Sunday Anchor

The future is click & mortar

Brick-and-mortar retailers are bearing the brunt of a seismic change in the way people shop and are saddled with huge physical spaces for which they have to pay rent. Photo: P.V.Sivakumar  

"A low single digit,” as they say these days in e-commerce circles, is roughly how much online selling accounts for in India’s retail market. But don’t let the seeming insignificance of that fool you. The advent of online sellers has already started triggering a massive churn in the way selling is done in India, as it has in many other parts of the world. It has made sellers in the offline world queasy.

Not even they dispute the forecast about the future having a significant online component.

A report brought out by Knight Frank in association with the Retailers Association of India, which represents traditional retailers, pointed out that the share of e-tailing in modern retail with jump more than five times by 2019 (to 11 per cent then, from 2 per cent in 2014). During this period, the share of brick-and-mortar retail is likely to fall from 17 per cent to 13 per cent.

By the way, if the math doesn’t work out right, it’s because India has a very high proportion of traditional retailers (the kirana stores, for instance, which don’t count under modern retail). Over the last decade or so, newer retail formats such as malls and supermarkets have sprung up in different parts of the country. Then, threatening their very relevance, online selling picked up. So much so that e-commerce players such as Flipkart, Amazon and Snapdeal are now big brands. They have become so in a matter of a few years.

The question now, therefore, isn’t whether online retail will disrupt the conventional way of selling but how it would. The reasons are many. People are getting increasingly comfortable with the idea of buying online, especially with low prices acting as a bait. It isn’t even necessary for buyers to share their card details online. They can use digital wallets or opt for the cash on delivery mode. In India, you can buy even diamonds using the latter option.

Capital inflows

Also, e-commerce players, with their huge pile of cash, courtesy the billions of dollars that keep flowing into them from private equity investors, can build better customer experience and also offer huge discounts.

They are also able to build analytical tools to better target the customer. Why, if the views of some industry watchers are to be considered, Flipkart is betting on disrupting even the online space by planning to be available to buyers only on the app. The smart phone is a sort of unique ID or address, and one which can be an ideal place to browse and pay.

Contrast this to the recent experience of the brick-and-mortar retailers, who are bearing the brunt of the seismic change in the way people shop. They are saddled with huge physical spaces that they have to pay rents for. Also, unlike the e-commerce players, they aren’t getting big capital infusions from private equity investors; in any case, not for their brick-and-mortar business model. The incumbents include business houses with deep pockets, such as the Tatas, Reliance, and Birlas.

Hybrid model

What we are set to see, analysts say, in the years to come is neither a model that’s completely online nor completely offline (of course!). What is emerging is what the industry calls omni-channel — where a retailer is able to address a customer’s needs through multiple touch points. One globally well-known example of an omni-channel initiative is of the 150-year-old Macy’s, which has now adapted its structure to allow buyers to browse, pay and pickup what has been purchased “where and when” they want.

In other words, we could be looking at a hybrid model in the years to come. India’s incumbent retailers are preparing the ground for more investment in technology and more understanding of the space from the consumer standpoint.

Earlier this year, there was a wave of consolidation in the brick-and-mortar retail industry, with Bharti Retail and Future Retail merging. Also Aditya Birla acquired Jubilant’s retail business.

On the other hand, online players may not be completely able to do it without an offline component. Even Amazon has a pick-up and drop-up facility inside Purdue University now. Alibaba, the world’s most valuable e-commerce company, has significant amount of shares in department chain Intime Retail.

It will take a long time in India for this aspect of modern retail to play itself out . The stakes are very high, though, with the country being the second-most populous country in the world and also the one with the highest GDP growth rate currently.

Government silent

This disruption of the existing retail order manifests itself as an online versus offline battle. Some months back, the Retailers Association of India moved the Delhi High Court to argue for a level-playing field in foreign direct investment (FDI) rules for retail.

Its argument was that while the current rules restrict FDI into retailers to customers, such a restriction doesn’t affect e-commerce players, who manage to slip past because they present themselves as technology platforms or marketplaces. The government’s view on this is awaited.

The pharmacy business became another small battlefield last week, as chemists shut down their business in an effort to put pressure on the Health Ministry to act against online pharmacies.

In the years to come, it won’t be an online or offline scenario. Rather, the battle could be about who masters the online-offline combo.

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Printable version | Jan 15, 2022 8:42:03 PM |

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