The race to go Omnichannel

 Earlier this week, I had been to Kanchipuram, around 90kms west of Chennai on store visits to review the team’s performance. While I have been doing these visits for over 15 years now, what I love most about the trips is the local cuisine I love to enjoy. However, being a long and hard working day, I chose to have a quick bite and not the usual fare from the quaint town which is famous for its numerous temples. My colleague and I decided to eat a pizza thinking it would be quick and the restaurant, less crowded. I was wrong on both counts. Most of the 10 tables were crowded. Barring two which had business-attired guests, all others were a family crowd, including kids. On a sunny Tuesday afternoon, I hardly expected such an outing in a Tier 3 town like this one. We profiled the customers and were raving about the economic transformation happening in smaller towns. All this while we were waiting for over 20 mins for our beloved pizzas.

When I first went to the cashier to order and enquired about Combos (or deals), she immediately asked me to order online, for they would have better discounts than in-store. Coming from the cashier herself, I was stunned – and I am guessing this would have been an informal gag ordained by her seniors and managers. Or maybe, not. Perhaps, she was simply helping a customer to get the best deal possible. Giving her a benefit of doubt, I hail her levels of customer service and caring offered to us. To my surprise, the online offer was way better than what we would get “at the counter”. Just that instead of home delivery, I had to click “take-away”. Sans the delivery time, the pizza and add-ons took the same time as otherwise. We spent as much time eating the maida-laced grub as much we spent waiting for them to arrive. As I chewed the vegetables, I was wondering what is it with the recent race to go omni-channel (or Phygital) as many retailers and brands claim to be.

Reliance Retail is experimenting with a 30 minute delivery possibility while Big Bazaar has already pioneered a 3 hr door delivery – both for orders placed online. This is in direct competition to Swiggy’s Instamart which promises delivery in less than 60 mins while newbie Zepto is assuring 10 mins delivery for essentials. Only difference being Reliance Fresh and Big Bazaar deliver from their offline retail stores while the e-commerce portals deliver from warehouses or “ghost stores”. Even as the pandemic hit the roof, fashion brands like Levis, Indian Terrain, Ethos watch boutique, Hidesign leatherware and eyewear retail chain Lenskart and many more set forth their e-commerce websites stronger than ever before, giving discerning customers an opportunity to buy clothes and accessories online. As the offline stores started reopening after the first and second wave of the pandemic-enforced lockdown, customers have started coming to the physical stores though the online entities remain as they were and there is a continued thrust and focus by the companies to push the vertical. In fact, many companies had invested heavily in creating online categories to cater to the audience due to FoMo even as their competition was lacing it up. 

Meanwhile, Amazon is planning to open hundreds of offline retail stores in the US & the UK across formats such as Fresh, Go and the coveted 4-Star stores which stock merchandise that have atleast 4-star or more reviews and ratings on it’s website and Apps. Back in India, Big Basket has opened it’s first ever physical retail outlet in Bangalore while talks are on that Flipkart will also launch similar experiential stores in India’s tech capital Bangalore. Chinese mobile & electronics brand Xiaomi now has several such stores across India known as “Mi Home” which showcases the company’s innovations and prowess. But one can place orders for these models only online and some only on it’s own digital assets which in turn get delivered to the customers. Samsung & LG meanwhile are converting their offline stores in to display-only formats while delivery happens from a warehouse nearby. Reliance Retail formats Fresh and Digital are pioneering “order offline, delivery at home” model while Croma has already been allowing the reverse - “order online pick at the store!” 

While on one side it certainly looks logical to have an e-commerce transaction model, the bigger question is do consumers really need it. Before I try to disprove or prove the hypothesis, I also reckon there is no one right answer, atleast for now. Going by the recent BlackFriday to Cyber Monday Thanksgiving Sales in the USA, which is the peak shopping period in the country and China’s Singles Day sales on 11/11 every year – both of which were tepid and beyond a surprise to brands and retailers, it is well established that e-commerce shopping is here to stay for the long term. In India though, things are not so crystal clear. While Amazon’s month long sale in October ahead of Deepavali and Flipkart’s Big Billion Day Sales garnered a lot of interest, it is also combined with wholesale shopping – in other words, shopkeepers buying stuff to resell. The fact that customers are back at Malls and local shopping areas is testimony to the fact that India is really an offline led market. So I wonder why brands and retailers are pushing the envelope to be everything to everyone. The coveted One Size Fits All (OSFA) model simply doesn’t work in India – be it footwear sizes or those for shirts or trousers – and also for business models. What works in the Western World may or simply may not work in our land. And Brands & Retailers must come to terms with this. 

While on one side, precious dollars are being spent on building and maintaining shopping websites (and Apps) for the sake of customers, what companies do not realise is that it also distracts and confuses customers on their current and future purchase pattern. If consumers are used to shopping in a particular way for a while, there is a high chance that habits are formed. As the saying goes, Habits die hard. Once a pattern is established, going back the other way is difficult. Unless companies are sure to continue with the service – e-commerce & omni-channel in this case, it is best not to experiment something which cannot be continued in the long run. In the garb of Omni-channel Retailing, many Brands are taking that extra effort just to appease their Investors, the Board and in many cases, to simply make the business owners happy. Tall ask.

While there is no doubt Omni-channel is the way forward, it really is NOT the only way forward. The sooner, we as Retailers & Professionals realise this, is best for our own peace!

WFH – Boon to Retailers & Brands

Many companies have advised their employees to plan WFH until end of this Calendar year. This means a good / happy news as well as a significant job loss for millions. That more people will lose lives and livelihood for the grave mistakes of themselves and the Governments across the world is a reality that we are staring at. However, the eternal optimist that I am, I can already see green shoots in certain segments of the consumer business. Some of you may recall that during my Webinar sessions in the months of April & May, I had referred to certain categories which is only bound to increase if not at least sustain its current business opportunity. Most of the daily household items have seen consistent growth even during the extended lockdown while Food related FMCG have shown tremendous growth. Categories such as Coffee, Tea, Sugar, Flours & Pulses have seen a spurt in sales for many brands while Retailers, albeit with a shortened operating time than before, are not complaining, thanks to consistent footfalls and increased bill values. 

However, what has taken many Retailers, Distributors and the entire supply chain by surprise is the huge surge in work-furniture for home and Electronics + Consumer Durables. We ourselves went shopping last week only to find that Godrej Interiors had completely run out of stock for 4 weeks, Home Town had absolutely no sight of when stocks would be replenished, over 40 customers merely waiting to enter Home Stop and hitherto B2B players such as Featherlite living up to the unprecedented opportunity and serving customers with their backend capabilities being spruced up. Traditional Furniture Retailers are not lagging behind either. Actually, I see many of the neighborhood shops doing brisk business with the highest demand for compact desktop / laptop chairs under Rs. 4,000 a piece followed by chairs that suit or double up for other purposes. I have also been hearing a few of my Architect-friends getting calls from their Business Clients to set-up / renovate their homes to be able to work. 

The other category which has been doing extremely brisk business is Cosnumer Durables, Home appliances and personal electronics. While Amazon & Flipkart haven’t resumed their deliveries fully across geographies, consumers are literally seen shuttling from one shop to another for want of peripherals such as computer mouse, headphones, Mobile Phones with 4GB RAM (to be able to take up Apps such as Skype & Zoom) under sub-Rs. 10,000 and most importantly, Laptops. I guess desktops as a category is passé – one, it occupies too much space and it’s immobile within the house as well as across users, which gives a push for laptops. 

In my own personal case, I had to wait for over 6 weeks to get myself a new MacBook Air, an upgrade after using the previous Air for 5 years. Thanks to good friends, I was able to lay my hands on one out of the two pieces that landed in Chennai after the recent lockdown. The folks at Apple India as well as Apple Retailers say with a grin that most models of MacBook / iPad are out of stock and there is no immediate visibility of their arrival into the stores.

With the State Governments finally budging for schools to conduct Online classes – the High Court of Tamil Nadu has especially allowed private Schools to collect 40% of the Annual Tuition Fee for the present academic year – Online Classes are getting more and more real. The state run “Kalvi Tv” in TN shall also showcase online lessons while every other State Government is looking at similar measures to ensure continuity of education. This further means more requirement of laptops, earphones and so on. That there is no shortage of Electricity at urban and semi-urban homes is a big advantage.

Smart Entrepreneurs, Individuals and Businesses have lapped up this opportunity. A second-degree associate of mine who was retrenched by his employer, a Hardware Engineer with 10+ years of experience has taken up direct sale of Laptops to Corporates making a neat 4-5% commission on the purchase value. He claims his income, although a temporary one is lesser than what he used to make in his previous job while he reconciles that he is unsure how long this would go on – his parallel entrepreneurship and the Corona lockdown. Whichever way, make hay while the sun shines is the way forward I guess. 

Meanwhile, traditional retailers in both these categories are indeed an aggrieved lot. For Example, the Founder of a family business which is in to Electronics for the past 2 decades has been adamant on downsizing his margins for want of volumes. He claims that this one-off discounting model on gadgets such as Iron boxes, Personal Shaving Equipment (for men) and other household items such as mixer grinders and refrigerators will hurt the business once the challenges are over, especially around Deepavali 2020. What he doesn’t realize is whether he would be operational until then, running 20+ stores across the state, employing over 300 people and a joint family of 4 siblings and their wards. 

In another instance, a proprietary furniture dealer near my home refused to entertain any sort of reduction on Chairs claiming that these items were already on high demand and that he sees no reasons why they should be sold at lower prices. That there are literally 100s of furniture shops around is something the gentleman should realize soon. Maybe, he wouldn’t. 

I am actually planning to write a book which would go by the name “Corona Millionaires” which could be release in 24 months or so. No, I am not referring to the likes of billionaire Shri. Mukesh Ambani and his ilk. I am referring to common people like you and me – who found this crisis as the biggest business opportunity of their lives. May be a Netflix original too. It could rake in more money than what many Entrepreneurs would make during this crisis.

My Nostradamus moments in Retail

The year was 1998. My classmate and I created an online booking option at 123India, a popular website which allowed users to build websites with a personalised domain suffix for free. The Madras based Client was Enhancers, an Event Management Company which organised concerts, Carnatic & Fusion Music involving some of the most reputed artists in India and abroad. We were freelancers cum college students and had the privilege of companionship and brotherhood, sparingly some snacks and coffee on the house. After all, we wanted to put to good use the coding languages that we were learning at NIIT.  One could choose the Concert, click on Number of Tickets required, share their Phone Number and Residential Address and within 3 hours, we would deliver the tickets and collect the money.

That was when I imagined a day when as a Consumer, I would simply click a button on a website, order grocery, food and other items which would get delivered right at my doorstep. Few months later, I heard that a company was already doing something similar to this at California in the US. The firm went by the name Amazon. During my stint at Musicworld, I saw in action the same model put to use where HamaraCD, the Kiosk installed at the store could be used to build a personalised playlist digitally, which would get recorded at the backend and delivered to Customers in a week’s time. That a CD bearing 9-11 songs would cost ₹399/- was a deterrent to potential customers and the project never took off.

In 2015, I tried to go back to my idea of 1998 and tried to put it in to good use. I built a website myself on Zepo (similar to and an Indianised version of Shopify) where Customers could order Grocery and Household items which would be picked up by my team from a neighbourhood area and delivered to Customers. Oyethere was warmly welcomed and embraced by Customers and we made a lot of noise and news for delivering Tender Coconuts during the Summer of 2016 and Kabali Movie Tickets and T-Shirts thereafter. We delivered 100s of Patanjali products across Chennai and 100s of clay Ganesha Idols a day ahead of Pillaiyar Chathurthi 2016 – ones which were available by the roadside but many patrons ordered to simply see how this worked, for we also said we shall take back the Ganesha idols for immersion.

Investors although were not impressed. A noted personality from Mumbai, when I pitched at TiECon 2016 asked why would he order on our platform when he could walk down to buy it. He and many other “Potential Angel Investors” said the venture doesn’t make “Unit Economics” for we had more Opex than Revenues, an unwritten norm and a must-do for StartUps and Founders today. There was no Corona Lockdown back then. I said, our StartUp targeted “Cash Rich Time Poor” shoppers who preferred convenience over cost, because our model was to charge 2% on Retailers of the Order Value and a small fee from Shoppers. With volumes of deliveries, we would eventually break even. Those days, Swiggy and Zomato were not delivering Idlis or Burgers below the Menu Price, there was no concept of Delivery Charges for “parcel food” from Restaurants although MakeMyTrip and BookMyShow were already charging users. I convinced him and many others over the next three years, around 50+ pitches. I went back to a day job early this year.

When the Covid Crisis was taking shape and making headlines in India during the first week of March, I sensed a huge surge in OTT Consumption and switched Levista’s Advertising to News Channels instead of GECs. I also shared my views that Multiplexes would reserve 1 seat unutilised for every 4-6 seats which were blocked. And that Swiggy, Zomato and Dunzo would redefine Hyperlocal Retailing. Small joys of life when I see things happening right in front of my eyes.

These are some of those “Nostradamus moments” for me as I look back at my 23 years of being in the Indian Retail Industry. There are many such instances that I could add and share. Like how Consumers would order online and get home-delivered Microwave Ovens, Refridgerators and LED Tvs along with grocery items, although not from the same App. Amazon Prime could be an exception. We’ve just begun. Miles to Go... 

Retail horoscope 2017

There have been predictions written about sun signs and moon signs. So, I set-out writing one for the Retail Industry in which I complete 20 years this year . These are not purely fictional but I see things going this way. Take a look and let me know what you think.

Kirana Stores

The largest Retail segment, the sem-organized and unorganized Kirana Stores are set for a huge overhaul. With the onset of demonetization, Kirana stores do not have a choice but to go digital. All this while, most of them have been collecting cash for sales which mostly go unaccounted causing a great loss to the exchequer. This will change in 2017. From Bank EDC machines to Mobile Wallets, they will start accepting every form of money other than cash. A robust y-o-y growth is also seen in this business model.

Supermarkets

Neighborhood Supermarkets from large retail chains have already been making a comeback. Nilgiris is leading from the front through Franchising, while Aditya Birla More seems to merge with Future Group, and so would Heritage Retail this year. None of the supermarket chains have an online presence due to reasons best known to them. I don’t see any change here. Heritage is experimenting something but I am not sure if they would be scale up like the Hyperlocal players. Margins will be strained and even store profitability will be a challenge. I see more consolidation in 2017 among the medium sized players.

Hypermarkets

The most abused retail format of the last half a decade, the Hypermarkets have come a full circle. As I write this article, the store sizes have come down from 25,000-45,000 sft to as low as 8,000 sft. While poor availability of retail space is one of the reasons, the sheer ability to sell higher volumes like in Western markets is the core reasons. Indian customers prefer fresh products, be it rice or atta or oil or vegetables and fruits. Also, the households are smaller in size, so are the kitchens and refridgerators. Quite obviously the trolley size will be smaller. With most Mall spaces exhausted and almost no new Mall of any significance across major metros, Hypers may look for standalone sites in suburban areas.

Apparel Retail / Specialty

With a chunk of this format having moved online, from Diapers to Accessories to shirts to dresses, this offline retail format would see more store exits in 2017. The franchisee-dominated model will find few takers and loss making / average performing stores will be closed or consolidated. Malls are already operating at an average 15-25% vacancy of Vanilla Store locations and this year will be worse with burgeoning rent and maintenance cost (the CAM Scam!). Consumers will move towards E-Commerce for specialty retail and will be fine to shop even with limited or nil discounts due to the convenience it offers. Bad year for Retailers in this space which will see many small and regional Brands winding up.

Consumer Durables Retail

With E-Commerce already swooping a majority of consumer durable retail sales, such Retailers will be left in the lurch. Brands, who have initially supported offline retailers in the mid-2000s have started balancing their act with e-commerce. 2017 will see a swing in their loyalties towards e-commerce players. With tighter margins, higher rentals, surging operating costs, many such Retailers dealing in Consumer Durables will consolidate their store count while many would shut stores which are not making enough profits. Overall very challenging year for retailers in this space.

Jewelry Retail

The most affected sector after Demonitization is this retail format. Various media reports suggest how some leading players made a killing on 8^th and 9^th Nov. 2016 after the Prime Minister made the historical announcement. With 90% or more of their business in cash, and it’s quite well known how much of them get accounted, Bullion retailers will face heat the most. A significant number of stores would be thrown out of business. Large chains which have PE Investments made based on PPTs and Excel File projections will face a blank wall, with valuations diving deep and would find the going very tough. Extremely tough year for Retailers in this space. The market will dictate terms in May around Akshaya Trithiya when consumers go bonkers buying bullion.

Food & Beverage

With the Industry having matured in the last decade, it is time for consolidation for F&B Retailers. With scale in place, players like CCD, Dominos and McD will now consolidate their presence and focus on store EBIDTA. New initiatives such as Home Delivery and signing up with delivery companies will bring more business while a tired economy will put pressure on attract store footfalls. Outlet sizes will reduce by 30-50% across formats. There is a sudden upswing in specialty bars and pubs and this trend will continue. A growing and discerning set of gastro-enthusiasts will mean new entrants and new formats are on the anvil. Interesting space for Startups in this space.

 E-Commerce

It’s been 10 years since Flipkart the market leader was born. Sadly, this year would be the most challenging to the company that made e-commerce take off in this country where less than 10% of the Retail Industry is organized. With 1,000s of e-commerce companies of various sizes and shapes, names and offering in the market, the space would see a blood bath this year too. Most such companies which did not have a significant differentiator will have to bid adieu. Less than a Billion Dollar will go in to investments in existing companies while new startups will find the going tough. Amazon will consolidate itself in the market and will become a household name with higher market share and mind share. Hyperlocal Market places which connect offline retailers online will have a good run, since this model is reasonable new to customers. There will be some consolidation in this space too but new entrants will carve a niche. Reasonable investments are expected in this space.

Consumer

A weak economy, struggling to grow since the last 5 years will mean strained purses for consumers. They will be cautious this year on spending and will demand quality and service from Retailers than ever before. 

FDI in Ecommerce

The Govt. of India has recently affirmed through a circular through DIPP that Foreign Direct Investments in E-Commerce companies is allowed upto 100%. There is cheer among a few although there are clauses and causes for worry for many. The notification says that 100% FDI is allowed only in companies that operate as a Marketplace and not on those who operate with their own Inventory. 

Let me clarify this with some examples;

Amazon, Flipkart, Snapdeal and PayTM are the big Four Marketplaces in India and so is my own startup Oyethere.com. In these models, the company doesn’t own any inventory and merely facilitates the sale of products between Retailers/Sellers and Customers. Marketplaces bring together the above-mentioned two parties and complete the transaction. There are several variations here too. For instance, some marketplaces merely connect the buyer and seller (OLX) and the money is paid by the buyer to the seller directly. A majority of them including Flipkart and Oyethere.com collect the money from the customer while the Retailer provides a Bill/Invoice to the customer. The Marketplaces then repays the Retailer with its Sales value after deducting commission, if any. However, there is a catch for the big two companies, Flipkart & Amazon. Flipkart has a subsidiary company by the name WS Retail which is the largest seller on its own marketplace. Similarly, Amazon has a 49:51 JV with Cloudtail which is owned by Catamaran ventures, which is in turned owned by the family office of NR Narayanamurthy, Chairman, Infosys. These two companies could face issues because the DIPP Notification on FDI states that no more than 25% of Sales can be derived from one seller in the marketplace. This could be a potential spanner in the scheme of things until these large companies find a legal way out.

The most affected ones would include the likes of ZivaMe (lingerie), Urban Ladder (Furniture), Hopscotch (Baby Care) YepMe (Fashion) which has Shah Rukh Khan as Brand Ambassador and is also an Investor, Myntra (Fashion) owned by Flipkart and many other small and budding Ecommerce players who have already received foreign funding or are in the process of raising one. These companies are legally not allowed to receive FDI more than 49% which would never be possible.

Having said the above, the biggest beneficiaries would be the offline Retailers like Viveks Ltd. (Consumer Durables) who have already been selling online through Marketplaces. Oyethere.com also enables offline retailers like Café Coffee Day, India’s largest café chain with over 1,500 cafes across the country, Brown Tree (Organic Food), CeeDeeYes Supermarket, Smiling Baby (baby shop) and many others to sell their products online through its portal thereby facilitating the sale between the Retailer and consumer. I am personally meeting several Retailers to convince them to come on board our startup Oyethere.com and benefit from the incremental business opportunity without spending a dime on Marketing or Business Development.

There is a deterrent to Marketplaces as well – they are not allowed predatory pricing, meaning they cannot unduly discount the prices of products and ensure that the prices are merely competitive. This brings a lot of trust on marketplaces like Oyethere to Retailers because they are sure that they, and not the marketplaces, have a final say on the final pricing of products.

One of the promises of the Narendra Modi Government in their election mandate was that they would not allow 100% FDI in Multibrand Retail. And they have stuck to their guns. However, Ecommerce is seen by the Government as an enabler of trade and not a threat and hence this move which is expected to benefit very large marketplaces like Amazon and Flipkart and newbie startups like Oyethere.com.

Look forward to some interesting days ahead in this space.

Online Grocery Shopping

There has been enough spoken and written about the Flipkart-Myntra deal. Online Commerce is no more a hype at the moment and there is no money to be made – that’s the response most subject matter experts are saying although they don’t want to be quoted since they are in various advisory capacities for many such companies. With a healthy two-digit margin, if offline Retailers are not able to succeed (read: profitable), then how would these companies survive- they ask. Having said that, there is not a single ECommerce company (in India) that has tasted profits yet. While many promoters have made millions of dollars collectively, the companies in question still remain unprofitable. I would presume that a very few of them would even be making unit level margins. Such is the discount structure and focus on Topline that these companies are almost forgetting that the main intention of a business is to create value through profitability and not just a valuation (to subsequent investors). Amongst the online frenzy across categories, the most dreaded and the most challenging category is grocery & daily needs including fruits and vegetables. Bangalore based BigBasket.com already has some headway while WeStaple.com from Noida and a few others who are regional players are taking the lead to establish their positions. Big Basket even has a Mobile app for Android and iOS from Apple. Take a look below at what their customers have to say;

https://www.facebook.com/Bigbasketcom 

http://venkysundaram.wordpress.com/2013/05/29/why-i-stopped-using-bigbasket-com/

https://www.facebook.com/WEstaple

K Ganesh and his wife Meena Ganesh are an entrepreneur and angel investor-duo. BigBasket, which is run on a daily basis by the founders of e-tailer Fabmart, on the other hand, is one of India’s only online grocery stores. Online grocery stores have been seeing big traction around the world, as recurring orders prop up the profitability of the niche e-commerce category. “The Series B funding for BigBasket, which should close in the next three-to-four months, will be around $40- $50 million. We believe it has huge potential, with gross margins of nearly 20 per cent. Every order is profitable for us on BigBasket,” Mr. Ganesh told The Hindu.

Bigbasket founder Hari Menon, a successful entrepreneur who sold his brick-and-mortar retail chain Fabmall and Trinetra to Aditya Birla Group, is bullish. “It’s a huge, underserved market. Convenience is a major factor in our metros. We are finding that at least 85% of our customers return after the second order.” Menon said that revenue is increasing 20% each month. Bigbasket delivers 4,000 orders daily. In Mumbai, where the average size of an order is Rs1800, it does 800 deliveries each day. The site has served 200,000 customers so far and is expanding to Delhi and its suburbs. Menon said the company did Rs85 crore ($14.3 million) in revenue in 2013-14 and was on course to do Rs200 crore ($33.7 million)  in sales this fiscal year.

While the category is exciting, most customers seem to expect the savings (on real estate) to be passed on to them, which in reality is not. If the Real Estate savings are about 10-12% on Sales, the promotions and marketing costs are much larger than that, especially the first-time acquisition cost of customers. While most players do not offer much of discounts for every item, there are chances of combined savings when you buy more quantities or multiple brands from the same company.

However, the overall sentiment seems to be simple- customers would buy products online only if they value their time more than the time spent in shopping offline at Retail Stores such as Spencers, Foodworld, Nilgiris, Big Bazaar, etc. India has a huge density of Kirana Stores while Organized Retailers in the big cities are already quite popular for more than a decade now. Fruits and Vegetables are still preferred to be bought from the vendors who sell fresh quality items, most of them directly sourced from the Markets. Retail FDI in multi-brand retailing is a contentious issue and even the new Modi-led Government is not actively pursuing this at the moment, for the benefit of the trader community who form a big chunk of vote bank.

Online Grocery, at the moment is restricted only to those who work in odd-times, say BPO Employees and many others who would find it difficult to shop at a nearby store especially those who live in far off suburbs. Having said that, the Kiranas are much more active these days, offering various facilities such as door delivery to credit facilities to their customers. While Online Grocery has a great future, time will be a real reckoner.