Fashion retailers such as Aditya Birla Group, Reliance Retail Ltd and Arvind Ltd may have taken the plunge into the online fashion retailing business, but the man once described as India’s Sam Walton, Kishore Biyani, isn’t budging.
The “model of spending so much money to acquire a customer”, doesn’t appeal to him, admits Biyani, chief executive officer of Future Group.
“The cost of doing business in online fashion retail is not profitable,” he said on Thursday, during the relaunch of the Future Group’s Central store in Bengaluru. It’s a relaunch that has cost the company around Rs.88 crore—all spent on making the 110,000 sq. ft outlet in the city’s Commissariat Road neighbourhood more upscale.
That may seem counter-intuitive, especially because fashion is the most profitable category for online retailers such as Flipkart, Myntra, Jabong and Amazon India.
Then, Biyani has always been a contrarian. And this time, his contrariness is backed by numerical logic.
“In the online model, the minimum cost of acquiring a customer is 20% of total sales, but for us, it 2-2.5% of total sales. So, there is no comparison between the two models. At the moment, no, we won’t get into online fashion retail,” said Biyani.
He still recognizes the competition posed by these firms, though. That’s one reason for the relaunch of Central. The store now houses designer brands such as Satya Paul and high-street fashion brands such as Tommy Hilfiger and Global Desi. It has also more than doubled the number of brands available in the store from 200 to 500.
“Competition is making us work harder. To compete with the new businesses, we need to make it all about the experience and seduction in order to make them spend more money,” said Biyani.
The store has fashion consultants with whom shoppers can schedule sessions. It will also help customers find garments they have seen somewhere and want. Indeed, customers can even Instagram a picture of a garment and the store can help find it.
Biyani expects all these efforts to lead to at least a 100% increase in the ticket size when it comes to spending. He didn’t disclose the takings of the store.
An expert says Biyani may be missing a trick: “Online retail cannot be ignored, as the demand in a country like India is extremely scattered. It is actually a perfect solution to cater to customers that exist beyond the top 20 cities where brick-and-mortar retailers exist,” said Harminder Sahni, founder and managing director of Wazir Advisors, a retail consultancy firm.
Still, the decision to go premium is a good one, he added.
“Indian customers are aspirational. Anyone who is trying to go cheaper is dead,” says Sahni.
The chain of Central stores comes under the listed entity Future Lifestyle Fashions Ltd, which also has other retail stores such as Brand Factory. Future Lifestyle earned a profit of Rs.18.55 crore in 2014-15 on revenue of Rs.3,134.09 crore.
Biyani is happy that the government’s new regulations for online marketplaces places constraints on indiscriminate discounts. Biyani also says he has picked up some valuable lessons from his online competitors.
“I think online business has taught us about velocity—how fast you pick up stock, how fast you deliver, how fast you sell. We are now making velocity a key driving force in our company. We are very slow now. I can’t tell you the current velocity rate, but it is very low. But we want to get to a place where we will be selling everything in eight weeks.”
So, is there anything that will make Biyani take up online retailing of fashion? “The world has to change. The one where it thinks of profitability,” he said.
Online retail is now a $14 billion market compared to the $1 billion it was in 2012. This growth has been fuelled by venture capital investors, who pumped in more than $9 billion into the business over the past two years alone.
A huge chunk of this money has been spent on luring customers through advertising and, more importantly, discounts.