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Launch online ventures after omni-channel model falls short
Billionaire Kumar Mangalam Birla is known to be obsessed with businesses that generate high free cash flow.
This has stood him in good stead through the past two decades, during which he transformed the Aditya Birla Group from a $1.6-billion industrial conglomerate into a $41-billion business empire across telecommunications, financial services, branded apparel and retail.
His fight with discount e-tailers was certainly not going to be the cash-burning exercise of his digital rivals to lure consumers to shop online.
Transforming his brick-and-mortar business under the Madura and Pantaloons brands into omni-channel retail -- presence across mobile apps, retail and online stores -- was obviously the first move.
This led to the launch of trendin.com in 2013, which grew fast and garnered Rs 50 crore (Rs 500 million) in 2014-15, or one per cent of the Rs 5,450 crore (Rs 54.5 billion) revenue of the Madura and Pantaloons brands.
This is, however, not enough at a time when e-tailers such as Jabong have grown aggressively, with sales jumping to Rs 527 crore (Rs 5.27 billion) in 2013-14 from Rs 4.6 crore (Rs 46 million) in 2011-12.
“We are not looking at a deep-discount model, but one that is high on the style quotient,” the chairman of the Aditya Birla Group told Business Standard at the launch of e-tail venture abof.com. “Our prices will be quite sharp, which we call ‘honest pricing’,” he said, giving the new venture four to six years to break even.
Birla is not alone.
The Cyrus Mistry-led Tata Group and Mukesh Ambani-promoted Reliance Industries have similar plans to take on discount e-tailers.
According to PwC, India’s internet users are only 36 million short of the US’ 279 million.
However, in relation to its population, only 19 per cent Indians use the internet, which shows the untapped potential.
“These conglomerates are putting their money, so they have been slow to react to discount e-tailers, which are funded by venture capital firms,” says Anurag Mathur, leader (consumer goods and retail), PwC India. VCs invest in several firms in the same category hoping the winner will create a disproportionately high value.
VCs have been especially bullish about India since e-tailer Alibaba’s $25-billion initial public offer on the New York Stock Exchange.
Also, brick-and-mortar retailers’ omni-channel models have not been able to capture more than 10 per cent of their business as pricing is the same as in physical stores.
“With the new ventures, they can create supply chain, distribution and logistics and in this way, fight discount e-tailers for consumers who are not necessarily looking only for discounts,” says Mathur.
The Tata Group has also adopted the omni-channel for some of its businesses in the past couple of years.
“Our website does not compete with e-tailers; it drives traffic to our stores,” says Ritesh Ghosal, chief marketing officer at Infiniti Retail, the firm that operates about 100 Croma stores.
“More than half our e-commerce sales are omni-channel sales, initiated on the web and closed at the store or the reverse.”
But this is not enough and the group is planning multiple e-tail ventures. These include a marketplace under the Unistore brand, which will start with offering products from the Tata Group this year. It also started an e-tail grocery venture, my247market.com, being piloted in Mumbai.
RIL has also made its grocery business omni-channel via reliancefreshdirect.com and plans to follow in fashion and lifestyle.
RIL is also planning a new marketplace venture that will compete with the likes of Amazon and Snapdeal.
For this, it plans to enroll 150,000 sellers by the end of FY16. Amazon, which started its India operations in 2013, has 50,000 sellers and Snapdeal has 200,000 after three years of operations.
"This year will bring about a disruptive shopping experience for consumers as they embrace technology and get access to anytime, anywhere shopping," RIL chairman Mukesh Ambani said at the company's annual general meeting this year, explaining how he planned to leverage his telecom venture Jio to create a differentiated e-tail venture.
Jio's internet infrastructure will provide the technology backbone for the venture.
The company also plans to launch its own mobile handsets with a preloaded shopping application. Moreover, its payments banks licence would help create a robust payment system for its marketplace.
"Most of the successful e-commerce ventures, including Alibaba and Amazon, have been built by extremely gifted entrepreneurs who defy the conventional rules of business and are very agile.
"Large and older companies have a disadvantage because they cannot be entrepreneurial in the same way as a lot of them are used to having layers of management," says Arvind Singhal, chairman and managing director, Technopak.
Notwithstanding the plans of Indian business groups, established retailers worldwide have been overtaken by e-tailers.
Walmart is today the 28th most valued company in the world while Amazon and Alibaba are 9th and 24th, respectively.
But in the Indian context, Technopak finds Tata, Birla and Ambani in a unique position because of their presence in telecom.
As telecom is one of the key ingredients for the business, groups like Reliance are trying to bundle not only merchandise but a whole lot of other products and services, ranging from finance and entertainment to education.
"That is where they could be at an advantage," says Singhal.
The image is used for representational purpose only. Photograph: Reuters
