Consumer electronics firms in India tap digital-first strategy for growth
Consumer electronic brands are starting to opt for exclusive partnerships with e-commerce platforms such as Snapdeal and Flipkart to differentiate their product lines, seeking to replicate the online success of mobile handset manufacturers such as Xiaomi Corp. and Motorola Solutions Inc.
New brands as well as old ones that are attempting a comeback are seeking such tie-ups, which make sense for e-tailers as well because they allow for better profitability. At Snapdeal, the number of such partnerships and their contribution to sales has already become substantial.
"Depending on the category, exclusive partnerships are contributing 10-30% of sales," said Tony Navin, senior vicepresident of partnerships and strategic initiatives at Snapdeal, run by Jasper Infotech Pvt. Ltd. This will only increase in the coming years as brands from China, Europe and the US are looking at launching in India online, Navin said.
On 2 February, Chinese brand LeEco, formerly known as LeTV, launched two smartphones in India-the Le Max and Le 1s. The launch on Flipkart saw 605,000 registrations and 70,000 Le 1s were sold in two seconds of the flash sale going live, Flipkart said in a statement. The second flash sale on 9 February saw a record 95,000 orders placed within 20 seconds for Le 1s.
"The exclusive partnerships with mobile manufacturers have been profitable for us," said Sachin Bansal, executive chairman, Flipkart, at the Retail Leadership Summit on 11 February. E-tailers are expected to see an increase in their losses in FY2016 over the year-ago period as most companies invested aggressively in customer acquisition, said a 25 January report by Kotak Institutional Equities, which pegged the losses for the three largest marketplaces (Amazon, Snapdeal and Flipkart) at about Rs.5,000 crore combined in fiscal 2015-an almost 5x increase from the fiscal 2014 losses of Rs.1,090 crore.
Exclusive partnerships with e-tailers are also finding favour with consumer durable brands such as Sansui Co. Ltd and BPL Ltd, whose market share and revenue have been on the slide. Sansui's share of the television market has fallen from 7.9% in 2006 to 0.4% in 2015, according to a Euromonitor report. Meanwhile, BPL Ltd's revenue has declined from Rs.134.58 crore in fiscal 2013 to Rs.30.55 crore in fiscal 2015, according the company's annual earnings report.
Some of the decline in BPL's revenue is also attributed to the company hiving off its healthcare business in August 2013. As the company now looks to get back on the growth track, it has pulled out of brick and mortar stores since July 2015 and is testmarketing an exclusive partnership with Flipkart. "Online sales are picking up at a rapid pace. We are confident that within this year, our online sales will cross the offline business volumes," said Ajit Nambiar, chairman and managing director, BPL, in an email response to queries from Mint.
Nambiar said that both Flipkart and BPL were working hard to ensure that BPL television sets make up for 10-15% of all TVs sold on Flipkart by the yearend. Likewise, in August 2015, as Sansui looked at diversification for growth, it chose the online route for entering the air conditioner segment.
"The strategic tie-up with Flipkart helped us in cutting cost drastically, the benefit of which has been passed on to our customers. We have received a good response for our ACs and registered a 30% sales growth month-on-month. Now that the (summer) season is around the corner, we are expecting a 300% increase in sales by March," said Amitabh Tiwari, chief executive officer, Sansui, in an email.
In offline retail, brands need to maintain huge inventories and incur significant storage costs. Real estate costs have risen so sharply that rentals in major Indian cities are comparable with global metropolises such as Tokyo and London. Despite such high real estate costs, the purchasing power in India is significantly lower than in developed countries, resulting in lower cost recoveries.
"International retailers have average sales of $120-180 per square foot (per annum), whereas Indian retailers average $22-38," said a January report by Deloitte Touche Tohmatsu Ltd. The report said that with increasing adoption of e-commerce in India, digital-first brands (that can only be bought online) will experience strong growth across categories like fashion, furniture and jewellery.
India's e-tail sector is estimated to grow from $4 billion in 2014 to $47 billion by 2020, as annual user spending doubles and Internet users increase fivefold, said a September report by India Infoline Ltd (IIFL). The high growth is seeing brands from categories such as consumer staples, fashion, furniture and jewellery besides consumer electronics and mobile phones look at exclusive product lines and offers that help them reach the online consumer.
"The online consumer is slightly different from offline, the interest and demand online could be different from offline. Therefore, brands are coming up with products specifically for online segments," said Navin. Other segments are following the strategy adopted by mobile phone manufacturers, he said. For instance, when consumer durables manufacturer Haier Electronics Group Co. Ltd, known for its televisions, refrigerators, washing machines and large appliances, came up with a mini washing machine called Haier CODO, it required a different go-to-market strategy.
"The Internet generation tends to be always on the move, and the product is a right fit for them," says Haier India president Eric Braganza, who partnered with Snapdeal to target them. Exclusivity also works for manufacturers because it prevents their brands from being discounted online. "If the brand is available across channels and multiple e-tailers, then consumers tend to compare prices. Then discounts/promotions become the compelling reason to buy online," said M. Chandru Kalro, managing director, TTK Prestige Ltd, a maker of kitchen appliances that is working on specific plans for different sales channels.
Companies will get increasingly selective about platforms they sell on, said Anil Talreja, partner, Deloitte Haskins and Sells LLP. "Companies are doing costbenefit analysis and understanding where their sales are coming from and accordingly planning their budgets.