Earlier this month, Kishore Biyani-led Future Group acquired furniture e-tailer FabFurnish, reiterating a now-familiar pattern of buyouts by pure-play brick-and-mortar retailers of niche online commerce companies.
Over the past year, several such takeovers have been in the news, including that of Meragrocer.com, a hyperlocal food & grocery e-tailer, by Spencer’s Retail and Mahindra Group’s acquisition of baby products e-commerce firm, Babyoye.com. The latest to join the bandwagon is Naturals Salon and Spa, which just last week, took a controlling stake in Vyomo, an aggregator of beauty salon doorstep services.
These announcements reflect traditional retailers’ increasing appetite for a greater share of the online retail pie in India which, according to research and consultancy firm RNCOS, is estimated to touch the mark of $4.5 billion by 2018. This also represents the need for speed in making the transition to online channels; instead of reinventing the wheel themselves (and potentially wasting valuable resources in the process), it makes more sense for physical retailers to acquire a readymde model that can be integrated into its existing structure.
“While we (brick and mortar retailers) have developed front-end expertise, customer connect and brand value over the years, we still lack technological and back-end expertise, which the online startups inherently have. Therefore, such acquisitions offer an ideal opportunity to marry both and reap the benefits,” explains, CEO of India’s largest salon chain, Naturals Salon and Spa, CK Kumaravel.
“Over the past year we have been working on fixing our technology dynamic. In the process, we have developed three applications but none of them really worked. It led to a wastage of time, efforts, and money. Since we ourselves don’t understand the back end and how the tech space works, the deal with Vyomo opens up a completely new opportunity for us,” he added.
Naturals has close to 550 salons in 80 cities. It had set up operations in 2000 in Chennai, has a target to have 3,000 salons by 2018 and more than 10,000 by 2025.
So far, such arrangements appear to be working, although it remains to seen how two disparate business structures blend seamlessly and profitably for the long term. While the cash-strapped start-ups get scale and funds to run their business, brick-and-mortar retailers gather tech expertise and a speedy entry into the omnichannel trajectory.
In February 2015, Mahindra Group acquired baby care products e-tailer Babyoye.com to build a profitable online business for its retail arm Mom & Me.
“We were weak in e-commerce and were not able to build traction in the business on our own. The acquisition of Baby Oye was a way to ramp up quickly and take the enterprise to profitability,” said CEO, Mahindra Retail, Prakash Wakankar.
Mahindra went on to rename its 115 Mom & Me stores as ‘Babyoye by Mahindra’ to build a single unified brand presence across channels.
This was followed by Meragrocer’s acquisition by Spencer’s Retail in December 2015, facilitating the latter’s entry into the online retail space via a readymade web portal.
Similarly, Future Group’s acquisition of FabFurnish is expected to enable the former to leverage the latter’s online platform and delivery model to extend Hometown’s (Future Group’s home and furnishing retail chain) presence to hitherto untapped markets.
As more and more retailers look to empower their cross-channel abilities, is inorganic growth the most ideal route to omnichannel dominance? “No, not at all. There just can’t be one way to do this. For us, acquiring Vyomo made sense. If somebody can build their own capabilities effectively than, why not!,” Kumaravel concludes.