Old-style retailers have to compete with online ones
Two recent corporate announcements in the retail space, the first a merger between two Aditya Birla Group companies and the second a tie-up between the Bharti Group and Future Retail, may have had somewhat different objectives, but both underscore the urgency for greater efficiency in the business. With a combined turnover of over R5,000 crore in the apparel business, the Birla Group will have a sizeable heft in terms of sourcing efficiencies. Ditto for the R15,000 crore grocery combine of Future Retail and Bharti. To that extent, the mergers give the two groups a big advantage. Indeed, though e-tailers have grown their businesses at a far more rapid pace than traditional brick-and-mortar stores, how fast they will grow in the future will eventually depend upon sourcing efficiencies—this will matter even more since, sooner rather than later, e-tailers will have to stop burning cash to attract customers, which is the current practice. Which is why consulting firms are projecting a smaller market share for e-tailers—despite the frenetic pace e-tailers are growing at today, Technopak estimates brick-and-mortar sales at $147 billion in 2020 versus $32 billion for e-tailers. The difference between the two, of course, is narrowing quickly since, at the moment, brick-and-mortar sales are $53 billion versus just $7 billion for e-tailers.
That said, it is not going to be a cakewalk for traditional players, no matter what their size. More so since e-tailers are also increasing sourcing efficiencies over a period of time. Indeed, it is hard to see any retailer thriving or even surviving without a sound strategy for selling its merchandise online. The omni channel—the click-and-mortar model—is probably the best route to survival as consumers increasingly shop on their smartphones. Which is why it was somewhat surprising to hear Aditya Birla Group chairman KM Birla say that his company would refrain from selling its products on the portals of e-retailers if they discounted heavily. Unfortunately for the brick-and-mortar players, platforms like those of Flipkart or Myntra which offer consumers a wide choice of brands are going to be able to dictate price trends, at least for some categories, for quite some time to come. After all, a person buying an air ticket is more likely to look for options on a MakeMyTrip, for instance, before visiting the Indigo site. While having one’s own online sales channel is a solution for retailers like the AV Birla group, they must realise that consumers will shop on multi-brand shopping sites and, therefore, not having a presence on these might just result in a loss of market share. In the near-term, therefore, it might just be worthwhile to keep the volumes going and sacrifice the margins. After all, with deep-pocketed e-tailers like Amazon, the competition is already keen and well-funded as well. So, while the catchment may be large, catering to the addressable market at the right price points will be crucial.