Thursday, 29 March 2018

How brick-and-mortar stores are joining hands with ecommerce biggies to target India’s 1.3-billion customers

One rainy day in January, Future Group’s Kishore Biyani spent nearly an hour with Amazon chief Jeff Bezos at his Seattle headquarters, surprisingly, not discussing retail. Instead, the founder of India’s largest retail firm spoke of how Alexander’s invasion of India had met with fierce resistance, leading the all-conquering Macedonian march to retreat, albeit temporarily. 

Biyani, who owns the Big Bazaar supermarket chain, was trying to draw a parallel — how Amazon could use an ally that controls nearly a third of the country’s organised food and grocery market. 

About the same time, but nearly 2,000 miles away at Bentonville, its arch rival Walmart wasn’t sitting pretty either. The world’s biggest retailer was planning its India counter-offensive despite being singed in its initial effort. 

Discussions with Flipkart had been on since 2016, much before Japan’s SoftBank and Microsoft wrote fat cheques for the $12-billion startup, also the largest etailer. However, two years and several Bengaluru trips down the line, picking up a larger, or possibly largest, chunk of Flipkart was becoming a strategic necessity. 

In retail, first consumers went to the product. Now, in the golden age of ecommerce, it’s the product that comes to consumers — anywhere, anytime. Technology has made it seamless. 

Cross Format Deals

After China and the US, India’s 1.3-billion consumer base is becoming the next battleground for everyone from Alibaba to Amazon as they take on local competition from the likes of Biyani or Mukesh Ambani’s Reliance Retail. 

As yet, a larger proportion of sales are still offline and local companies rule the trade in both brick-and-mortar as well as online space. But most feel it’s a matter of time before the inevitable happens. 

“Nearly 10-15% customers are acquired online-to-offline (O2O) by Future Group. We expect it to go up to 35%, especially through online promotions,” says Biyani, adding that understanding India is not easy for a retailer. “A global retailer needs to adapt to the local style of retailing.” 

For one who has flirted with Carrefour and Walmart, and recently been invited by both Jack Ma and Bezos to their headquarters, Biyani, however, declined to comment about any possible alliances. 

Amazon has fired the first salvo. Last year, its investment arm bought 5% stake in Shoppers StopNSE -1.30 %, the country’s largest department chain operator. The retailer also entered into a commercial arrangement with Amazon India to sell its products on the latter’s marketplace and open experience centres for Amazon at its stores. 

“The biggest advantage of tying up with Amazon is their reach, with more than 400 million consumers go online every month for it,” says Govind Shrikhande, managing director, Shoppers Stop. “Our online reach is just about 6 million. Exposing our catalogue to their customers will drive penetration for us even in smaller cities, bring in those who don’t know Shoppers Stop and make it convenient for customers to compare us with other players.” 

Globally, such alliances have already been transformational. Alibaba and have been shopping for retailers in line with their comprehensive clickand-mortar strategy, scooping up stakes in retailers such as Suning Commerce Group Co, Lianhua Supermarket Holdings Co and Intime Retail Group Co. 

Amazon acquired grocery chain Whole Foods for almost $14 billion last year and has been aggressively moving into categories such as apparel. In 2017, it launched checkout-free Amazon Go store in Seattle. 

Rival Walmart has been on a similar shopping spree, acquiring 100% of Chinese ecommerce business Yihaodian in 2015, upping the 51% it picked up in 2012. Then came in a $3.3-billion buyout, followed by a strategic alliance with in 2016. Last year, it kept going — adding Moosejaw, ModCloth, Bonobos and Parcel for online-offline consolidation. 

Already, Amazon and Walmart are fighting a patent war over drones in a classic American faceoff. But why is it key for online retailers to have feet on the street and vice versa? 

Ma calls it New Retail and Biyani, Retail 3.0. It’s an omnichannel shopping experiment where lines get blurred for an interactive and experiential bonanza. Instead of competing, it’s about collaboration. 

“Everyone in India knows the hybrid model will work. Burning loads of cash for market share just won’t work for online retailers. That’s at the core of Walmart-Flipkart discussions,” says an official privy to ongoing discussions. “That GMV (gross merchandise volume) party is over and you will have just three online players left — Flipkart, Amazon and Paytm Mall. Soon, you will see them pump in more investments in the ecosystem for supply chain, warehousing and logistics.” 

Bob van Dijk, Group CEO of Naspers that owns a strategic stake in Flipkart cannot agree more. “The blending of online and offline retail is a real trend. From our experiences in other markets, it can be very complimentary – local showrooms, pick up points. You really can’t tell if it’s an online or an off line business any more,” he says. 

What has changed in the past five years is the admission that online and offline will coexist, feels Abheek Singhi, senior partner and director, Boston Consulting Group. 

“Empirically, retail is a very local market. Winners in the US are different from those in the UK, which are di f ferent in France and Germany. It is going to be something similar to FMCG, where you have a few strong MNCs and a few domestic players. In retail, there will also be strong players on both sides of the fence,” he says. 

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