Traditional brick-and-mortar stores should revisit their business models keeping the customer at the core, in order to stay relevant.
This year, my pre-Diwali shopping turned out to be a pleasant experience— considering that I did not have to wait in a long queue at the billing counter. I was in and out of a popular national department store in an upmarket Mumbai suburb in less than 45 minutes. While I was happy with the experience, it also set me thinking on the changes that were taking place, especially in retail in India.
While the change is largely being driven by technology, the emergence of the 24/7 culture and a large youth population willing to spend have fuelled the demand for many products and services. The country has also witnessed a new breed of entrepreneurs, and startups which are garnering record venture capital investments and increased valuations. In an age of constant connectivity and social media influence, retail to say the least is being revolutionised and for once the consumer is actually emerging as the king.
E-commerce is not new to the country and it was in the late 1990s that one first encountered online trading in India. Companies such as Rediff, Indiatimes, Indiaplaza, and Fabmart were among the first ones to sell products online. Their efforts met with limited success due to the lack of internet penetration and poor infrastructure (payment gateways/logistics, etc). In fact, IRCTC, www.irctc.co.in, launched in 2002, had booked merely 27 tickets on the first day of commencement of its e-ticketing service. Today, it is among the largest in the country with more than four lakh bookings per day in terms of online ticketing, leaving behind several high-profile e-commerce sites worldwide1.
Between 2010 and 2015, internet penetration in India underwent a phenomenal change—while internet in India took more than a decade to grow from 10 million to 100 million and three years to reach 200 million from 100 million, it took only a year to move from 300 to 400 million users. The number of internet users in the country is expected to reach 402 million by December 2015, registering a growth of 49% over last year, according to a report by industry body IAMAI. At present, India has the third-largest internet user base in the world but it is estimated that by December, it will overtake the US (as the second-largest base). The increased availability of smartphones across price bands and competitive mobile internet tariffs have helped increase usage. We have moved from using mobile internets for music downloads only to paying bills for utilities, taxis, and restaurants. E-commerce companies such as Flipkart, Jabong, and Yepme as well as leading banks have introduced mobile versions of their websites. Similarly, the Immediate Payment Service (IMPS), an initiative of the National Payments Corporation of India, allows bank customers to use mobile instruments as a channel for accessing their bank accounts and remitting funds and making payments simple.2
Not so long ago, a key challenge faced by online retailers was that of trust—this was with reference to the customer’s unwillingness to reveal his/her credit card details. The online retailers came up with the option of cash-on-delivery to deal with this. They also started offering discounts on certain product categories and a 30-day replacement policy was introduced to gain customer trust. The cash–on–delivery option was a pioneering move in online retail and remains the most popular payment option to this day.
The convenience of buying after comparing the products online, avoiding the hassle of travelling, and the ability to buy even at midnight were among the key factors that have enabled the acceptance of e- and m-commerce. Retailers such as Flipkart, Amazon, and Snapdeal, to name a few, are constantly creating a buzz around product categories and enticing people to buy. Moreover, a price discount in the form of cashback is often on the cards. Initiatives such as the Great Online Shopping Festival (GOSF) and Flipkart’s much-awaited ‘Big Billion Day’ have helped keep the buzz alive. This year, the ‘Big Billion Sale’ was a five-day-long app-only shopping event for customers to avail themselves of exciting offers and unbeatable discounts across 70+ product categories. Unlike 2014, when the sale was for a day (October 6) through its portal, which the company claimed had a billion hits, in 2015 the sale was extended to five days to celebrate the ensuing festive season. Having faced flak last year for operational glitches, the company had started planning six months in advance in terms of products, offers, and supply chain. Amazon registered four times the sales during the 2015 festive season, compared with the corresponding period last year. The company has had on offer 40,000 products a day on its platform so far this year, and the number of sellers has grown more than 250% year-on-year. As part of its Diwali sale, it rolled out new deals every 30 minutes across categories. This was a welcome change for many a customer who did not feel like a king in many retail stores which offered loyalty cards only on the basis of what you had purchased in the previous year. If for some reason you chose to buy from another store and your points did not add up, you actually ceased to be a privileged customer!
The acceptance of e- and m-commerce by customers has served as a wake-up call, and many are now looking at integrating the two and moving towards omni-channel. While many of them operated websites to sell products online, there was lack of integration between the brick-and-mortar and online interface. Most have today realised the need for an integrated approach and are moving towards it. Brick-and-mortar retailers are also consolidating and hiving off product categories and businesses that are unviable. For example, recently the Aditya Birla Group announced the consolidation of all its branded apparel businesses under one company; similarly, Bharti Retail announced plans to merge with the retail operations of Future Retail. A few others such as department store chain Shoppers Stop Limited have moved to selling their products in the online marketplace Snapdeal in all north Indian cities where it has a presence, apart from its own website. It also sells its private label brands on Amazon, Flipkart, and some other e-commerce companies. According to the management, this partnership is in line with Shopper Stop’s so-called omni-channel retail strategy and its objective of increasing its online sales to 10% from the present 1%. It has also launched an augmented reality-based dressing room, the Magic Mirror—while this is not new to the world, it is a first of its kind in India. It is an intelligent photo booth that gives customers the option to select and view apparel and accessories on themselves without having to physically ‘try on’ the desired products.
Consumer electronics companies such as LG, Samsung, Videocon, Sony, and Panasonic, which were up in arms against online retail’s deep discounts, are now instructing their trade partners that products sold through online marketplaces without their knowledge during flash sales would not get the benefit of after-sale service and warranties. They are also talking to e-commerce players, persuading them to be fair in pricing and not to go for discounts unfair to physical stores.3
Most brick-and-mortar retailers need to wake up to the impact of e-commerce and need to focus on a consumer-centric business model. Retailers need to recognise that the customer is now in control. Showrooming and webrooming are here to stay and customers will shop around even if they have a store loyalty card. It is no longer about understanding what they are buying, but about realising that they are buying elsewhere. Many are exiting unviable product categories, rightsizing stores, increasing focus on private labels, undertaking cluster-based store expansion, and revisiting their business strategy, adopting an omni-channel approach. In the years to come, retailers will have to focus on the long-term horizon and also deal with pressures on margins, market saturation, ageing of the population, and the emergence of newer channels of reaching the consumer. The next ten years will undoubtedly hold even more challenges than the last decade.
The following article was a cover story was penned by Prof. Swapna Pradhan, which appeared in the December 2015 issue of Indian Management magazine.