BW Communities

Blended Future

Business World Jun 23, 2015

The future lies in multi-channel retail that blends the benefits of real world retailing with virtual or digital interfaces, says Kishore Biyani Amongst the biggest shifts of the last decade has been the ‘consumerisation’ of digital technology. From being confined to certain industries and research labs, digital technology has become pervasive. Technology has shrunk time and consumers now demand more convenience, customisation and consistency. The last couple of years have seen a large number of etailers built solely around technology-enabled web or mobile interfaces. One presumes that the increased use of technology will either improve efficiency and reduce costs for the business or that the consumer will be willing to pay a premium for the convenience that technology-enabled services offer, or both. Yet, evidence suggests that neither of these transformations has happened in India. Consumers will not pay extra for the convenience of ordering from home and being delivered at the doorstep. Barely anything sold by pure digital retailers aren’t discounted. The core proposition of these firms is deep discounting to the extent that it scares away brand owners who fear losing their brand salience. Even a subscription model similar to Amazon Prime, so popular in the US, has been tried and quickly withdrawn. On the other hand, millions of customers come to experience the real markets, cherish the happiness of having the product in hand and pay the price for this experience. It is evident that costs incurred by virtual retailers are significantly higher. The cost of delivering from central distribution hubs to the doorstep of consumers, the size and scale of the offices and warehouses required and the customer acquisition costs far exceed the costs associated with running a store within four walls. It is therefore not surprising that the mindshare occupied by virtual retailers (VR) is much higher than their marketshare. The Mobile and Internet Industry Association estimates that online transactions will touch Rs 1,00,000 crore by the year-end. However, virtual commerce will account for only 24 per cent of it, with the bulk of spends being in travel, financial services, media, classifieds, etc. Of the Rs 24,000 crore worth of merchandise sold, more than half is accounted for by mobiles and laptops which are low margin businesses. The larger real retailers are close or comparable to the size of the entire virtual commerce business in India. The growth of VR is not led through own brands or products or by achieving operational efficiencies or scale. It is entirely led through reducing the prices of products subsidised by the investments made by foreign companies. On the other hand, real retailers face severe restrictions in fund raising; especially foreign funds. The future lies in multi-channel retail that blends the benefits of real world retailing with virtual or digital interfaces. More than half of VR sales come from 2 or 3 cities; Delhi-NCR accounts for the lion’s share. Barely any courier company services more than half the pin codes in the country. Future Group alone is present in 244 cities and our logistics networks catering to these stores cover almost 13,000 pincodes. By treating our stores as both distribution and delivery points, logistics costs for a multi channel retailers like us will be less than one-fourth of costs incurred by a pure play virtual retailer. Role of technology in business cannot be denied. Real world retailers manage thousands of transactions every minute, source and transport tonnes of goods every day and operate networks that span the length and breadth of the country. These are possible because of a credible technology backbone. To replicate such technology for a front-end consumer interface is only a function of finding the opportune time and optimum investment that can deliver benefits to all stakeholders.   The author is founder & CEO, Future Group (This story was published in BW | Businessworld Issue Dated 13-07-2015)