This website requires JavaScript.
Lead Story/Feature

From competition to collaboration: The changing dynamics of online, offline retail

'Millennials are mostly willing to pay for experience rather than products'

Dec 13, 2018 by Avanish Tiwary
From competition to collaboration:  The changing dynamics of online, offline retail

In 2016, Alibaba’s Jack Ma came up with the term ‘New Retail’ to explain how technology lies at the intersection of online and offline retail. ‘New Retail will bring about a restructuring of the global supply chain and change the complexion of globalisation from the domain of big companies to small businesses (sic)’, he said in a letter to Alibaba’s shareholders in 2017.

Soon after, Alibaba opened 80 offline retail stores - equipped with cutting edge technology - across China under the private label, Hema.

Meanwhile, Amazon is aggressively making inroads into the offline retail market in the US. The tech titan opened its first brick-and-mortar book store last August in Bay Area and never looked back. Now, Amazon has 18 offline book stores, 87 pop-up stores (experience and retail outlets), three 4-star stores (retail outlet for top rated products) and eight Go (food and grocery) stores in the United States.

In India, the trend started picking up in 2016. Online e-commerce businesses like Pepperfry and Urban Ladder (furniture), Lenskart (eyewear), Zivame (lingerie), Myntra (clothes & accessories), and Caratlane (jewellery) have physical stores across India.

“While online continues to grow fairly fast, offline still accounts for the significant proportion of overall spends,” said Ashish Sharma, CEO, InnoVen Capital, a Temasek-backed fund in India.

Globally, online sales constitute 1/10th of overall retail sales. While organised retail, which includes licensed stores and supermarket chains, boasts of a 10% share, according to Technopak research.

Whereas in India, online sales is just 2.2% of the overall retail sales at present. However, the retail market is projected to grow from USD 672 billion in 2017 to USD 1.1 trillion in 2020.

Alibaba, Amazon and Flipkart have woken up to the potential of offline market and are either partnering with offline stores or launching retail outlets to make hay.

“On one hand, we are thinking online players are getting into offline assets, but frankly, even the offline guys are thinking how to build their online capabilities and have an omni-channel presence,” Sharma said.

The US-based offline retail giant Walmart acquiring Flipkart for USD 16 billion is a good case in point.

“Four years ago, everyone thought offline is dead and online will take away everything. But essentially, we are human beings and we want a physical presence, a touch and feel experience of the product. At the same time, the convenience that online provides will also factor in. I think online to offline and offline to online will co-exist,” said Anurag Dalmia, Co-founder, Healthy Buddha, a Bengaluru based online organic produce seller.

Investors believe an online and offline overlap is around the corner.

Ujjwal Chaudhry, Associate Director at a research firm RedSeer said, “Somewhere there is a fear of missing out for offline. Now offline retailers want to understand how the online chain can be utilised to their benefit.”

Online-offline Integration

In September last year, Amazon India bought 5% stake in Indian fashion retail chain Shoppers Stop for Rs 1792.5 million (USD 25 million). While Amazon Experience Centre gets a space at 80 of the Shoppers Stop retail stores across India, Shoppers Stop will sell over 400 brands on Amazon India’s platform, according to the deal.

“Amazon Seller Services Pvt. Ltd. (ASSPL) and Shoppers Stop Limited (SSL) have separately and independently forged a bespoke partnership for the department store format. The deal enables two leading brands in the retail and ecommerce sectors to draw upon each other’s strengths to serve the evolving customer base in India,” a spokesperson for Amazon India told The Passage.

With organised retail brands like Reliance Retail, Pantaloon Retail, Aditya Birla Retail, Titan Industries, Landmark and Crossword, having hundreds of stores across the country, the possibilities of online-offline integration is immense.

Source: Indian Brand Equity Foundation* Graphics: The Passage
Source: Indian Brand Equity Foundation* Graphics: The Passage

The foreign players are looking for partnerships in physical retail as the FDI regulation forbids them from having more than 49% stake in multi-brand stores in India.

According to media reports, Amazon India, along with private equity firm Samara Capital, has agreed to buy out Aditya Birla Group’s retail chain ‘More’ with over 500 stores across India.

Sharma believes with Amazon getting into physical retail, the whole landscape is set to see a tectonic shift.

“They wouldn’t run it like any retailer would in an old fashioned way. Eventually, they will look at integrating the technology from the US to India so it could become retail of the future. Now we will have to wait and see how much time that takes,” Sharma said.

Offline and online synergy

Alibaba-owned Hema stores in China offer an immersive experience for shoppers.

Sharma believes Indian offline retailers will have to offer a unique shopping experience to stay relevant, along the lines of Hema in China and Amazon Go in the US.

Subhash S and his four partners worked for four years to set up a fully automated retail store. The 32 year old entrepreneur opened Watasale four months ago in Cochin, a tier 1 city about 350 miles from Bengaluru.

“You just need to download the app, scan the QR code to enter the store and start shopping. You don’t have to scan every product and can just walk out of the store once you finished shopping. You will be billed accordingly,” said Subhash S, CEO, Watasale.

Subhash said the company experimented for three years on technologies like facial recognition, QR scan and RFID, which Alibaba owned Hema stores use. But these technologies don’t provide a truly seamless shopping experience, he said.

https://cdn.thepassage.cc/filters:quality(70)/public/image/2018/12/13/DpSWz9xUYAAxN9E.jpg

The Hema stores in China need shoppers to scan each product to complete the checkout process.

“Our store is similar to Amazon Go stores in the US. We wanted shoppers just to come inside, pick up products and leave without scanning codes or standing in queues for billing,” Subhash said.

The founders bootstrapped Watasale by pooling USD 200,000. Currently, Watasale has stores in Cochin and Trivandrum in Kerala that sell packaged juice, ready to eat food, cosmetics, etc. The company has also partnered with a ‘big Indian retail chain’ to open five stores in Kolkata and Gurugram.

Subhash said these stores would be bigger than the one in Cochin. “We are looking at 2,000 square feet area.”

“Millennials are mostly willing to pay for experience rather than products. If we give them great and novel shopping experience along with quality products, I think we will have a huge customer base,” Subhash said.

Betting on O2O

The last couple of years, ‘O2O’ (online to offline) has caught the fancy of investors and entrepreneurs alike. Loosely defined, O2O means an online company utilising offline capabilities for customer outreach.

The influence of Chinese investors in Indian online companies is evident as a lot of companies are toeing the O2O line.

Alibaba-backed Paytm has ties with physical retailers to facilitate cash-less transactions. Online grocer Big Basket- also backed by Alibaba - has installed digitally-activated kiosks in apartments and office spaces stocking groceries and packaged foods.

Big Bazaar arranges home deliveries for their buyers. Spencer’s (with a presence of 120 stores across 35 cities) has an app to home deliver products gone out of stock in their stores.

“When online grocery shops came to India, everyone said small ‘mom and pop’ stores would die. But now we are seeing online players partnering with them to increase their reachability,” Dalmia from Healthy Buddha said. “O2O in India is going to get bigger with time,” he signed off.

Avanish Tiwary

Avanish Tiwary is a Bangalore-based tech journalist. He focuses on emerging Indian startups and unicorns. He can be reached at avanish.tiwary@thepassage.cc.

Follow Avanish Tiwary