Surviving the online retail boom
Improved after-sales service, expansion and new marketing strategies could help traditional retailers meet the challenges posed by e-retail
Flipkart’s Big Billion Day sale raised expectations sky high, but could not live up to them, angering customers. This has also raised concerns among
brick-and-mortar retailers on how to tackle the onslaught of online vendors and what strategies they should be looking at.
Differentiate, or perish
D. Sathish Babu, founder, UniverCell
E-commerce has changed the retailing landscape, but we have seen this overenthusiasm even in the past as we have been in the business for the last 18 years, says Babu, referring to Flipkart’s Big Billion Day sale. “Price is the only real differentiator between online retailers and us. But you must remember that we are a specialist, while online retailers are generalists,” he points out.
Gadgets and mobile phones are one of the biggest categories for online retailers, but Babu says this is also one category where customers need guidance on their purchase as the market is flooded with options. “I can’t match their price, so we need to offer something more. With the rise of online retailers, we are focusing on two things. One, we must focus on the experience—most phones look the same and you can’t tell the difference at a glance. Retailers like us allow customers to fully experience the phone. Two, on after- sales: you need to stand out in after-sales and make that your strong suit if you want to retain customers. For instance, we provide services where we pick up your phone for repair, give a replacement and even deliver it back,” he says.
A company will need to differentiate, or perish, says Babu.
Yet another focus area for retailers is to expand, he says. “You need to be available wherever people need your service to be able to compete with online retailers,” he adds. Babu says he is also a big believer in the model of collaboration. UniverCell is also a seller in the marketplace model of retailers like Flipkart. “It would be immature if I didn’t leverage their presence, in addition to my brick-and-mortar business,” he says.
Tweak marketing strategies
E-retail is still new in the country, and it has clearly caught the imagination of urban India, which has significant spending power. E-retailers continue to get funding from financial investors, which is helping them establish themselves. As a result, traditional retailers are likely to see some short-term pain, says Krishan.
Traditional retailers, however, can tweak their marketing and operational strategies. “Brick-and-mortar retailers can have different formats for different geographies and population groups. They have an edge over e-tailers in terms of customization,” he says .
Krishan gives the example of Kishore Biyani who has successfully established different retail formats catering to a variety of customers. Some of the brick-and-mortar sellers can offer e-tailing options to their customers as well. “Customer loyalty is key and if loyal customers prefer specific delivery models, they would need to include those as well. Also pertinent to note that certain product categories, such as perishables, are hard to do through e-retail,” he says.
Online vendors are creating a market for themselves by offering huge discounts and advertising heavily to attract traffic. The question, says Krishan, is how long they can continue with such a strategy and whether the vendors in such marketplaces will support them over long periods.
For an online start-up, a marketplace works very well, but established firms would not like to be a part of such predatory pricing, particularly if they have to take on a large proportion of the discount passed on to the customer. In any case, they cannot do without the brick-and-mortar retailers with their reach and network, and the ability to serve tier I-tier III centres alike across different formats, he says.
India’s retail story seems to be in a flux at the moment. E-commerce is gaining momentum in the country. Nevertheless, people like to step out over the weekends and go shopping. Online commerce, says Krishan, cannot replace the experience offered by the brick-and-mortar format.
Traditional retailers can go online
S. Raghunath, professor, corporate strategy and policy, Indian Institute of Management Bangalore
The good news for traditional retailers is that online retailing makes up just 1% of the total Indian retail market, says Raghunath. This is the average across all product categories, he adds.
“Traditional retailers can always turn into online retailers as they have significant advantages over e-retailers in most retail categories,” he says. “For instance, with their experience and connections with suppliers, retailers have advantages of utilizing their relationship for procuring merchandise. Therefore, the online business entities of traditional retailers can fulfil a higher percentage of orders on time compared with online retailers and deliver orders to customers more quickly than any online retailer.”
Raghunath says traditional retailers can also offer customers the convenience of picking up products or returning a product purchased online for replacement at a retail outlet. “Extending this advantage, retailers can use their retail outlets for same-day delivery of orders made online,” he adds. Traditional retailers can also set up online businesses that turn out higher profits than those who have no brick-and-mortar store to support their back-end.
Also, online retailers tend to focus on driving traffic to their websites, but may not have commensurate processes and organization in place to focus on the quality of logistics, fulfilment and customer service. This was widely experienced in the recent online fiasco (in Flipkart’s Big Billion Day sale), with deterioration in customer service performance and escalation in costs, says Raghunath. “In the developed countries, there is a noticeable phenomenon called reverse show-rooming. In the US, for instance, according to the Harris Poll, 69% of people reverse showroomed, that is, obtained information and deeper appreciation of products online and then purchased in retail stores,” he says.
Therefore, utilizing social media and creating listening posts on the Web can help traditional retailers improve their product selection and store layout, adds Raghunath.
Editor's Picks »
- Future Retail’s Q2 result shows improvement in same-store sales
- Private insurance firms grow at the expense of LIC stuck with a sick bank
- Page Industries’s lofty valuations get a reality check in Q2
- Q2 results: Grasim’s Vodafone Idea stake is proving costly
- How Vodafone Idea’s $3.5 bn fundraising will impact telecom in India