THE BEST OF BOTH WORLDS DRIVES THE FUTURE OF RETAIL IN INDIA
▶ The popularity of bricks-and-mortar shopping lets it co-exist with e-commerce. Rebecca Bundhun reports
E-commerce giant Amazon is striving to make inroads into India’s bricksand-mortar retail sector. A deep-rooted preference for shopping in physical stores in the country means that online companies are having to adapt their business models in an effort to win over Indian consumers.
Amazon, which has already made investments into offline retail in India, is understood to be looking at buying a stake in Future Retail of Mumbai, which has brands including Big Bazaar, and boasts more than 1,000 shops across about 300 cities in India.
“The fact that online ‘biggies’ like Amazon and Alibaba are investing in offline stores indicates that bricks-and-mortar business is not going [to decline] in spite of the online assault,” says Anuj Kejriwal, the managing director and chief executive of Indian property consultancy Anarock’s retail division.
“When customers want an experience, they come to stores. Thus, online and offline retail have started working together.”
India may have one of world’s fastest-growing e-commerce markets, helped by the rise of smartphone use, enabling more of the population to access the internet.
But forecasts show that the bricks-and-mortar retail story is not dying out in a country with a fast-growing middle class, a young demographic and rising consumer spending.
Online sales accounted for just 2 per cent of retail sales in the country in the financial year to the end of March last year, according to Morgan Stanley. In 10 years, it forecasts that sales made over the internet will still only account for 12 per cent of the overall retail market.
But the potential of India’s e-commerce market, in a country of more than 1.3 billion, is too big to ignore. Amazon – which is investing $5 billion to expand in India – is fighting homegrown market e-commerce leader Flipkart for a bigger share of the market. Amazon has its work cut out after US retail giant Walmart this year invested $16bn to snap up a majority stake in Flipkart.
India’s e-commerce market is growing by 30 per cent a year in terms of gross merchandise value and is expected to be worth $200bn by 2027, Morgan Stanley’s figures show. Amazon, according to the Economic Times newspaper, is negotiating to pick up a 9.5 per cent stake in Future Retail. Negotiations are under way and a deal could be announced soon.
Amazon last year took a 5 per cent stake in Indian department store chain Shoppers Stop and in September it was revealed that it, along with private equity firm Samara Capital, was buying Aditya Birla group’s food and grocery retail chain More.
“We think a hybrid retail model, one that combines the digital power of e-commerce with physical retail’s infrastructure and service capabilities, is a win-win arrangement,” analysts at Morgan Stanley wrote in a recent report on the future of India’s retail market.
The data on shopping trends that can be acquired through physical stores could be invaluable, it adds.
“Hybrid retail, armed with greater knowledge of shoppers based on ordering patterns, has the ability to recommend brands for substitution in the shopper basket,” the report says.
China’s mammoth e-commerce firm Alibaba is also looking to grow its presence in the physical retail market in India.
Paytm Mall, an Indian e-commerce company in which Alibaba has invested, bridges online and offline retail, allowing customers to browse products in physical stores and scan codes to make purchases on its app.
“Today offline stores drive over 60 per cent of all sales on our platform,” according to a blog post by Paytm Mall on its website.
“We aim to triple our offline presence by the end of 2019. We believe that with a size of 15 million retailers, online-to-offline retail is the way forward in India.”
Mukesh Ambani, India’s richest man, who is the chairman of conglomerate Reliance Industries, has also talked about plans for his group to launch “a hybrid, online-to-offline new commerce platform”.
Sandeep Dahiya is the director and business head of brand extension at Bennett, Coleman & Co, a media conglomerate which has invested in Flipkart and owns a fashion brand called Femina Flaunt.
“I think that what India is witnessing is exciting times for both the offline as well as the online retail space,” says Mr Dahiya. “They’re changing the landscape and business modes.”
In India, the physical retail market is dominated by unbranded, unorganised retail. But in developed markets such as the US and Europe, retail is primarily made up of
Liberalisation of retail investment policies in India have helped to bring in more global retail brands