India Retail Forum: Managing a high growth market

(L to R) Vijay Sharma, CEO, Paytm; Vanitha Narayanan, MD, IBM India; Rakesh Biyani, Joint MD, Future Group; Al Rajawani, MD and CEO, P&G India; Krish Iyer, CEO, Wal-Mart India; and Govind Shrikhande, CCA and MD, Shoppers Stop.

Held in Mumbai last week, the India Retail Forum 2016 was a good ensemble of where the customer is going and how retail should evolve, where technology would be an overwhelming influence and where would it be a tool. Pankaj Joshi reports the key takeaways.

Metamorphosis seen in the retail market:

The industry estimate in 2003 was that the target population for the retail industry in India stood at 250 million people, and the 2016 estimate was the same. The difference lies in spending power, which has seen the industry grow to USD 600 billion by 2015 and now is set to be USD 1 trillion by 2020. The scale of spending distinctly varies every five years. As Anurag Mathur, head of retail vertical at PWC stated, “Our estimate in 2011 was that total online retail worldwide would be USD 1.50 billion.

Today gross merchandise volume (GMV), the top e-retailer is more than that, and its market share is not even 20 per cent.”
So while forecasting has not been the best, on the other hand, it has not been smooth for everyone. Jabong’s valuation in 2014 stood at USD1.2 billion and it went to USD 70 million when Flipkart acquired it in 2016.

Mobile now is now a way of life. PWC estimates that mobile contributes 60 per cent of YouTube views, 60 per cent each of job and shopping queries and 50 per cent of travel queries. Today, monthly 3G data consumption is 8.2 crore GB against the 2014 figure of 4.4 crore GB. Mobile adaptation needs a quicker response.

As per Suchi Mukherjee, Founder-CEO, Limeroad, “For any product the adoption curve is through experimenters, the sanction seekers and finally the conformists. Now the cycle has shrunk.”

The forward need was succinctly put by Dhruv Chandrie, COO, Shop CJ Network, that the robust economic growth took care of retail sector for a decade, but now there is a need to be differentiated.

India Retail Forum: Managing a high growth market

Krish Iyer, CEO, Wal-Mart India
Asset light business models, reliant on partnerships and focused on filling the
talent gap, will be the way of doing business. Retailers need to rationalize costs upfront investment, procurement, overheads and manpower.

Predictions for 2020 and ahead:

It is really hard to predict what retail would look like in 2020. How much will be driven by technology, the level of personalization, loyalty factor weight age – all these are variables. Take robotics where current spend is USD 43 billion and industry is saying it will double every year.

Rakesh Biyani, Future Group Joint MD stated that India’s current per capita income is around USD 1,800 and should get to USD 2,000 by 2020. It is generally seen that economies see a sea change in their patterns beyond the USD 2,000 per capita income level. Key changes happening today in the shopping phenomenon include where, how and what people buy, the
point of sale for different products and the competition avenues. Only thing certain is that the market is going to be huge and priorities moving beyond price. For offline the opportunity is still enormous where Biyani sees 80 per cent of retail would still be offline in 2028. Small retailers segment would flourish by virtue of innovation, low business cost of doing and low capital-intensity.

India Retail Forum: Managing a high growth market

Vanitha Narayan, MD, IBM India
The last decade has indeed seen consumerisation of technology and focus on the front end – how to serve, what is being asked, what is the proper response, how quick can it be and so on.

Factors creating a new direction:

PWC estimates that by 2020, we will have added 65 million to the country’s population, of which 65 per cent will be aged 35 and less. Then there is urbanization and women workforce increase. A D Singh, MD, Olive Bar and Kitchen indicated that while the Indian economy took 61 years to get to $1 trillion, from there to USD 2 trillion is a ten-year journey.

Nikhil Chaturvedi of Provogue indicated that where millennials do not read the newspaper, brand-building techniques of 2000 are not relevant. Social media presence is the key.

Today food category has new demand segmentations – health and wellness, convenience and indulgence. The young consumer, with work and commute demands is time starved. Small communities which are influencing decisions are coming up in social media. Health based demand now focuses on aspects of human health, food-centric health and even environmental health, as evinced by clay Ganesha idols.

Vijay Jain, CEO, Orra emphasized on the level of engagement. The online surfer will come into the store with a clear mind for specifically what he wants. If an item is not in stock, a digital image will be acceptable for booking an order. Samik Roy, country head, Microsoft Dynamix indicated how technology would change the sector. Data-wise 2.5 quintillion bytes are generated daily. 90 per cent of the data present today has been created in the last two years. Artificial intelligence is shaping the search and overall personalization space.

From a five-year disruption view there are other external factors as well. Government initiatives to open up food retail FDI gives much more room for international players to expand. The GST implementation will impact sourcing, distribution and ultimately pricing. As Patrik Antoni, Deputy Country Head, IKEA, stated, “IKEA has been trying new things in multi-channel space, but the committed leadership since five years and regulatory changes, have now seen a shift happening.” The aggregator system as per Unnat Varma, MD, Pizza Hut, has helped the food business. First up, it gives the customer greater choice in cuisine and quality. Then vendors are not required to invest in front-end dining infrastructure (which by its very nature has a long pay-back). Two years after Pizza Hut started online, today it contributes 50% of sales.

What is and what should be response from organizations:

Samik Roy, country head, Microsoft Dynamix highlighted that insufficient investment in areas like privacy-wise vulnerability of apps and cyber attacks is worrying. Companies need to be alert, nimble and proactive and the ground staff needs customer orientation, all of which can be helped by technology. Any organization should ask – am I aligned to the evolving customer and are transformation initiatives put in motion with adequate dedicated time by the teams? Are we adapting to technological disruption and working on our data and analytics capabilities? Right now, in aggregate, all are poorly addressed.

Krish Iyer, CEO, Wal-Mart, emphasized on partnerships now going forward. Partner with policy makers to bring to notice that retail is an important sector and it should reflect in procedure simplifications and policy measures. Partner with developers to bring in next generation layouts and adopt tech innovations effectively. Partner with suppliers and service providers for better delivery. Corporate strategy to be asset-light business models, reliant on partnerships and focused on filling the talent gap, will be the way of doing business. Retailers need to rationalize costs – upfront investment, procurement, overheads and manpower.

Vanitha Narayanan, MD, IBM stated that the last decade has indeed seen consumerisation of technology. There is lot of focus on the front end – how to serve, what is being asked, what is the proper response, how quick can it be and so on. A capability translated into an API, combined with cloud, means immense reach for successful local innovation.

India Retail Forum: Managing a high growth market

Vijay Sharma, CEO, Paytm
Companies are not just building supply-side technology but also consumer-side technology. The latter needs a different execution mindset but is now imperative at a time when shirts and even furniture is being bought online.

Govind Shrikhande, CCA-MD, Shoppers Stop gave some future visualizations – brick and mortar getting their revenge when the courier companies take over Amazon, and virtual reality being the dominating tech factor independent of Android/ iOS platform. He also indicated a horses-for-courses approach. Target did not succeed in Canada, and Amazon is struggling in China. Retailers should focus on collaboration, like Alibaba has, rather than domination.

Vijay Sharma, CEO, Paytm differentiated among partnerships. Supply side partnerships talk of efficiency while demand side partnerships focus on capturing latent demand.

Al Rajawani, MD-CEO, P&G India, explained that a retailer looks at a new product supplier from the viewpoint – do my footfalls increase? Are my categories expanding? Are my margins showing growth? Patrik Antoni, Deputy Country Head, IKEA focused on brand building connected to the company ethos, “Why are we doing business. Your company vision will lead you into why and what and how you do everyday. A combination of product, closely correlated service and scalable activity goes into creation of brand. When done consistently, it translates into a memorable customer experience.”

Suchi Mukherjee, Founder-CEO, Limeroad stated her ethos, “In lifestyle and fashion, where we are, discovery trumps discount in value terms. Newness is the hallmark of today’s India for the next 10-15 years. We believe in freshness – our catalogue refreshes every thirty seconds. Limeroad does not fund discounts, it funds newness. We call it visual merchandising on steroids.”

India Retail Forum: Managing a high growth market

Rahul Agarwal, MD & CEO, Lenovo India
The only online sale of Moto was an experiment with visible upside & downside. The brand existence was endangered, but the culture & courage of the people made the strategy a success.

Vanitha Narayanan focused on weather pattern and how it influences around 70 per cent of GDP. Rakesh Biyani talked of how climate change is changing shopping patterns and the calendar of retailers. Rahul Agarwal, MD and CEO, Lenovo India gave his perspective on the only-online sale of Moto – it was an experiment with visible upside and downside. The brand existence was endangered, but the culture and courage of the people made the strategy a success. Now, as per him, “we are scared of overdependence on the online channel. For us, one-third of mobiles and around 15 per cent computers are sold online. Our lesser focus on offline had to be modified.”

Vijay Jain, CEO, Orra emphasized on improvisation, “We kept going back and forth in building our three-level flagship store but that time spend was beneficial. Not only did the cost come down, but we could freeze on A, B and C store formats and take on construction with pretty much the same material.”

Dhruv Chandrie, COO, Shop CJ Network indicated his innovation – Shop CJ has delivery done to more than 6,000 pincodes in India on a daily basis. That, and returns being a perennial issue, were the reason that they invested in own delivery network – dedicated staff and vans in 65 cities – as well as in significant packaging innovations.

For Crossword, the biggest challenge is to identify a long-standing loyal customer in a store system where staff attrition is high. We have to have a meaningful interaction because that is what he expects. That is managed through technology – each store has a missed call option for an incoming customer which will alert the store staff and the overall system about his/ her arrival.

Customer today and tomorrow:

Al Rajawani was of the view that the consumer today is connected and sophisticated and his needs are both universal and local in nature and must be catered to accordingly. The brightest consumer segment for the sector today is the millennials and post-millennials. Vijay Sharma added that, if a person has a smartphone he had to be a target customer. You cannot neglect that potential. One person in a room influences a hundred through messages, images and videos.

The consumer would always side with technology, so tech versus industry is a game that industry should not play. Getting closer to consumer will give that insight which keeps one ahead in the evolution process, so tech producers are now becoming consumer owners. Krish Iyer added that value now is measured by the consumer in time and money both, since saving both leads to better living.

Alok Gupta, CEO, The Mobile Store indicated the hassle that “Mobile shopping gets done easily out of our time zone in 10 pm – 6 am. What can be done to get this shopping in-store? We invested in an environment of trust and transparency and made negotiations easier for all concerned. Getting more people to walk in is about the experience. The customer journey is both exciting and difficult. We must give him ease of experience and manage the difficulty part.”

Technology and the industry:

Vanitha Narayan explained that, in an environment getting crowded, use of data is a must. Smartphone is a massive data generator both from the consumer side and the supplier side. The business enterprise behavior today is guided by imperatives of security, privacy, personalization as well as process modifications. Retail has always been a thin-margin business, so then how to institutionalize all these data demands with technology – through supply chain management, enterprise discipline and best practices – on a budget – remains the challenge.

Vijay Sharma emphasized that companies need to be building supply-side technology but also consumer-side technology. The latter needs a different execution mindset but is now imperative at a time when shirts and even furniture is being bought online. Krish Iyer explained that digital is not an either-or scenario for the sector. In the USA, 64 per cent of sales have digital influence, a key and accurate metric. It was understood that digital consumers are not necessarily cannibalizing the current size, they are generally an incremental growth avenue to capture a future consumer.

Gaurav Mahajan, President, Raymond emphasized that experience has great value, since a brand borrows from its depth and heritage. Raymond expects digital business breakthroughs from its in-house team’s efforts.

Samik Roy explained that since technology brings speed differentiation. Modern stores rely on technology to bridge the divide between traditional and digital retail.

An external viewpoint:

It was brought forth that where, today, 25-year old companies struggle for 10 percent PAT, you have young companies who have valuations. But then, if somewhere some funder dries up then again young companies are not in business. This is a real threat at sector level. Vijay Sharma emphasized that Alibaba has a 67 per cent EBITDA and Amazon generates billions in free cash. Value will emerge from operations and reflect eventually. As per Rahul Agarwal, “Why does Amazon get 1.7 times the market cap of Wal-Mart inspite of Wal-Mart having 4.5 times the revenue and 15 times the profit? It is because Amazon is investigating, developing and harnessing emerging technologies.”

Suchi Mukherjee, founder and CEO, Limeroad gave a perspective that tech companies do not wait for new technologies. Behind one idea that works are a hundred pings – this is true as much for Amazon as for Limeroad. The greater value in marketplace is simply because of this tendency; because when the future changes it will not be that much a hassle for a constantly experimenting company.

India Retail Forum: Managing a high growth market

Suchi Mukherjee Founder & CEO, Limeroad Newness is the hallmark of today’s India.
We believe in freshness – our catalogue refreshes every thirty seconds. Limeroad does not fund discounts, it funds newness. We call it visual merchandising on steroids.

At the closure, it was agreed that the key idea was to deliver a better bottomline in the face of challenges from different spheres. Retailers would touch e-commerce for business, not be in business for e-commerce.

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