Con­sumer elec­tron­ics firms in In­dia tap dig­i­tal-first strat­egy for growth

The Pak Banker - - BUSINESS -

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.

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