Retailers shut brick-and-mortar stores, go online to offset slow growth
Almost every second retailer is now online and some may well be small retailers with just a handful of stores
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Mumbai: Florence Clothing Company is downing shutters—but only in the real world. It will continue to grow online, where it has had a presence on Snapdeal for around 18 months, and its products will also be available through department stores and hypermarkets.
Florence is just one of several retailers that are moving online to offset slow growth and high operating costs.
“We will close all our stand-alone stores as soon as the rental deals are over. The overhead operating costs are high and we will save Rs.1.5 lakh per store per month if we close them as we save on rentals, utilities and other costs,” said Karan Chugh, proprietor, Florence Clothing. Florence has almost doubled its revenue from Rs.6.5 crore for the year-ended March 2013 to Rs.12.5 crore for the year-ended March 2014, claimed Chugh. It has already closed three of its 10 stand-alone brick-and-mortar stores, all of which make losses, according to Chugh.
MK Synthetics, a Bangalore-based wholesaler of silk saris, is another such. It has closed three of its 10 stand-alone stores in the past month and entered into an exclusive partnership with Flipkart. “Our brick and mortar retail business is credit based and has low returns. Whereas online, we get the order first and then fulfil it, giving us a better view of our inventory and return on investment,” said Chirag Pavecha, manager, MK Synthetics.
Soulflower, an organic handmade personal care products brand from Mumbai, closed its stand-alone store at Inorbit Mall in Mumbai and is focusing on online sales and its shop-in-shop sales through departmental stores Lifestyle and Shoppers Stop. “The return on investment in stand-alone stores is not worth our time. We can double our sales if we put that same money and focus on e-commerce as compared to stand-alone stores,” said Amit Sarda, managing director, Soulflower India Pvt. Ltd, which sells online through Flipkart, Snapdeal and Amazon. For Soulflower, the like-to-like growth in multi-brand outlets is 40% and online, over 1,000%.
Almost every second retailer is now online and some may well be small retailers with just a handful of stores in a region, said Kumar Rajagopalan, chief executive officer, Retailers Association of India.
“People have started thinking of their online business as a primary source of business,” said Ankit Nagori, vice-president, Flipkart. Most sellers see a 100% growth quarter-on- quarter, he adds. Flipkart has a seller base of 50,000.
Sellers on Snapdeal too are growing at a similar pace. “We have grown by 600% y-o-y for the last two years. This is a result of and proportional to the growth witnessed by sellers on Snapdeal.com,” said Rohit Bansal, co-founder and chief operating officer, Snapdeal. The website is looking at growing its vendor base to 100,000 in the next 12 months from about 30,000 currently.
It’s a similar story on Amazon.in.
According to Amit Deshpande, director and general manager, seller services, Amazon India, the company has thousands of Indian as well as global brands. “We have a total selection of 1.7 crore products across 29 departments and are adding more products to this selection even as we speak,” he said.
For vendors, there is no cost of setting up a store on portals such as Flipkart or Snapdeal. A vendor can register and get onboard with Snapdeal in just four hours. Both provide cataloging, packaging and logistics support. However, once they start selling, they have to pay a commission to the platform. At Flipkart, the commission on apparel is 15% and electronics, 5%.
“Earlier, merchants saw Internet as a threat. But it is the other way round now and they see Internet as an enabler,” said Bansal.
The online platform is also finding favour with big brands such as Puma and Nike and also with international brands looking to launch in India. For instance, brands such as Dorothy Perkins and Miss Selfridge are only available online on sites such as Jabong and Myntra.
To be sure, online retail is just a fraction of the $554 billion retail market at 0.4%. However, it is growing fast. “Online retail is expected to see 50-60% CAGR (compounded annual growth rate) in the next three years,” said Ajay Srinivasan, director, Crisil Research, in an earlier interview.
Even in markets such as South Korea, which has the highest Internet penetration in the world, offline retail accounts for 75% of all retail. In markets such as the US, e-commerce accounts for just 10% of the overall retail market, said Kunal Bahl, founder and chief executive officer, Snapdeal.com.
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