Traditional brick-and-mortar apparel retailers seems to be fighting a losing battle in light of the e-commerce onslaught.
Horizon Consulting India conducted a nationwide research of brick-and-mortar retail and the strategies currently adopted and potentially planned, by these retailers.
The research base comprised of 750 retailers in 15 cities. The summary of the research is as follows:
- 65 per cent retailers are planning to launch their own websites and aiming to get a share of the e-commerce pie
- 45 per cent retailers reported they are aiming at reworking their merchandise mix and are keen to include niche merchandise
- 35 per cent retailers are aiming at increasing the customer experience by offering more discounts and customer loyalty programs
- 30 per cent retailers are aiming to diversify and move away from garment retailing
- 75 per cent retailers have had experiences wherein customers compared online and offline prices and then decided to buy the product online
- 85 per cent retailers said the drop in their business was because of heavy discounts offered by online players rather than any other reason
65 per cent retailers are planning to launch their own websites: The most common reaction retailers recorded was that they plan to launch their own e-stores. When asked whether they will be allowed by the brands they are retailing to sell them online, 65 per cent said they would have to check on that.
Neutral Viewpoint: Retailers are still grappling with a potential strategy to be adopted. They are skeptical about the survival of their business especially since the Government continues to support e-commerce players – evident in the latest decision to grant 100 per cent foreign direct investment in the e-marketplace. E-commerce players are enabling more aggressive global players to enter the category, making the survival of smaller brick-and-mortar retailers more tough than ever before.
45 per cent retailers reported they are aiming at reworking their merchandise mix and are keen to include niche merchandise: They feel this is the best way to protect as well as expand their business.
Neutral Viewpoint: Retailers don’t have the access to niche products and if they do this, there is always the strong possibility that niche product manufacturers will find e-commerce to be a more lucrative selling point than brick-and-mortar retailers. It’s been witnessed that many e-commerce brands have been launched in the recent past that do not have any offline or on ground presence. The attraction of limited points of contact in e-commerce for brand owners have emerged as a very attractive option vis-a-vis offline retailers, hence the success of reworking their merchandise mix has wafer thin possibility.
35 per cent retailers are aiming at increasing the customer experience by offering more discounts and customer loyalty programs: Offline retailers are under pressure on margins. Higher real estate cost and ever-increasing operational costs have always had pressure on their bottom line. Fear of depleting business has been forcing retailers to offer sale and more discounts. The ability of such strategy to protect the business is remote though, since offline retailers do not have more than 10 – 15 per cent to offer to the customers. This strategy might be insufficient to attract the customer from online purchases.
Neutral Viewpoint: Retailers are trying to fight with brands since online offers more discounts. Brands have been trying to control the online discounts but in vain. The attraction of higher sales from online portals are a big deterrent for any such control. Also higher discounts on portals have heavy contribution from the online retailers as they sacrifice their margin to get consumer traction. The efficacy of such a strategy by offline retailers has limited potential. Almost 45 per cent offline retailers have implemented customer loyalty cards. Over the years, offline retailers took the consumer for granted, not introducing any loyalty program. Also customers today carry multiple loyalty cards This appears to be a ‘too little too late’ strategy and its effectiveness is highly doubtful.
30 per cent retailers are aiming to diversify and move away from garment retailing: Offline retailers are fighting a battle for the second time. The first time they witnessed a threat to their business was when the retail was getting organised, with malls and shopping centres taking away consumers. Multi-brand outlets lost to organised retail and had diversified themselves into the product categories like hosiery, women ethnic wear and semi branded apparel. Now the second attack is from online retailers where even unbranded apparel has good presence. In light of this new threat, offline retailers are trying to further diversify into categories such as children’s wear, and women’s ethnic wear. Only 10 per cent are looking at converting their shops into exclusive brand stores of garments while 20 per cent are looking at exiting the apparel segment and looking for other opportunities.
Neutral Viewpoint: This trend in the next decade will have substantial impact on apparel offline retail where at least in metros and tier 1 cities, offline retail store presence will get pruned by almost 20 per cent.
75 per cent retailers have had experiences wherein customers compared online and offline prices and then decided to buy the product online: A large chunk of offline retailers witnessed showrooming. Retailers have tried their best to match online discounts but in almost 80 per cent of cases, they didn’t manage it. The segments that are immune – to a certain extent – from showrooming are women’s ethnic wear, and children’s wear. The largest impact of showrooming has been on the men’s wear category.
Neutral Viewpoint: Showrooming will increase in the years ahead. Some offline retailers have tried to match rates of online retailers for some categories, but it is a strategy that has not been successful. Globally, retailers have reacted to showrooming by giving better customer experience and by implementing better electronic interfaces like video screens. However, a point to be noted here is that technology is expensive and can mostly be afforded only by organized retailers.
85 per cent retailers said the drop in their business was because of heavy discounts offered by online players rather than any other reason: There doesn’t seem to be any robust strategy to counter heavy discounts being offered online or the depth of the merchandise offered by online retailers. 65 per cent retailers expressed the desire to focus on one consumer apparel segment.
The onslaught of online retail is heavily impacting offline apparel retailers. Though multiple possibilities are being explored – right from better discounts, launching customer loyalty programs, giving better consumer services, to launching own e-commerce websites – there seems to be limited hope to overcome the juggernaut of online retail.
With the lines between digital and physical becoming blurred for consumers, many retailers are attempting to transform from a less effective channel approach to a seamlessly integrated retail model. One possible area that could mean hope is online to offline retailing where online channels are used to increase the awareness and subsequently drive consumers to offline. Offline retailers will have to adopt digitalisation very aggressively before time runs out for them.
India is the only global market place where online commerce has proceeded substantial organised retail size. The natural progression of unorganised retail to organised retail to online retail in the USA and European markets has witnessed substantial diversion in India where online commerce is gaining traction before the organised retail has been
About The Author: Nischal Puri is a veteran in the apparel and retail industry. He is a successful entrepreneur and an established thought leader, brand strategist, consultant and author. He’s MD, Horizon Consulting India, a company that helps build strong organisations leading to stronger brands and successful commercial enterprises.
The views and ideas expressed in this article are his own.