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Cover Story | March 2016

Writing a $30-bn e-tale!

The number of digital buyers in India is expected to reach 41 million by the end of 2016, among which the rank of online buyers of apparels has been growing at a faster rate. An exclusive ITJ Report reveals the many-sided facets of this booming digital revolution.

Much less than a decade back, buying apparels online was unthinkable! But today, online fashion is fuelling the growth of e-commerce, and by 2020, apparel segment is expected to account for about 30 per cent of total retail revenue of $100 billion. The queue for online buying is swelling, thanks to mobile boom that has eased buying modes, discount sales, comfortable paying gateways and a return-if-dissatisfied policy that have proved extremely attractive for online buyers of clothes. These positive aspects have also converted many, who relied on touch-and-feel sentiments earlier, to online buying.

According to a research report, every third shopping search on Google is fashion-related and the queries on fashion are growing at 66 per cent year-on-year. The online population in India is expected to grow to 250 million by 2020 from its present 40 million. By 2018, India is set to witness 500 million internet users whereas 280 million smart phone users could be the key drivers for e-commerce portals, reveals a Forester Consumer Research.

The trading portals have expanded their warehouses and are up-to-date with technology to manage operations from customer-care to inventory and payments. The payment revolution with the new gateways like Paytm and credit card facilities have given the further boost. The ease of ordering from wherever they are for the modern career-oriented generation, who is always on the go further lubricates the wheels of growth in the apparel e-commerce.

According to a report from Associated Chambers of Commerce and Industry of India (Assocham), e-commerce is likely to generate nearly 2.5 lakh jobs in India’s online retail, including temporary employees, supply chain, logistics and ancillary units during 2016. The report states that India’s e-commerce market was worth about Rs 25,692 crore in 2009, it went up to Rs 1,14,940 crore in 2014 and to Rs 1,55,507 crore in 2015 and was expected to touch a whopping Rs 2,56,925 crore by 2016.

Mumbai-based Suditi Industries’ Riot brand has been able to penetrate the youth market of India and abroad. The Riot brand had rights to manufacture and sell fan merchandise during the 2014 FIFA World Cup. The brand is available in stores as well as online. According to R Chinraj, President, Suditi Industries, “E-tail is a booming market and one needs to adapt to such competitiveness of the industry. And we believe that e-commerce would be one of the major drivers for Suditi moving forward. So far we were selling only through our distribution network and retail stores. It is only now that we are getting directly in touch with our customers through e-commerce platforms as well as our own e-com website. This has allowed us to get more efficient due to better feedback from the customers. Also, customers get products at better prices as it is direct from the brand and saves him on his travel too.”

There are other brands of clothing as well that are available only through online channels. One such brand is Bhashan T-Shirts. Says Bhashan T-Shirts’ Founder & Owner Bhavesh Sanghvi, “As of now, it is available only through online portals (Snapdeal, Flipkart, Paytm, Shopclues, etc.).” But from January onwards it will be available in retail stores across Mumbai and a few other cities, he adds.

“E-commerce has been a revolution and it has created entrepreneurship ability in the youth. It has been next best thing to happen to garment industry. And few years down the line, the concept of malls will be just a gone thing,” he adds.

Bhashan T-shirts contributes in many ways, firstly it creates awareness on social issues. Secondly it gives you an alternate medium to express your thoughts on the same through t-shirt. “Also we come up with many campaigns on social issues to support it. And from some percentage profit of Bhashan T-Shirts, I do my bit of helping and serving the needy, by providing education to those who want to study and can’t. Feed the poor who can’t earn. And many other ways”, adds Sanghvi.

Anuj Puri, Chairman & Country Head, JLL India, a professional services and investment management firm, provides some numbers on the Indian retail market. He says, “India’s retail market value was estimated at $520 billion in 2013, and is expected to grow to $950 billion by 2018. With a CAGR currently pegged at 13 per cent, the Indian e-commerce market is expected to grow the fastest within the Asia-Pacific Region – with its market size doubling every 2-2.5 years. This certainly gives us reason for deep introspection. While the global growth rate of online shoppers is estimated at 8-10 per cent, India currently has more than 10 million online shoppers.”

“Though 70 per cent of India’s e-commerce market is related to travel, electronics and apparels are by far the most important categories in terms of sales,” adds Puri. He further says, “The key driver Indian e-commerce is the rapid increase of broadband internet penetration, which is growing at a whopping 20 per cent every year. The rising standards of the mushrooming middle-class with high disposable incomes, coupled with the urban influence on rural aspirations, have led to an exponential growth of the internet culture in India. This is very pertinent to the Indian retail sector. The internet has given Indian consumers access to a wide spectrum of products and services, even in places where brick-and-mortar shopping complexes have not reached. Also, the availability of a much wider range of products when compared to physical retail stores, coupled with relatively lower prices, is driving demand for online retail. With the evolution of the online marketplace, sites like Flipkart, Snapdeal, OLX and Jabong are thriving and more and more Indians are buying goods online.”

Corporates join the bandwagon

When Jabong, Myntra, Flipkart and Amazon.com started making a success of e-commerce in apparels, the corporates were not far behind. Encouraged by the sales boom of these trading portals, textile companies like Arvind Ltd, TT Ltd and Creative Lifestyles, began exploring the online market through their own e-commerce platforms.

The companies gameplan is to replicate the company owned exclusive brick-and-mortar store experience on the Internet. For instance, while Arvind Ltd has begun its own e-commerce initiative through its start-up Arvind Internet Ltd (AIL), TT and Creative Lifestyles too have been selling their products through their own websites.

“It is the same logic of being present at franchisee-run exclusive branded outlets (EBOs), multi branded outlets (MBOs) as well as having your own company-owned exclusive stores. So while textile companies are selling their products through other platforms like Jabong and Myntra, gradually they have begun selling on their own websites too,” says Rahul Mehta, President, Clothing Manufacturers’ Association of India (CMAI) and Managing Director of Creative Lifestyles, which markets its brand—109°F—through other e-commerce platforms as well as its own website.

Arvind is very bullish about its initiative and according to Kulin Lalbhai, Executive Director at Arvind Ltd, the company see e-commerce “as a key growth driver for the group and we aim to be Rs 1,000 crore plus business in three years”. Raymond Limited, the leading manufacturer, marketer and retailer of worsted suiting fabrics, launched its official online store, ‘RaymondNext.com’, in the middle of 2014. RaymondNext.com integrates all Raymond products, brands and services under a common e-commerce platform.

The launch of RaymondNext.com, is a step forward for the company to ensure increased visibility and availability of its products, as consumers can now see and purchase from a wide range of products from the house of Raymond across Textile, Apparel brands, Home Furnishing and Accessories.

In a first-of-its-kind in the industry, Raymond has launched five individual e-commerce enabled brand websites of Raymond, ColorPlus, Park Avenue and Parx with a common shopping cart. All these websites are optimised to be viewed on smart phones and tablets.

Commenting on the launch of RaymondNext.com, Vijay Basrur, Head – Ecommerce, Raymond, said, “We are thrilled to offer our customers an exciting new avenue for shopping with the launch of RaymondNext.com. E tailing at present is a small contributor to retail and is fast emerging as an alternate commercial channel across multiple product categories among a rapidly evolving netizen base in the country. According to industry estimates, e-tailing market is set to reach $32 billion by 2020 and hence makes perfect business sense for Raymond to capture this growing demand.”

Coming up of online retailers has made ‘fashion’ more accessible than ever to customers. “E-commerce is able to bridge the gap and bring fashion closer to consumers in smaller markets. Online stores also give consumers the convenience of accessing a broad selection of brands and styles across all price-points, all at one place and at the click of a button,” says Mayank Shivam, Category Leader, Amazon Fashion, India.

Arvind Internet Ltd (AIL), a start-up by the Arvind Group, is ready to revolutionise fashion & retail across India this year with its online custom clothing brand – Creyate. Kulin Lalbhai is driving the e-commerce initiative at the company, which will be a major growth driver for Arvind moving forward.

Spykar, one of India’s leading denim brands –synonymous with youth and fashion, launched its website Spykar.com recently in a new e-com avatar. This news comes as a delight for all Spykar fans spread across the length and breadth of the country. To leverage the launch, Spykar has announced a unique ‘Spykar Pe Buykar’ offer. The platform consists of the latest Autumn-Winter 15 collection that includes a variety of shirts, t-shirts, denims, trousers, jogger pants, jackets; and accessories like wallets, bags and belts, socks. Moving further, the platform would continue to showcase an array of apparel styles along with accessories each season.

Boost to logistics

The rise in e-tailing has a spin-off on the logistics sector, the business of which has grown phenomenally servicing the online portal for their warehousing and transport needs. Said Chandar Agarwal, Joint MD, TCI-XPS, a division of Transport Corporation of India: “The e-commerce retail market is one of India’s fastest growing markets. It is expected to be worth $36.7 billion by 2020, from $3 billion in 2014, growing at a CAGR of approximately 52 per cent. The growing prominence of e-commerce with rising internet penetration and consumer confidence in online shopping has come as a big boon for the logistics service providers. This is due to the fact that despite commerce moving online there is still the need to address the issues like warehousing, packing, shipping and tracking. The logistics sector specific to e-commerce retailing in India was valued at $0.2 billion in 2014 and is projected to witness a CAGR of 48 per cent in the upcoming five years to reach $2 billion by 2020. Logistics in e-commerce retail is evolving with growing business requirements, and is acting as an important lever for business growth.”

“TCI XPS is fully geared to cater to the logistics requirement of e-commerce sector and can provide to the specific warehousing requirements of sector due to its ability to deliver products to customers in a safe, secure and cost effective manner across the country. For its B2B customers, it offers Forward Movement Service portfolio management, which includes last mile delivery from warehouse and inter-warehouse transfer. Further, it also handles Reverse Movement Service Portfolio, which includes movement from vendor to warehouse, vendor to fulfillment centre and packaging from vendor locations. For its B2C customers, it offers warehouse to customer, vendor to customer and bulk and break services through its unique hub-and-spoke model for delivery. It also handles reverse logistics for its B2C category, which includes customer to warehouse and customer to vendor movement. With the new focus, TCI XPS is now capable of handling 10,000-12,000 shipments per day without much of fuss,” he adds.

Agarwal says: “E-commerce is the fastest growing business for TCI XPS and we are expecting it to even further expand at a tremendous pace. TCI XPS is doing exceedingly well in the large business category. The company is also providing PNP services (pick & pack services) in the large business category. For the coming year, TCI XPS will focus more on small packages starting 500 gm. The launch of ‘Make in India’ initiative has acted like a catalyst in the growth of logistics sector. With factors like GDP revival, ramp up in transport infrastructure, e-commerce penetration and impending GST implementation; India’s logistics sector is poised for accelerated growth.”

Up for the challenge

In order to boost its seller base, online retailer Flipkart is keen to reach out to the handicraft sector. The online retailer has tied up with the National Institute of Fashion Technology (NIFT). According to the agreement, students and the Flipkart team will work to integrate the local weavers and artisans for end consumers. The first pilot of the project will begin at Uttar Pradesh’s Varanasi, Prime Minister Narendra Modi’s constituency. Out of NIFT’s 15 centres across the country, five—Hyderabad, Mumbai, Gandhinagar, Chennai and Delhi—have shown interest to be part of the project. Flipkart staff will be deployed in various cities to coordinate with the local artisans, who can also take support from fashion-designing students at NIFT about market trends and consumer interests. While Banarasi saris will be the focus, products like leather purses, bags and laptop and ipad covers will also find place in the list of shopping items.

According to estimates, Varanasi has about 40,000 weavers, while Barabanki, another city in Uttar Pradesh, has 10,000 engaged in various forms of handicraft. Flipkart plans to target about 15,000 weavers in Sultanpur, too.

Earlier, the e-retailer had signed a memorandum of understanding with the labour ministry for skill development of its employees, and the Textiles Ministry to reach small and medium manufacturers. A few months ago, it also signed a deal with Federation of Indian Micro and Small & Medium Enterprises to reach its target of 50,000 sellers by the end of this financial year. While Snapdeal, Flipkart’s domestic rival, is already way ahead in the race with 30,000 sellers, American giant Amazon has been on an expansion spree with about 6,500 sellers. Flipkart stands at about 3,000 and it is eyeing an ambitious target of 50,000 by the end of this year.

Consumer perspective

Very apprehensive to buy clothes online at first, Vrushali Kulkarni, an event management executive with a reputed Mumbai-based publication firm, now has been buying clothes online almost regularly. She says that buying clothes online has become so much easier now due to various factors like easy return policy and easier availability, and everything available in just a click of a button. Almost all the brands are available at one single place and she does not have to search for it in the stores. Another reason why she buys clothes online is because of the range of products available and the discounts offered on online stuff.

Even Priya Shetty, Manager with Ominicom Group echoed the same points put by Kulkarni.

Is e-commerce replacing physical retail?

- Anuj Puri, Chairman & Country Head, JLL India

India’s retail market value was estimated at $520 billion in 2013, and is expected to grow to $950 billion by 2018. With a CAGR currently pegged at 13 per cent, the Indian e-commerce market is expected to grow the fastest within the Asia-Pacific Region – with its market size doubling every 2-2.5 years. This certainly gives us reason for deep introspection. While the global growth rate of online shoppers is estimated at 8-10 per cent, India currently has more than 10 million online shoppers.

Though 70 per cent of India’s e-commerce market is related to travel (flights, hotel bookings, etc.), electronics and apparels are by far the most important categories in terms of sales. The key driver Indian e-commerce is the rapid increase of broadband internet penetration, which is growing at a whopping 20 per cent every year. The rising standards of the mushrooming middle-class with high disposable incomes, coupled with the urban influence on rural aspirations, have led to an exponential growth of the internet culture in India.

This is very pertinent to the Indian retail sector. The internet has given Indian consumers access to a wide spectrum of products and services, even in places where brick-and-mortar shopping complexes have not reached. Also, the availability of a much wider range of products when compared to physical retail stores, coupled with relatively lower prices, is driving demand for online retail. With the evolution of the online marketplace, sites like Flipkart, Snapdeal, OLX and Jabong are thriving and more and more Indians are buying goods online.

E-commerce in India took off with a deluge of portals, including many focused on travel, media and jobs. The governments’ drive to open the sector for FDI in B2B business via the automatic route and bring e-commerce to the centre stage has caused a number of major players to venture into India. Today, Ebay, Amazon, Expedia and some serious Indian players are giving these physical retailers a run for their money.

Flipkart and Snapdeal’s recent fund-raising exercise put paid to the argument that investors are moving away from Indian e-commerce. The change in government and the stride of positive sentiment across the nation has led to growing faith in India and Indian business models.

The governments’ initiative to simplify regulations and make India a business-friendly nation is definitely benefiting e-commerce.

Today, manufacturers are running brick-and-mortar stores are anxiously asking the government to intervene with the creation of a regulatory body to stop e-retailers from undercutting prices. Physical retailers are definitely feeling the heat by the marketing blitz of their online counterparts, and the question of whether e-commerce is pushing out brick-and-mortar retailers looms large.

Many big companies are rising to the challenge and adopting smarter strategies to guard their turf. The likes of Tata, Future Group and Reliance are expanding their reach by foraying into e-commerce via alliances with leading online players. Indian retailers have clearly read the writing on the wall. As the competition grows, an omni-channel approach to delivering a unified and consistent customer experience is the new watchword.

Improving the overall experience is the avenue to success. Regardless of whether we’re talking about e-retailing, traditional brick-and-mortar retailing or a combination of both, the winners in this new steeplechase will have to evolve their offering to meet the needs, wants and desires of consumers. Retailers will increasingly have to offer services through various mediums.

E-commerce is still unlikely to completely replace or even seriously dent physical retail in this country. For Indians, malls are more than just shopping destinations – they are getaways from the humdrum and constraints of their day-to-day life, and mall developers have been catering to this dynamic by creating shopping complexes that offer retail, entertainment option under a single roof. This is not a combination of offerings that e-commerce operator can hope to compete with. ‘Experiential Retail’ is the holy mantra of the Indian shopper, and in the years to come, every mall across the country will do everything it can to turn the whole shopping experience into an entertainment experience.

Lessons from China

Over the last few years, China has witnessed an unprecedented growth in its e-commerce market and currently stands as the largest e-commerce market in the world. At the same time, SMEs have been playing a key role in the Chinese economic development. The number of private sector SMEs in China grew from one million in 1990s to 400 million in 2012, out of which five million were exporters. Today, SMEs account for 90 per cent of all firms in China and contribute 60 per cent to the GDP; 75 per cent to urban development, and 75 per cent to the industrial value addition of the country.

E-commerce has offered significant opportunities to SMEs, specially for exporters, to enter distant markets and to communicate globally with consumers, distributors and suppliers. SMEs engaging in e-commerce have witnessed increased income, with their business income growing 1.35 times than that of enterprises not engaging in e-commerce. The largest marketplace in China has a seller base of approx 7 million, and has assisted aspiring entrepreneurs with little seed capital to tap into the national as well as global markets.

China acts as a good example, and holds useful lessons for the Indian e-commerce sector. By connecting small businesses, including local artisans, to a national and global marketplace, e-commerce can help cultivate a new class of entrepreneurs and create jobs for tens of millions of Indians.

Brick-and-mortar unaffected!

An analysis of the performance of 24 large organised brick & mortar (B&M) retailers – 18 of them rated by CRISIL – shows that in the last five fiscals, their revenue has risen at a strong 24 per cent compound annual growth rate to about Rs 70,000 crore, while profitability metrics have improved steadily. This, even as the gross merchandise value of e-tailers surged at a dizzying 60 per cent to about Rs 40,000 crore, driven by aggressive promotions and increasing trust in online shopping.

While online retail is expected to continue growing very fast and capture an ever-larger pie, CRISIL sees revenues of organised B&M retailers rising at a respectable 13-15 per cent over the medium term as they proactively adjust business models and improve productivity, and thus ensure their credit profiles remain stable.

Going forward, the resilience of large organised B&M retailers will depend on their presence across product categories. Those in the standard format—selling books, music and consumer durables—will be impacted considerably, so their like-to-like growth will be significantly moderated.

On the other hand, those into apparel and food & grocery—where the product is either a high-involvement purchase or requires substantial investment in supply chain—are expected to be more resilient. As a business, the food & grocery segment offers ample opportunity given its massive size (64 per cent of overall retail market) and extremely low penetration of organised retail (2.6 per cent).

Anuj Sethi, Director, CRISIL Ratings, said, “Organised B&M retailers have been countering the online onslaught of the last five years by repurposing themselves using a four-pronged strategy: by going for an ‘omni-channel’ model (offering an online experience to complement physical stores), expanding away from metros and Tier I to Tier II and III cities (to tap an expanding middle class and rising purchasing power), pushing private labels (to meet consumer demand for affordable products and to protect margins) and through consolidation (which has afforded scale, geographical reach and efficiencies).”

What’s remarkable is that these retailers have been able to improve the quality of their private labels by investing in building design capabilities. Today, private labels contribute almost 20 per cent to total revenues, which is an admirable increase of 600 basis points (bps) in the last five years. Going forward, we see them sharpening this focus by improving store advertising, placement strategy and tying-up with online marketplaces.

Amit Bhave, Director, CRISIL Ratings, said, “Focus on initiatives such as reorienting store profiles and well-thought out expansions have enabled organised B&M retailers to reduce gestation losses and generate store-level profits faster. We believe large retailers with a strong back-end infrastructure will increasingly take the inorganic route to enhance market position and ensure growth.”

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