The Offline Online Conundrum
Samir Alam digs deep into the camaraderie between online and offline sales in the textile and apparel industry and how it affects business on the whole.
Consumer retail in India is one of the fastest growing markets in the world. According to the India Brand Equity Foundation, India is also the fifth largest preferred retail destination in the world, with a Compound Annual Growth Rate (CAGR) of nearly 17 per cent over 2015-2020. These estimates project the USD 630 billion retail sector (2015) to reach well beyond USD 1.3 trillion by 2020, ballooning the overall national consumer spending figures to USD 3.6 trillion.
However, despite the general optimism and upward trends being observed over the past few years, the debate of the times remains the inherent conflicts and
competition between old-school traditional retail model and the emerging power of online retail platforms. There have been numerous theories on how this struggle will play out with the ever increasing reach of internet penetration and mobile technologies, but there has yet to be a decisive outcome. Is the competition between the two a zero-sum game where only one will triumph over the other or is the reality more complex? We take a look at the landscape of offline and online retail in India and present our findings.
GROWTH ON ALL FRONTS
The first half of 2016 showed us that investment in the retail sector reached the highest levels since 2008. With nearly USD 512 billion in private equity flowing into this sector there remains no doubt that market optimism is high. This is an especially fair conclusion since the retail industry in India was approximately USD 3 billion in 2014 and has already reached USD 30 billion in 2016, with further projections of it reaching to USD 100 billion in 2020.
Industry reports also show that India is the highest in the world in terms of per capita retail outlet availability which contributes to the exponential growth witnessed and expected from the sector. This thriving retail development has spread well beyond major metropolitan cities and now also extends to Tier-II and Tier-III cities across the nation. The various contributing factors such as broad economic growth, the youth-oriented demography, rising disposable incomes, international lifestyle aspirations by consumers, spreading urbanised infrastructure and the proliferation of telecommunications technologies, are all major drivers of rising retail growth within the market.
The significant aspect still remains the consumer attitudes of the ever increasing number of consumers in the country and the portion of whom are constantly expected to shift to digital channels. In this respect, the online retail market is expected to grow as well to over USD 70 billion in 2020. This is supported by research from Google India, that demonstrates that over one-third of online search queries in India are consumer related with 65 per cent year over year growth in interest. With over 40 million online shoppers in 2016 expected to reach 250 million in 2020, the corresponding online retail market is sure to grow. This is further emboldened by the over 500 million internet users and 280 million smart phone users expected by 2018.
Within the apparel industry the estimated consumer market size in 2016 was over USD 70 billion with over five per cent being driven by digital channels. Research from the Boston Consultancy Group and Facebook estimates that apparel over digital will reach nearly USD 14 billion by 2020. These national trends have already been observed by international investors and business’ who wish to profit of the emerging market, resulting in more aggressive expansion and growth oriented strategies.
Foreign and private apparel manufacturers have, for the longest time, utilised India as a major sourcing location but are now also looking at it as a profitable sales destination. The price competitiveness has attracted retailers such as Walmart, GAP, Tesco and JCPenny to increase their sourcing from India and establishing their own wholly-owned and managed offices in the country. On the other side of the equation, major apparel retailers such as GAP, H&M, Zara and many others have also begun to spread across the national landscape to capture more domestic consumers by opening new stores and ramping up their online presence.
FOREIGN AND PRIVATE APPAREL MANUFACTURERS HAVE, FOR THE LONGEST TIME, UTILISED INDIA AS A MAJOR SOURCING LOCATION BUT ARE NOW ALSO LOOKING AT IT AS A PROFITABLE SALES DESTINATION.
However, the largest apparel retail outlets in India, at present, remain offline. India currently has over 14 million traditional retail outlets with consistent growth in their numbers. According to research by credit rating agency CRISIL, the largest of the brick-and-mortar retailers in India are expected to grow by 13-15 per cent by 2020, continuing on the 24 per cent CAGR over the period of 2010-2015, so far. This is consistent with the expansion and growth oriented policies that major brands have adopted for the future.
On the digital front, Google India Research estimates that by 2020, apparel will make up USD 35 billion of e-commerce sales in India, which presents it as an ever ready threat to the offline business operations of today. The concurrent growth of platforms like Flipkart, Amazon, Snapdeal, Myntra and others, also points to this phenomenon and is calculated at about 60 per cent growth for online retailers on the whole during the period of 2010-2015, with
R40,000 crore in revenue for 2015. In general, both sides of retail are in a neck to neck race to grow their consumer base for the future.
OFFLINE TO ONLINE/ONLINE TO OFFLINE
While many believe that online and offline retailers are in direct competition to each other, there is a far more intricate dynamic at work. Traditional retailers are focussing their growth by spreading to newer markets, diversifying their sales channels and aiming to increase profitability over revenue. This strategy is creating an interesting mix of retailers in India, which are being classified as being part of the ‘ offline to online’ space.
Offline to online or O2O is fast becoming a buzzword in digital sales but it simply means that traditional retailers are utilising digital and mobile technologies to drive sales. This isn’t very surprising since the use of digital sales channels doesn’t require the complete closure of brick-and-mortar operations for a retailer. By utilising these technologies, offline retailers are able to access consumer data, while at the same time making themselves visible to consumers across channels. And since consumer tendencies vary; from ‘ browsing online, buying offline’ to ‘ browsing offline, buying online’ and everything in between, retailers are able to ensure their brand doesn’t remain unseen.
Offline retailers are also counting on innovations in digital to help their brick-andmortar operations. Through the use of O2O technologies such as ‘ beacons’ which allow them to execute location-based advertising, retailers can “push” coupons, discounts and offers, to potential consumers as they physically approach their stores by means of wireless signals to their smart phones. This form of realtime location specific targeting of consumers is advantageous to retail stores to attract specific customers in a timely manner.