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The Growing Chemistry Between D2C Brands and Shopping Centres

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Looking at the success of D2C brands that have made a noticeable splash in the offline space, it is hard to ignore the success story of Nykaa, Pepperfry, Firstcry etc. From the new age standalone brands, we have the likes of Neeman’s, Happilo etc. who have gone ahead to open stores at leading malls. 

Mumbai: The business of shopping centres is at its most exciting phase today with brands – legacy and D2C, both vying for space. What is most interesting to learn is despite the tremendous online revolution, malls have stood the test of time. We have had their obituary being discussed time and again with changing shopping dynamics – first with the onset of e-commerce and then with D2C. If anything, their need to expand today has been like never before with more and more online and D2C brands wanting a physical presence in malls. And that is why we say – Opposites attract! Aptly commencing the session – Opposites Attract: The Growing Chemistry Between D2C Brand & Shopping Centres, Rajendra Kalkar, President (malls) and Whole Time Director – The Phoenix Mills, shared, “As owners of D2C brand and owners of brick-and-mortar centres of the country, I think it is a fabulous time to discuss and debate what each expects from each other and what they want to deliver for each other.” To accentuate this, he highlighted the entry of The Tata Group into the D2C category with Tata CLiQ Palette. Kalkar put forth his curiosity to learn about what has led to such a dramatic change in the mindset of such a large traditional group compelling them to enter into this high-tech and extremely competitive cutthroat risky business.

What Drives Big Names into the D2C Space 

Responding to him, Dharmarajan K, Chief Business Officer, Beauty – Tata CLiQ Palette shared, “Our thinking in terms of when we are trying to cater to some of the customer problems is at all points in time how do you have this day where you have the day 1 philosophy – always being true to what consumer needs today and be aware of what is that they need in future rather than going by a certain way of how business is done. And hence, specifically for this vertical, what we are trying to build is, use some of the online learning, online philosophy, distilled sort of use, very high on technology and trying to replicate that for offline shopping experience. Coming to D2C in particular and how critical it is, the customer is demanding what is in for her. And how is it that a particular product or service is personalised and customized to the individual’s need and hence the importance of the whole emergence of D2C. You will have a reasonably large segment which will be focusing on a particular problem that you are trying to solve and hence the importance of D2C.”

Adding further, he shared, “What we are trying to do in this beauty segment and how our play in D2C is how we can personalise anything and everything that we offer to consumers and that is the core of our differentiation. The consumer’s love D2C purely because of how it talks to them exactly what they believe in and that is how we are trying to build in online as well as online. It is still at a very nascent stage.”

Beauty – A Category Unleashing Tremendous Potential 

The success story of Nykaa from being a pure online platform to having more than 145 stores across the country is proof enough of the potential of beauty as a category in India. Reliance’s entry into this segment with Tira too accentuates the promise of beauty as a category holds. And now with Tata CLiQ Palette, there is going to be healthy competition thus giving consumers enough choice. When we look at the D2C category players in India, it isn’t an exaggeration to say that almost 50 per cent of the brands belong to the skincare and beauty domain.

Dharmarajan K. shares, “Two to three things – trying and addressing the competition and number of players entering in this sector – all the macro indicators of the industry points towards the next 5 to 10 years double-digit growth. India in terms of consumption, we are between 1/5th to 1/10th of some of the neighbouring countries like Malaysia, Indonesia etc. Western countries, we are almost in the region of 1/50th to 1/100th on a PPP (purchasing power parity) parity in terms of beauty consumption. That sort of gives you an indication of headroom available for growth.

Even in BPC (beauty and personal care), we as a country are highly skewed towards categories like bath and body, hair vis a vis where most of the advanced BPC countries have moved towards discretionary categories like skin, make-up and fragrances. Both point towards very large growth potential and a very large market. Essentially competition is going to be healthy for all of us which will make reaching consumers a little easier, a lot more customers will experiment with the BPC as a product, and a lot of upgrades will happen.”

No matter how well one communicates to its patrons about the features their brand holds in this category, the touch-and-feel factor is hard to give amiss. Dharmarajan K. explains, “On the format side, on D2C etc. and importance of offline retail, even the most advanced or most penetrated of the internet countries, beauty as a category is still very high on touch and feel. Beauty as a category requires training, education, how to apply a particular product, when to use it, how to use and that is not going away. And hence the importance of whether you are a multibranded beauty player or a D2C player in this sector, the need for and importance of your presence where that touch and feel aspect of beauty is always maintained. Also, when you are catering to a category and segment, there are a few opportunities for you to be the authority in that space or segment which also sort of plays very highly in terms of you having both online and offline presence.”

Tata CLiQ Palette’s first store is expected to welcome its customers and have them experience the products and services in an extremely high-tech environment. Dharmarajan shared, “Some of the early indicators tell that the research we undertook to understand our consumers are working but still very early days.”

Facilitating D2C Offline Journey – Factors that Play an Important Role 

For a small or midsize D2C brand, taking the step into the offline world could possibly prove to be a daunting task. The oƨ ine journey is certainly a different ball game altogether. Where in the online space, it is easy to attract and engage with consumers on a one-to-one basis, on the offline space, the brand may or may not have the expertise to pull in a customer to his store. This makes it alluring for the brands to open their first few stores in a mall/shopping centre set-up as against opting for high street spaces.

Pointing out towards an important factor that is taken into consideration by the team at Litestore before onboarding a brand to negotiate an oƨ ine space for them at malls, Puneet Dinesh, Co-founder – Litestore shares, “We stand at the intersection between the D2C brands taking the first plunge while going oƨ ine and we also interact very deeply with mall developers to ensure that we get space where D2C brands can have high visibility. When we look at brands who have achieved a certain milestone and they have a product market fit, where they stand at the growth stage, do they have enough SKUs, enough inventory etc.” he further stressed on the brand equity built in a consumer’s mind by the brand which would make it attractive to be present in the oƨ ine space.

The Need for an Offline Presence 

When we look at some of the recent D2C brands that have made a noticeable splash in the offline space, it is hard to ignore the success story of Nykaa, Pepperfry, Firstcry etc. From the new age standalone brands, we have the likes of Neeman’s, Happilo etc. who have gone ahead to open stores at leading malls. As Vikas D Nahar, Founder & Chief Executive Officer, Happilo rightly points out, “Malls will help promote the D2C brand journey. Any brand who wants to scale up cannot do so with a ‘D2C approach only’ or only store or marketplace approach. You have to broaden your horizon and see where your customers are. A lot of customers are there at malls. Unify your online and oƨ ine but offline store is not only for that, it is to build an experience. Shopping centres act like a catalyst for brands to reach the customers and we have to be there.”

As revealed by Nahar, Happilo’s current business comprises 60 percent of sales from the online channel, going forward, their vision is to build 70 percent of revenue from offline businesses. “We are expanding well in modern trade; we have opened more than 20 stores in a mix of malls and high streets. India is a country where people want to shop and experience. Shopping online can never replace that impact. India is still a country which wants to go there, feel that, and buy that. We are still not evolved to a country like China which is dominated by e-commerce players. 90 per cent business in India still comes from offline,” he adds.

Talking about footwear brand Neeman’s brand building journey and now the expansion through the offline route, Amar Preet Singh, Co-founder and Chief Operating Officer, Neeman’s says, “For Neeman’s it was always about a brand building exercise. We started our journey with footwear and the first time in India it was about building a category of footwear made out of sustainable materials. Brands are never built overnight. We started with three products – loafer, sneaker and jogger. We created a market fit and focused stories around it. D2C scaled up the brand. Focus was always to build it up for a long haul. In the footwear industry we have a lot of international brands but no Indian brands. We wanted to create a brand that would create legacy. 100,000 visitors online today on a day-today basis over the last five years and now we have started getting into stores – we have opened 3 to 4 stores and we have realised that it is important that people who have seen us online want to have a touch and feel experience.” Singh and his team are now focussing on building their offline channels, building stores across India, building touch points thus ensuring more and more consumers try their products.

Singh further talks about how Mumbai’s Nexus mall was open to giving them an opportunity to have their store at their malls. “Today we see a lot of D2C brands wanting offline space. When we approached Nexus, they gave us an opportunity and they realised the potential of the brand. Other malls – nobody wants to take the first plunge and we are very happy that Nexus gave us an opportunity. Our plan is now to have 50 to 100 brand stores in the next two years,” adds Singh.

Pradeep Krishnakumar’s brand Zouk has a commendable fan base online and now with above 4 lakhs happy customers, the brand is taking the offline plunge with its first store at Nexus. Incidentally, Tata CLiQ Palette’s first store too is expected to come up at Nexus. Nirzar Jain, Chief Leasing Officer, Nexus Malls talks about their mall’s open approach, “Malls are marketplaces. Malls have always had legacy brands but now a person’s identity has become broad. Today the customer may wear an Adidas and also a Neeman’s. We are providing some of the brands a platform and we are doing ourselves a favour too. We could actually curate spaces where we reduce the threshold for brands to come in and participate so you have a smaller market place. We are talking to G.O.A.T and Mensa brands to figure out how we can do this together in a structured plan.”

Talking about Zouk, Krishnakumar shares, “We realize that now we fall under the consideration set of where legacy brands are there. We are big believers that we need to be where the consumer is and we said that we are head on competing with these legacy brands and we need to be where they are. We know fairly well how to bring traffic to our website but we may not be the experts in bringing people to our stores. Opening stores on the high street would be a challenge as compared to malls where they (malls) are experts at bringing good quality customers. The 2nd part is that people recognise that a brand is big when you have a store and if we are in a mall, the appreciation for the brand goes up a little bit more. First 10 to 15 stores we would have at malls before we go to the high street.” Krishnakumar like Nahar and Singh too is optimistic of building the brand further based on their offline expansion. “For us, our stores would be very serious business. 80 to 90 per cent Indian consumers are still buying offline. There is a brand to be built and serious business to be done there. Online side customer acquisition cost has gone up. It is becoming more and more expensive to acquire a customer. We are looking at having our largest part of revenue from our offline channel now.”

Offline Stores Cannot be Just Delivery Centres / Pick-up Points

For any online brand getting into the offline space, the most common thought process that follows is to have the stores be treated as delivery centres for their online customers. But when we hear the new age D2C brands entering the offline space, their thought process is crystal clear – our stores are not to be just looked at as delivery points. Nahar reiterates, “For me having a store like a delivery centre is a waste of an opportunity and very expensive too. We want a store for an experience and for customers to enjoy the product. We have more than 10 stores and 70 per cent are in leading malls. We have a lot of SKUs and that is why we need our own store. Being present in a supermarket will not give us the liberty to list all the SKUs we have. When you have your own store, you have the liberty to collect data, do sampling and extend a wonderful experience to your customer.”

He further adds, “You cannot only depend on your website. The cost of acquiring a customer is very high. Building on the same keyword is expensive. When you open a store, it is a validation. People walk in and realise it is a big brand hence it has a store. The validation helps.” Nahar in all humility puts forth a request to mall developers to be more supportive to the D2C community. Like how the government is supporting SMEs and MSMEs, malls need to have a similar approach for D2C brands. That and customer discovery is far better offline then online.

Concluding with why D2C brands cannot be ignored, Stephen Jude Noah, Leasing Head, Forum Malls shares, “Today we look at mall development very differently from what we would have a decade ago. Now it is all about community centres. Malls are shaping up differently with more entertainment and F&B. D2C brands are adding a lot of depth to categories. D2C brands also add in more variety. The D2C ecosystem will be worth 100 billion dollars by 2025 so none of us can ignore it.” Noah further revealed on innumerable enquiries they have personally witnessed from D2C brands since the last 18 months.

 

This article first appeared in IMAGES Retail Magazine’s August 2023 issue

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