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.

Apparel - - E-Space News -

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.

AP­PAREL RE­TAIL

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.

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