It was a very happy year indeed for the Indian consumer
2014 was the year when what we were hearing about actually happened. And if someone is truly happy about how things happened last year it is the Indian consumer.
It was a year when a lot of Indians went beyond a few and far on-line purchases, for a book or a ticket booking or two, to actually spending a sizeable sum in e-shopping. Mindsets were not easily broken. E-retailers, flush with funds, had to give we devils our due. Clothes, shoes, electronics, books…oh we bought lots on-line this year. Why? Well simply because they were going for a song. Plus, for the ears of the uninitiated, the card-less, as well as the “grey” Indian, cash-on-delivery and easy returns were new music indeed.
The on-line shopping revolution
Exact figures as to the number of Indians who purchased something online this year vary amongst on-line gurus between 25 million (e-Tailing India) to 40 million (Assocham-PwC). Three days of GOSF saw 8 million. So five times that over a full year is very, very likely indeed. With an average spend of Rs.6000 the 40 million consumers will make it a Rs. 240 billion market. Next year with 65 million consumers averaging Rs.10,000, we are looking at a 650 billion rupee market. A new development this year was that even high-value products like flats, cars and bikes were also sold online. Even agri-stores selling seeds, fertilizer and irrigation tools to farmers took off.
If Rip-van-winkle were to be given a choice of when to wake up it would surely have been October 6th 2014. The first of the three big guns Flipkart went shopping for customers with total contempt for prices and margins. Big Billion Day by Flipkart sold over 600 crores of goods in 10 hours. Next on Snapdeal’s big day totaled about the same. Amazon’s big day sales were not disclosed. At Google’s Great India Shopping Festival–GOSF, consumers were pampered with daily deals and discounts by e-commerce companies. Backed by huge media campaigns, first-time online buyers rushed in on these days, but most sites, were not able to cope with the spike in order volumes, or closed early fearing deliveries being delayed and thereby bringing our focus on the need for logistics companies to gear up for increased volumes during such events next year. Logistics is indeed being equally recognized as the most critical part of e-retailing. Logistics players are as attractive an investment as e-retailers themselves. To cite a few examples, 2014 saw ECOM Express raising Rs. 100 crore and Delivery raising $33 million. Gati’s stock grew 500 percent in year 2014! About 90 percent of India’s on-line sold products are moved by air pushing up costs by over half. Road and rail are underdeveloped and plagued by bribery and bureaucratic issues. This is the biggest challenge that e-commerce faces.
With the industry likely to become a $15-billion market by 2016 (Forrester Consulting and Google), the year also saw the high-profile visits to India of Facebook’s Zuckerberg and Alibaba’s Jack Ma.
The on-line investment stream became a big river
Meanwhile investments into Indian e-retailing have really taken off in 2014. Just a few days ago, Flipkart raised another $700 million from a mix of new and old investors. This was the third time in 2014 that Flipkart was raising funds. The new money will be used for “strategic investment in India and to build a world-class technology platform.” In July, Flipkart had raised $1 billion. So, Amazon has raised a total of $2.4 billion and is now valued at $11 billion. Earlier this year, Amazon had infused $2 billion into its Indian arm, and Snapdeal had raised $100 million in May from group of investors, including Premji Invest. In August, Snapdeal raised an undisclosed amount from Ratan Tata, and then in October it raised $627 million from the Japanese telecom and media group SoftBank, which has a 37 per cent stake in China’s ecommerce leader Alibaba, taking the total Snapdeal investments tally upto $1 billion.
Tata in fact made further investments in other ecommerce companies such as furniture e-tailer Urbanladder and jewellery e-tailer Bluestone, while Masayoshi Son, the Chief Executive of Softbank also announced that he will invest about $10 billion in India’s online industry over the next 10 years.
The month of May also saw the biggest takeover in e-commerce in India with Flipkart acquiring fashion e-tailer Myntra for $370 million. German incubator Rocket Internet also announced plans to merge Indian fashion e-tailer Jabong with four other fashion entities backed by it. These are Dafiti in Latin America, Lamoda in Russia, Namshi in the Middle East and Zalora in South East Asia and Australia.
The smart phone drives the game
While in terms of overall e-retailing 2014 may be seen as a quantum jump from 2013, however in terms of new trends what emerged this year the mobile platform as the new driver. Most e-tailers are now getting more than 40 per cent of their traffic from mobile and this will just keep growing further. So, the mobile-experience for consumers is today being seen as an ever bigger differentiator than the pc experience. Smartphones are now commoner, net speed and access faster, and mobile apps have made things simpler. Mobile money which is just around the corner will complete the full circle. So, it was no wonder that Flipkart this year also held the Big App Sale from December 8 to 12 to promote sales on its mobile platform. Also the exclusive deals like Xiaomi phones with Flipkaart can also be seen as part promotion of smartphone usage.
In the later part of the year, e-commerce companies also rushed in to win customers who use their smartphones to buy products as they offered discounts for those who downloaded and transacted on mobile phones.
The relatively nascent e-commerce industry is estimated have about 100 million online shoppers by 2016.
Few points to ponder
A point to seriously ponder upon is that the joy that the consumer felt in 2014 was in reality at the expense of the e-retailers and their investors. The billions spent to bring in more consumers onto the on-line way is based on presumptions of certain level of loyalty at least and discounts are known to hold loyalty only till they last. The investments this year have been actually four times the sales.
This year the brick-and-mortar retailers were also up in arms this year–either protesting against the allegedly predatory pricing during online sales, or dismissing the valuation and viability claims of e-retailers as short term hog wash. The Future Group supremo Kishore Biyaani gave the euphoria 18 months in September. Its 15 months to go now. So did anybody made money this year? Well some did.
Footfalls versus conversions
Shopping malls which till 2013 had great footfalls saw a drop in sales. Marketers feel that the consumer is now getting the feel of the product at retail stores but ten going on-line for the final purchase. So on the retail real estate front, it was a year with weak demand as online retail gave a tough time to brick and mortar retail. However some mall development is expected to get a boost with real estate investment trusts (REITs) likely to get operational next year.
The omni-channel era is now being widely accepted
Besides expressing cynicism as to how it is happening now, Kishore Biyani also expressed faith in an omni-channel route to retail and promised an early 2015 unveiling of his plans. Croma, Madura, Arvind also unveiled their omni-plans in 2014. Madura Fashion & Lifestyle, which owns brands such as Louis Philippe and Allen Solly sells on Trendin.com. The iconic Raymond launched RaymondNext.com three months ago. It’s an online portal to dress up contemporary men and women. The portal has a portfolio of Raymond products including Park Avenue, Parx and ColorPlus. Regional chains such as Viveks and Vijay Sales have also been quick to adopt the e-route.
Clearly there are two schools emerging in the traditional retail community. One school feels that the fear among mom-and-pop stores of being overshadowed by large retail chains and shopping malls are now a thing of the past as they have found a new common enemy. The other school looks at the coming of e-retailing and mobil as their greatest opportunity.
The status of the overall Indian retail industry in 2014
The overall retail industry continued its steady growth with modern retails moving at a bit faster rate than traditional retail. Brick-and-mortar this year, for the first time ever, woke-up to the new challenge from online players. Festive sales were raided upon by the Big Days celebrated by online. Industry estimates pegged the size of retail sector at close to $600 billion this year, growing by 10 per cent compared with last year. As per various estimates, the industry is now expected to reach $1 trillion mark by 2020, while the figure would be much bigger much faster with FDI.
The previous government had warmed up to 51 percent FDI in multi-brand retail, but with the new Modi lead government coming in there is pessimism on this front. Carrefour quit India. Walmart goes slow with cash and carry. “We will respectfully wait, answer all questions and try to demonstrate that having Walmart in India is a good thing for the country,” said a very polite Walmart President and CEO Doug McMillon. Tesco is the only new proposal that has been approved. We also hear that six proposals for investment in single-brand retail trading are under process for government approval.
The hope is now more on stability, controlling inflation, and boosting consumption.
Signs of economic recovery
Fabindia, Manyavar and Levis led the successful brands group in fashion and lifestyle. While Fabindia Overseas posted a net profit of Rs. 54 crore for FY14, Vedant Fashions, which owns ethnic wear brand Manyavar, made a Rs. 49-crore profit. Levi’s India was the only international player that could match the two with Rs. 49-crore net profit. FY 14 was also the first year that Reliance Retail reported profits. Same-store sales, of Shoppers Stop, Lifestyle International and Reliance Fashion & Lifestyle also grew faster in FY14. Shoppers Stop posted a 10.2 percent like-to-like sales growth, and its turnover grew 19 percent at 3,017 crore however its net profit declined 5 percent at 37 crore.
It was a relatively slow year for food, especially grocery but thing are expected to look up very soon with several significant expansion plans lined-up. The Future Retail’s rights issue will open on January 15 and close on January 29. Sunil Mittal’s Bharti Retail plans to borrow up to 2,000 crore to accelerate store openings and spruce up operations. Cafe Coffee Day (CCD), is seeking to raise Rs 1,200-1,500 crore by selling 20-25 per cent stake in the chain through a public offer that values the 18-year old company at about a billion dollars. Jubilant Foodworks’ market value has continued to rise. It has now risen to Rs 8,800 crore in the past four years from Rs 975 crore in 2010, when it went public.
At the supply side in FMCGs 2014 saw slow growth due to inflation influenced low discretionary spending by and consumers. And the FMCG sector saw lots of top level movements. Most prominently, Varun Berry took over as Managing Director of Britannia, and Saugata Gupta of Marico. Interesting, the FMCG sector in 2014 led the digital marketing movement with HUL’s Kan Khajooraa Teshan
being the most creative innovation. Digital adspends are expected to cross Rs. 3000 crores next year. And yes, e-retailer’s are major contributors to total digital ad spend.
A look at International Retail in 2014
The year in US began with Target shoppers learning that their card data and personal information had been hacked. Soon other retail chains like Kmart, Staples, Home Depot and Dairy Queen also admitted that they too had been hacked.
Gap Inc. announced a delightfully shocking salary hike for employees whereby the minimum hourly wage for all in sales will be boosted to $10, 2.75 dollars above the government minimum wage. Other large retailers followed with and in October, Walmart CEO Doug McMillon announced plans to boost the lowest of wages.
On the other side low-wage fast food and retail workers took their year-long fight for a $15 hourly wage over to at least 33 countries and 80 cities on six continents. The targeted companies included McDonald’s, Burger King, Wendy’s and KFC. The latter part of the year saw the demand finding political support
Gun safety groups in 2014 managed to convince retail and restaurant chains including Target, Starbucks, Chipotle and more to change their rules on the open carrying of firearms in their premises. However Kroger the second-largest retailer (only Walmart is bigger) refused.
Burger King and Canadian coffee chain Tim Hortons announced their merger in August and thus becoming the world’s third-largest fast food chain after McDonald’s and KFC.
2014 was also the year when Alibaba unseated Amazon as the e-commerce king. Alibaba Group’s September IPO set a world record for the biggest ever public offering, raising $25 billion. Two of Alibaba’s portals handled gross sales of $170 billion in 2012 – that is more than eBay and Amazon’s gross sales combined. Next move is the proliferation of Alipay, its third-party digital wallet that rivals stateside platforms like PayPal and Apple Wallet.
Struggling teen retailer Abercrombie & Fitch announced in mid-December that CEO Mike Jeffries would be “retiring…effective immediately”, capping a terrible year for the teen clothier activist investors who wanted him out at the clothing company. Mike oversaw 11 straight quarters of decline in same-store sales in existing A&F shops.
Also this past year controversy-plagued Dov Charney was given the boot at clothing chain American Apparel. Replacing Charney is Paula Schneider, a canny merchant with years of experience and a champion of women. American Apparel and its investors will be looking to Schneider to reverse American Apparel’s flagging fortunes in 2015.
Holiday and Promotional sales are now a global phenomenon
On the performance front on-line spending within US on the period till Christmas was up 15 percent up compared to 2013, and online sales surged in particular on Thanksgiving (up 32 percent) and Black Friday (up 26 percent. Shoppers took to the web on Christmas Day itself was well, with sales rising 8.2 percent compared to 2013, according to comScore. This was preceded by China’s Singles’ Day on Tuesday November 11th wherein e-commerce giant Alibaba Group Holding Ltd reported more than $9.3 billion in sales in a single day!
Even in the United Kingdom, 2014 saw a record breaking Black Friday and Cyber Monday, which clearly demonstrated that these traditionally US focused discount shopping days have found a permanent place in the UK retail calendar. Manic Monday capped off a massive UK online retail season.
It was a very happy year indeed for the Indian consumer