marketplaces. Offline retail cannot afford to sell at lower prices (due to high real estate costs and overheads). However, there are products which will be sold more offline (like high-value items) rather than online."
Big ticket items sell offline
Even as the two models coexist and brick and mortar retailers go in for convergence, a differentiation is set to emerge on the type of products that can be sold on either platform. For example buyers are less likely to purchase a curved or flat TV or a sofa set or a car online. And recent notices by companies cautioning customers on buying certain products online could deter purchases from web stores. For example, recently Chinese smartphone maker Gionee cautioned customers about buying online.
Says Arvind Vohra, country head, Gionee India: "There's no price sanity online. A Rs 14,000 phone in a shop could be Rs 12,500 on one site and Rs 9,000 on another! We do not authorize websites to sell our products. They pick smartphones directly from the market and sell online. There is no service warranty arrangement with online sellers."
Late last month, carmaker Renault cautioned buyers on shopping online. A Renault public notice in newspapers (on May 29) stated: "Renault only sells via authorized dealers. Online marketplaces are not a part of our authorized dealer network." A Renault India spokesperson told ET Magazine that the company does not sell online "although 15-18% of lead generation does happen online, via our sites, actual car sales happen only though our authorized dealer network."
Adds Praveen Bhadada, director, Zinnov, a consulting firm: "For standard products (like diapers or pen drives) buyers will go online. For others (like designer clothes) they will go offline. Despite the growth of marketplaces, there are concerns among buyers on what they get, particularly for expensive items."
At present both models are working on their strengths and increasing the appeal of their web stores, apps and physical stores. Snapdeal has 250 people in its engineering and products team, which manages the online platform. This team is set to double. Meanwhile, the likes of Infiniti Retail and Future Group are looking at models that will increase footfalls. Says Joshi: "Technology is moving fast and so is the consumer — we need technology to improve the shopping experience."
Online sites like Jabong.com and CaratLane.com are using digital models, avatars and videos online to show prospective buyers how designer clothes and jewellery will look when worn. Offline retailers are looking at smart mirrors (that do away with the need to try out multiple clothes) and augmented reality to make it easy to navigate around stores and check out multiple items. Says Joshi: "Retailing is a sunrise industry. There's plenty of room for all models to co-exist." At least in the short term.
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