Dig­i­tal-first brands and e-com­merce firms are the fu­ture

The Sunday Guardian - - Profile - TAPONEEL MUKHER­JEE

As the re­tail in­dus­try story un­folds in In­dia, new strate­gies come to the fore. Re­cent news of Ama­zon ac­quir­ing a stake in Fu­ture Re­tail is an in­di­ca­tion that the strat­egy will be dif­fer­en­ti­ated given the na­ture of the mar­ket and con­sump­tion trends. Ama­zon’s ac­qui­si­tion of a stake in Fu­ture Re­tail is in ad­di­tion to the stake it took in Shop­pers Stop, and the ear­lier Aditya Birla-backed “More” chain. Th­ese ac­qui­si­tions are an in­di­ca­tion that large re­tail play­ers think that, to gain a greater mar­ket share, the on­line strat­egy will have to be com­ple­mented with an off­line route as well. On­line re­tail sales as a per­cent­age of to­tal sales have shown a tremen­dous rise, go­ing from 0.8% in 2014 to 3.6% of to­tal re­tail sales in 2017. While the growth has been enor­mous and will con­tinue to be fast, the fact that 95% of the mar­ket is still with the off­line sec­tor drives home a few im­por­tant points. Ac­cess to off­line stores pro­vides a vast dis­tri­bu­tion net­work and brand ac­ces­si­bil­ity, es­pe­cially be­yond the Tier-1 cities. There­fore, for a player in­ter­ested in a higher mar­ket share, an off­line pres­ence is non-ne­go­tiable.

Ad­di­tion­ally, be­sides the off­line ver­sus on­line de­mar­ca­tion, it is es­sen­tial to un­der­stand that 90% of all re­tail in In­dia is in the un­or­gan­ised sec­tor. The un­or­gan­ised sec­tor—pri­mar­ily, phys­i­cal stores—thrives due to an ex­ten­sive last-mile dis­tri­bu­tion net­work and long-term re­la­tion­ships. The key for new play­ers is not nec­es­sar­ily the dis­rup­tion of the un­or­gan­ised sec­tor but hav­ing ac­cess to re­tail stores that pro­vide or­gan­ised play­ers with the same dis­tri­bu­tion net­works and con­comi­tant ad­van­tages.

Quite of­ten dis­cus­sions fo­cus on the mar­ket share of on­line ver­sus off­line re­tail. While it is a rel­e­vant topic, the more per­ti­nent dis­cus­sion is the over­all re­tail mar­ket growth rate. The re­tail mar­ket in In­dia is ex­pected to cross $1 tril­lion in the next three years. The great­est value gen­er­a­tion for re­tail busi­nesses is in cap­tur­ing mar­ket growth as greater cash is gen­er­ated by re­tail con­sump­tion. A 2007 anal­y­sis by McKin­sey ti­tled “The Gran­u­lar­ity of Growth” had some in­ter­est­ing les­sons. A study of 200 large com­pa­nies around the world showed that al­most 80 per­cent of growth for the com­pa­nies was driven by growth in the in­dus­try seg­ments and suc­cess­ful merg­ers and ac­qui­si­tion strate­gies while only 20 per­cent was through gain­ing mar­ket share. The key learn­ing for In­dian re­tail play­ers is that while mar­ket share mat­ters, be­ing a di­rect ben­e­fi­ciary of ris­ing in­comes in In­dia is a lot more ad­van­ta­geous.

Given the in­dus­try dy­nam­ics in the last decade, re­tail e-com­merce has dom­i­nated head­lines. While ecom­merce will con­tinue to be a sig­nif­i­cant sec­tor, the ques­tion is: What other ex­cit­ing op­por­tu­ni­ties ex­ist in In­dian re­tail? The cre­ation of niche, sec­tor-fo­cused “dig­i­tal first” busi­nesses backed by con­sol­i­dated re­search-driven man­u­fac­tur­ing and dis­tri­bu­tion plat­forms hold po­ten­tial. In the West, busi­nesses such as “Seed Beauty” and “Hatch Beauty” are re­defin­ing the re­tail land­scape. Given the cre­ation of “dig­i­tal first” brands driven es­pe­cially by so­cial me­dia in­flu­encers, busi­nesses such as Seed and Hatch have been able to speed up prod­uct re­search, de­vel­op­ment and ful­fill­ment.

The divi­sion be­tween man­u­fac­tur­ing and brand­ing busi­nesses is what Poorn­ima Vard­han, CEO of 335th, a lux­u­ry­fo­cused plat­form, de­scribes as the “de­lin­eation of prod­uct de­vel­op­ment and man­u­fac­tur­ing from the brand­ing and mar­ket­ing”. In com­mon par­lance, sep­a­ra­tion of the R&D and prod­uct de­vel­op­ment from brand­ing cre­ates the po­ten­tial for busi­ness op­por­tu­ni­ties through spe­cial­i­sa­tion. Such fo­cused busi­nesses hold prom­ise in the In­dian re­tail land­scape. The next decades might also her­ald the cre­ation of re­tail plat­form busi­nesses that “cor­po­ra­tise” a port­fo­lio of In­dian brands. The likes of Ker­ing, Richemont and LVMH are ex­am­ples of hugely suc­cess­ful global re­tail plat­forms that have de­liv­ered value. While In­dian beauty prod­ucts, jew­ellery and fra­grances have been mar­keted to some ex­tent, now is the time to cre­ate large scal­able plat­forms that can com­bine front-to-back re­tail op­er­a­tions with global scal­a­bil­ity for In­dian brands. The abil­ity to match In­dian en­trepreneur­ship with global cap­i­tal and dis­tri­bu­tion will be the vi­tal driver to cre­ate sus­tain­able re­tail plat­forms.

There are many “mar­kets” that of­fer op­por­tu­ni­ties in the In­dian re­tail space. There­fore, while on­line mass re­tail­ers will look to cre­ate an off­line pres­ence, on­line “dig­i­tal first” niche brands, backed by spe­cialised man­u­fac­tur­ing busi­nesses, also hold value. It is vi­tal to re­alise that given the di­verse cus­tomer seg­ments, dif­fer­ent pock­ets of op­por­tu­ni­ties will re­quire an ag­ile ap­proach. In In­dia, ac­cess to the on­line world has hap­pened syn­ony­mously with ris­ing in­comes while the de­vel­oped coun­tries had sig­nif­i­cantly higher in­come lev­els when they got ac­cess to the in­ter­net. There­fore, a busi­ness strat­egy that deals with lo­cal dy­nam­ics and trends will de­ter­mine the even­tual win­ners. IANS

‘The key learn­ing for In­dian re­tail play­ers is that while mar­ket share mat­ters, be­ing a di­rect ben­e­fi­ciary of ris­ing in­comes in In­dia is a lot more ad­van­ta­geous.’

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