The great Indian retail sale

It’s becoming clearer that there are now four pillars to the Indian retail space, when one counts both online and offline commerce. There is Mukesh Ambani’s Reliance Retail Ventures, Walmart-owned Flipkart, Jeff Bezos’ Amazon, and Tata group’s retail business. The looming question then is, which one of the four would dominate?

Ankur Bisen, senior vice president, retail and consumer products, Technopak, a retail consultancy firm, believes that no one player has the ability to conquer the market. “It will never be the case.”

The four players combined, adds Bisen, “account for just 12% of the market, while the rest 88% is controlled by unorganised players.” What it signifies is that the Indian retail market is a complex game. And a reason why the term 'omni-channel retail'— which basically means providing consumers a seamless offline and online experience—has been gaining chorus.

On Friday, Indian online retail behemoth, Flipkart Group, which owns fashion portal Myntra, said that it will acquire a 7.8% stake in Aditya Birla Fashion and Retail Limited (ABFRL) at an investment of ₹1,500 crore. ABFRL, which owns fashion brands such as Peter England, Louis Philippe, and Van Heusen, will float a preferential issue to Flipkart Group at ₹205 per share. For ABFRL, which operates a network of more than 3,000 stores and has over 6,700 points of sales across India, the deal will lead to a significant reduction in its debt.

“Currently ABFRL has got ₹3100 crore debt which they plan to reduce it to almost ₹2000 crore debt by this year end,” said Abneesh Roy, senior vice-president (research), Edelweiss Securities.

Shares of ABFRL closed at ₹165.05, up 7.59%, on the BSE on Friday, while the Sensex ended the day marginally up by 0.31%.

The financials apart, the deal is expected to help ABFRL ramp up its online presence across Flipkart, which along with Myntra, is touted to be the top online apparel retailer in the country. Flipkart, on the other hand, gets a “preferred access” to ABFRL’s basket of brands that also include Allen Solly and Pantaloons.

However, e-commerce industry veteran and co-founder of Again Drinks, K Vaitheeswaran, argues that the deal is a sign of a post-pandemic world in which consumers are apprehensive about going back into crowded retail stores. “Brands such as Peter England, Louis Philippe, and Van Heusen are yet to get consumers shopping directly with them online and such partnerships [with Flipkart] are the best way to save what can be a tough festive season,” adds Vaitheeswaran.

But Bisen argues that online retailers have understood the virtues of an omni-channel existence rather than a pure e-commerce presence. “E-commerce players are recognising the importance of brick-and-mortar especially in the lifestyle and fashion space.” For instance, this is not the first investment by the Flipkart Group to boost its omni-channel growth strategy. In July this year, it bought a “significant minority” stake in Arvind Youth Brands, the maker of denim wear brand Flying Machine, for ₹260 crore. Earlier, Myntra had invested an undisclosed amount for a small stake in outdoor and adventure products company, Wildcraft.

Flipkart is not alone. Rival Amazon, too, has been acquiring stakes in offline retailers. In September 2017, it bought a 5% equity stake in departmental store chain, Shoppers Stop for ₹179.25 crore. A year later, along with private equity fund, Samara Capital, it acquired the supermarket chain More, from the Aditya Birla Group. And its 49% stake in Future Coupons, a promoter group entity which owned about 7% stake in Future Retail, is now in the eye of a storm. This after Reliance Retail Ventures agreed to buy the retail, wholesale, logistics and warehousing businesses of the Future Group for ₹24,713 crore in August this year.

According to Bisen, the function of an offline store is not going away despite the current crisis due to the Covid-19 pandemic. “It may change its form: be more digital focused or experiential but it won’t go anywhere.” And it’s not just in India. Amazon for one, opened Amazon Fresh grocery stores in California U.S. this month, with plans to open more such stores across its home market.

In the last few years, the online fashion landscape in India has changed dramatically. Competition from Flipkart and Amazon, who have uninterrupted access to funds, has led to the death of several fashion portals including Zovi, Aditya Birla Group’s e-commerce venture abof.com, Freecultr, Luxury Couture, Fetise Man, and Ladyblush, all of which were backed by investors.

“This partnership [with Flipkart] is an emphatic endorsement of the growth potential of India. It also reflects our strong conviction in the future of the apparel industry in India, which is poised to touch $100 billion in the next five years,” said Kumar Mangalam Birla, chairman Aditya Birla Group in a media release on Friday. “Fashion retail in India is set for robust long-term growth due to strong fundamentals of a large and growing middle-class, favourable demographics, rising disposable incomes, and aspiration for brands,” he added.

Globally, online fashion retail is one of the largest categories in e-commerce, and things are not much different in India. According to a November 2019 report by RedSeer Consulting, the fashion market in India is growing at a CAGR of 11% with online fashion growing the fastest, at a CAGR of approximately 32%.

“Amazon, Flipkart, and Reliance Retail [Ventures]: all three will do what the competition is doing. They will be mimicking each other,” says Harminder Sahni, founder and managing director, Wazir Advisors, a retail consultancy firm.

However, the fickle customer is unlikely to be loyal to one retailer, and will move to specific brands. Be it online or offline, retailers will be chosen on the brands they offer as well as the shopping experience and deals.