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. 



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 JD.com 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 Jet.com in a $3.3-billion buyout, followed by a strategic alliance with JD.com 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. 

GST and Ecommerce Trigger 45,000Cr Investment in Storage and Warehousing Sector

According to JLL, a global and India's largest real estate services firm, it is estimated that close to Rs 45,000 crores (Cr) will be invested in creating storage facilities across India from 2018 to 2020. In these three years, different categories of warehousing will also create jobs to the tune of 200,000 at different levels of specifications and specialisations. Warehousing will witness the highest investment; over Rs 35,000 crore in the next three years, mostly in creating storage facilities for retail and consumer goods. Cold Storage and agricultural warehousing will see approximately Rs 7,500 crore. These two aspects of warehousing will lead the way in the future as they contribute greatly to regular living and lifestyle. Container storage may end up attracting approximately Rs 500 crore during the same period mostly to boost India's logistical prowess.

The report notes that the two prominent changes that have created significant growth prospects in warehousing are firstly the implementation of GST in India and creating a unified taxation, and the rapid growth of ecommerce necessitating building of large scale warehousing across various locations.

Ramesh Nair, CEO and country head, JLL India, said, "Warehouse and logistics is one of the biggest growth areas that has emerged in recent times. We have seen Rs 125,000 crore invested through private equity (PE) in warehousing space since 2014. While it made up approximately 10 percent of total PE investment in 2017, the share is expected to grow claiming larger share of investment. India's logistics and warehousing sector is rapidly transitioning through a revolutionary phase. There have been multiple initiatives associated with large investments (both domestic and international) within this segment, clearly underscoring the upcoming trend."

What has necessitated a sharp growth in warehousing in the country is the growth in ecommerce and a shortening turnaround time for delivery. Apart from ecommerce, the next big sectors of space are the electronic and white goods that command significant warehousing spaces in urban and semi-urban locations. These are also sectors that, despite their incremental requirements in warehousing, are averse to owning requisite space, therefore mostly reliant on third party warehousing facilities. It is estimated that Grade A and B warehousing stock will grow at a CAGR of 21 percent year-on-year taking the total tally of warehouse space in India to 247 million square feet by the end of 2020 almost doubling the current warehousing stock of 139.8 million square feet in 2017.

It is further estimated that the prime beneficiaries of the new wave of growth in warehousing will be the peripheral locations of tier 1 and tier 2 cities. This investment comes on the back of nearly Rs 10,000 crore invested in 2017 alone.

According to JLL’s analysis estimating the potential of various locations as strong warehousing centers in the future, aside from metropolitan and tier 1 locations are Surat, Kanpur/ Lucknow, Ranchi, Madurai, Coimbatore, Ludhiana/Ambala, Tiruchirapalli, Nasik, Madurai and Jaipur.

Amongst the tier 2 cities, these cities have shown potential for strong growth that will allow them to emerge as warehousing hubs in a hub and spoke model. These cities are strategically located to be in proximity to other major markets and allow transportation to happen to their feeder locations in less than six hours. These cities have the added benefit of favorable policies for setting up businesses and have high manufacturing potential.

Business costs must come down before e-commerce firms can succeed in India: Industry veteran

The cost of doing business has to come down before e-commerce companies can succeed in India in the long run, according to the chief executive of a large retail group in the country.

Food and grocery businesses still find it difficult to move online while consumer durable, electronics and technology sellers have made the shift more notably, Kishore Biyani, founder and group CEO at Future Group, said. He added that fashion was only just beginning to shift online.

"But the cost of doing e-commerce in India probably is the highest in the whole world," he told CNBC at the Credit Suisse Asian Investment Conference in Hong Kong.

"The cost of acquiring a customer, the cost of fulfillment, the cash on delivery, the returns which they get — it's ultimately going to be the cost of doing business, it has to come down for the e-commerce business to succeed in the long term," he said.

Future Group owns a number of retail brands in India, including the retail chain Big Bazaar.

Biyani added that the Indian retail space was seeing a new strategy of online-to-offline, and offline-to-online, emerge.

Basically, some companies are trying to provide a seamless way for customers to shop online and then pick up the products at their brick-and-mortar stores. Conversely, many physical stores are also building online platforms for their consumers to shop.

As a result, he said, aligning with a large player could create "a very interesting model of acquiring customers" at a significantly lower cost. Still, Biyani clarified, Future Group is not currently in talks to team up with anyone.

India's e-commerce space is seeing a massive rivalry brewing between Amazon and local firm Flipkart, with spillover effects in the physical retail space.

For example, last year Amazon bought a stake in Indian departmental store Shoppers Stop — and news site Mint reported that the e-commerce giant planned to use that partnership to set up experience centers to show potential customers its brands, mostly in fashion and accessories.

While Jeff Bezos' company has aggressively invested in the Indian market, Flipkart could soon bolster its presence with the backing of another U.S. retail giant — Walmart. Last week, reports said the Arkansas-based company was in advanced talks to become the largest shareholder in Flipkart.

Meanwhile, in February, reports said that one of the country's leading online grocers — BigBasket — raised $300 million in a funding roundled by Chinese tech giant Alibaba.

Indians are consuming more than ever

According to Biyani, every new generation of Indians has consumed more than its predecessors. He added that there was also growing aspiration among consumers, likely due to the increased exposure and large volumes of media content they were were consuming.

"We believe Indians are going to consume much, much more than what they had been consuming," he said.

Biyani pointed to fashion trends as an example; he explained that, in the past, Indians bought new clothes about two or three times a year. Today, he said, they're buying about seven to eight times in 12 months. In the fast-moving consumer goods space, he added, new products and categories were constantly emerging.

"I believe this will ultimately drive the GDP growth — more consumption, more development, more job creation, more manufacturing, more GDP growth," he said.

Ultimately, Biyani said, he believed there would be a convergence between online platforms and brick-and-mortar stores in the next four to six years. The consumer, he said, would not notice the difference between a physical and an online store and would have the option to shop in either.

Ecommerce Behemoth Amazon India Modifies Seller Fees To Engage More Sellers

In an attempt to encourage sellers to engage more with its marketplace, Amazon India has reportedly altered its seller fees in various segments. The changes will be applicable from April 19.

The change has made it cheaper for sellers to ship locally in their city. However, the cost of shipping regionally and nationally has increased. The reduction in fees is nearly 70%  in categories like daily needs and apparel, while it has increased by up to 50% for items like power banks, chargers, shoes etc.

On the change in fees structure, an Amazon India spokesperson said, “Many of our new sellers now come from smaller towns and semi –urban and rural areas and they are catering to nationwide customer base. Our Prime offering too is expanding significantly helping our sellers access this loyal customer base and frequent purchasers. We feel it is now more important than ever to empower sellers more and provide them more choice, agility and flexibility to serve this growing demand from all segments of customers across the country.”

Amazon India offers three shipping modules on its platform for sellers. In the local option, a vendor can sell the products only in his/her city. Under the regional category, the company offers sales in a predefined set of cities or states in four modules. With national shipping, on the other hand, a seller can sell across regions.

At present, Amazon India has over 300K vendors who sell more than 160 Mn products across 104 categories. The fees for sellers in 24 categories will increase by upto 50%, while that across 32 other categories will decrease by upto 75%. For another 48 categories like mobiles, laptops, books etc, it will remain the same.

The spokesperson added, “We want to offer more choice to our sellers so that they are able to choose the best channel based on their selection keeping in view their operational capabilities and individual item level costs and sales turns. We also want to encourage sellers to continue to offer their products locally so that customers are able to get more selection locally with faster deliveries”

The company has targeted mostly groceries and apparel sector. As per sources, the ecommerce giant has reduced seller fees for the grocery segment from 7% to 3%, while the apparel section has seen a reduction in seller fees from 19.5% to 17%.

To go more green-conscious, the referral fees for garden solar devices have reduced to 5% from 12%. Similarly, for LED bulbs and batteries, the seller charges have reduced to 3% from 11%.

One of the other major changes instituted by Amazon pertains to the shipping fee within city limits under its Fulfilled by Amazon programme, where the fees have been changed to $0.37 (INR 24) for the first 500 gms from $0.43 (INR 28). The shipping for the next 500 gms has also been cut.

However, this has been reversed for shipping within the region and nationally, with the fees increasing to $0.49 (INR 32) from $0.43 (INR 28) for regional shipping and to $0.85 (INR 55) from $0.77 (INR 50) for national shipping.

Amazon has also altered the fixed closing fees levied on sellers for payment processing, hardware and other costs.

Earlier, it was Flipkart that altered its selling rates in November 2017. The company lowered commission by 5% on items priced below $4.61(INR 300) for many categories including mobile accessories. Also, the payment settlement time frame was reduced by two days for sellers in the silver category.

As the Indian ecommerce market reached $33 Bn registering a 19.1% growth in 2016-2017, according to the Indian government’s Economic Survey 2018, major players like Flipkart and Amazon have been expanding and exploring avenues to gain a stronger foothold in the burgeoning market.

However, with the changes in seller fees, it remains to be seen if Amazon India will continue to see an influx of new sellers. If it goes sideways, however, existing sellers might give up on the booming ecommerce market of Amazon India.

Unfazed by e-commerce, malls make a comeback

Early 2000s was when shopping malls had hit the Indian market and a few years down the line came e-websites, which many believed would be the reason for these malls to disappear from the market. But has that really happened?

According to a recent report by Anarock Property’s Consultant, a real estate firm, in fact, shopping malls are witnessing a visible resurgence in India. A clear measure of increasing focus on the retail sector is that private equity (PE) players invested more than $700 million into Indian retail in first quarter-third quarter 2017 — which is around 90 per cent of the investments that came in during the past two years . Many industry experts believe that entry of e-commerce websites did not have adverse effects on the business of the malls but rather has been useful to the retail segment of the market.

Long-term goals

“Contrary to popular belief, the advent of e-commerce did not impact the brick and mortar retail market significantly. While it did cause some disruption, it was not enough to have a lasting impact on traditional retail formats. Initially stores did register a slight dip in footfalls and sales, primarily due to the heavy discounts offered by e-commerce sites. However consumers returned to the malls seeking a more holistic retail experience”, said Vivek Kaul, Head, Retail Services India, CBRE South Asia Pvt Ltd. Increase in the millennial population can be the other reason for the rise in the retail activity across the country. “The growing demand for the known brands and products leads to a captive demand for retailers planning their entry into a city”, said Kaul.

On how the things are going to unfold for the malls in days to come, Anuj Puri, Chairman, Anarock Property Consultant said, “The changing business environment, favourable policy shifts and the entry of numerous global players indicate that a resurgence of shopping malls in India is definite. The need of the hour is to develop good quality malls that can attract occupiers for the long-term so that the entire value chain of the retail sector benefits”.