Mumbai: The war of words between online and offline retailers is not new but over years, both retail players have understood the importance of online and offline. While brick and mortar retailers are exploring online techniques, many e-commerce sites have been opening physical stores.
To discuss the future of retail, a conversation was held at Ascent Conclave 2018 which had names like Future Group chief executive, Kishore Biyani and Nykaa founder Falguni Nayar. The session was moderated by BloombergQuint’s Menaka Doshi. During the exchange, Biyani argued that e-commerce players are playing a different game compared to what offline stores do.
He added, “If you look at the cost to acquire a customer (of offline retailer), it is less than 1 or 2 per cent. The cost of delivery is not there and the cost of running a store is 13-14 per cent. We operate a retail business at 15-16 per cent cost.” But Biyani pointed the cost of doing business for online retailers is almost 50 per cent. “The cost of acquiring a customer is between 10 and 30 per cent, the cost of delivery is 10-20 per cent and managing a business is another 10 per cent.”
Agreeing to Biyani, Nayar said that the game plan of e-commerce is unlike offline. Online retailers want to continue acquiring customers at all time. “We (Nykaa) have taken a pledge to acquire 30 per cent new customers. If e-commerce companies did not continue to acquire new customers, then they would have been profitable already. But it is a conscious choice,” Nayar stated. She added that online players are acquiring new customers as in the long-run they are looking at profitability.
Biyani reiterated that it will take a while for the e-commerce site to become profitable. “This is because they will have to scale up in size; and reduce the cost of delivery and acquiring customers.” Nayar felt that such situation exists due to affordability issue in India. “E-commerce business has been built with sensibility.” She highlighted the need for players to keep the affordability factor in mind which is a reality in India.
Digitally, it is easy to get customers and to loss customers, admitted Nayar. But taking a cue from this, Nayar strongly felt the need to have certain amounts of physical stores which is the way forward. Nykaa expects to add around 200 stores in next four-five years.Future Group is adding stores too and also looking at expanding its presence through franchisee model. “There is market everywhere in India,” he added. But he feels it for specific products. He added as prosperity increases in India, there is and will be increase in consumption.
Commenting about middle India, he claimed that the Future Group has put the foundation and the growth has to be seen. “We are building our distribution model.” The company has seen profitability in whole sales model but not in small stores in middle India. This region continues to be dominated by kirana stores (small stores). While big retailers like Big Bazaar are finding ways to enter in the space, online players have to depend on delivery mechanism to reach to non-metro areas.
Nayar also pointed that e-commerce is still not very friendly when it comes to language. For e-commerce to strike a chord among areas other than metros, there has to be more non-English content on the sites. “We are not giving the right solutions to the customers (in non-metro region).” Both offline and online players are trying to offer convenience. For online business, it is about delivering the product at the door step and for brick and mortar, it is about having a store in 2 km radius of the customer.