Are retailers ready to face the disruptors?

Trends disrupting the retail model . How disruptions- be it e-tailers with innovative campaigns or physical stores attempting to reinvent themselves to stay relevant- are changing the landscape.
Are retailers ready to face the disruptors?

Today, Indian consumers are driving retail strategies forward. And these strategies are built around their preferences and inclinations.

India has an Internet penetration of around 16% translating to around 250 million users. In urban India, 17% of users possess a smartphone. This has huge implications for online retailers and they are continuously trying out tactics to amass successful sales. Although the numbers amounted to only about 0.5% of the overall retail trade, not only were online retailers able to clock in sales amounting to 5.3 billion USD, their innovative marketing and aggressive expansion strategies invited growing interest from investors in India and outside.

The disruption strategy adopted by the online retail industry has made the industry sit up and take note of the following disruptors: 

THE DISRUPTORS

The price war

Exclusivity in products

Greater convenience for shoppers

Mobile and related technologies

Evolving nature of the physical store

The price war

Discounts have always been the biggest crowd pullers in retail. Held on specific occasions a few times a year, shoppers usually look forward to these annual events with high expectation and excitement. Online retailers have successfully leveraged discounting as a mainstream business model. From being a much anticipated annual event, discounting and sales have become a way of life. As a result, price has emerged as the biggest differentiator driving consumers to shop online or in-store.

Online retailers have successfully managed to wean away customers on the basis of this strategy alone. According to a PwC survey, 48% consumers buy products online because of better deals and discounts. And it was the attractive deals, promotions and sales that led 37% people to visit a particular brand's social media page. While 55% of the people shop with their favourite retailers; 66% did in-store shopping while thinking of their favourite retailers, while 74% did shopping through online PC.

Exclusivity in products

A particular product not in stock is the main reason for shoppers preferring other channels. With an increasing number of customers preferring online shopping to in-store, several brands are entering into exclusive distribution tie-ups with online retailers.

This trend has been observed across all product categories. Through exclusive tie ups, Indian as well as international brands are taking advantage of the extensive reach of online retailers. In 2014, certain food and beverage products also saw exclusive online pilot launches. With the consistent popularity of books on the online channel, pre-orders of certain books were only available online.

The continuing popularity of consumer electronics through the online retail channel has motivated several smartphone brands to give exclusive distribution rights to the large online retailers. Brands have claimed sales of as much as 20,000 units within a few hours.

International fashion brands are also using this platform as the initial step in their foray into the Indian market. Exporting their merchandise to online retailers has helped them avoid dealing with India's complex regulations that tend to delay market entry. Besides, these brands end up saving on the costs of investing in real estate, among several other overheads.

From an offline retailer's perspective, this has been a disturbing trend. Launching long anticipated products following their success in foreign markets has always been a crowd puller, regardless of how premium the brand. While the brand can use the online launch to test demand, a second launch in physical stores might or might not garner as much attention, especially in the case of already popular products.

There has been uproar among traditional big format retailers as far as exclusive online product launches are concerned.

For the original equipment manufacturer (OEM), most sales still come from traditional channels but since e-commerce has been a profitable channel to get to customers, they grapple with establishing balance between the two. On their part, big format offline retailers have even gone so far as to refuse to stock products which were first launched online. Demarcations have been established, disallowing the sale of certain 'experience' products online since it may lead to brand dilution and customer mindscape disconnect. Consumer electronics companies, part of the bestselling category in online retail, have especially faced this problem. This is another addition to the episode of the battle between the incumbent and the challengers.

Greater convenience for shoppers

The country's major e-commerce players are attempting to improve on how they can deliver products, in some cases, even in as little as three hours.

With several e-tailers also operating in the food and beverages category, a more efficient supply chain will be a game changer.

With growing investment in delivery and logistics teams, eCommerce companies are working towards providing quick and reliable delivery services to its vast customer base.

Benefitting from this potential, third party logistics (3PL) companies in India are also gearing up to meet the increasing demands of the e-tailing industry. This will help realise the huge potential offered by faster deliveries. E-tailers' plans for future expansion, and a key role in it for third-party delivery firms, have also contributed to higher valuations of the existing 3PL companies. Logistics companies have gained up to 80% this past year, making logistics among the top-5 industries in India.

Mobile and related technologies

Smartphone penetration in the country is growing at over 150% year on year. With Internet connectivity through smartphones on the rise, more and more mobile users are expected to shop online. As compared to last year, there has been a 7% increase in the number of mobile users who shop via their mobile phones or smartphones on a weekly basis. Around 63% of people compare prices on their smartphones, mobiles or PC.

Mobile phones are fast emerging as the main drivers of interaction between retailers and customers, which is in turn

leading to growth in sales. Depending on the agility of the retailers, both offline and online, to adapt to this third major

retail channel, it could be the next biggest disruptor in modern retail in India.

Around 55% of our survey respondents admitted to using their smartphones for researching products on the go before making a purchase. Retailers and e-tailers could benefit from search engine optimisation, which would influence shopping behaviour among potential customers. According to an article published in the Forbes magazine, mobile advertising volume in India grew by a record 260% since July 2013, the fastest in the world.

Further, mobile apps which pick up data from customers' online activity are able to provide customised results that show

detailed information regarding the store or establishment that the customers are researching.

When asked about technologies that would enhance their in-store shopping experience, 38% of the respondents voted

for having the ability to check other stores or online stock instantly. The ability to have real-time insight into the available inventory would not only drive sales across multiple channels of

a particular retailer, but also allow it to push various discounts and sales on a personalised basis, which is the second most important factor for our survey respondents.

For instance, a shopper should be able to check if a particular product is available in the store nearest to him or her, using

the mobile application of the retailer in question. Based on this search, retailers would be able to push personalised deals

to the shoppers, thus enhancing customer engagement.

Several mobile applications are allowing users to "check in" to their place of business and reward them with points each time they check in. About 18% of our survey respondents were accustomed to using their smartphones to check into applications like Foursquare, Swarm, Facebook, Zomato and Google Places.

The stores then reward such customers by offering freebies, discount coupons or virtual titles and badges such as 'shopper

of the day' and 'virtual ambassador'. Such gamification would not only attract more customers, but also drive passive marketing through brand endorsements by these customers.

Increased interaction with the brand has led to a third of the customers to buy more in most cases. smartphones outdoing those of cameras, selfies have proved to be effective tools for driving marketing and publicity campaigns, especially on social media platforms.

Evolution of the physical store

The physical store has historically proven to be a "powerful, long-lived and adaptable" institution. There is a potential for the physical store to make a comeback. 

Around 47% people believe in touch and try merchandise.  Even in categories where consumers predominantly buy online, a significant percentage of consumers still research online and buy in-store. According to our survey, for consumer electronics which is the best-selling category online, 56% of the customers research online while 43% prefer to buy the product in-store.

The physical store will continue to persevere as the preferred and more convenient channel for shopping for now, even in the wake of disruptors such as the ones discussed in this report. When looking for everyday items like milk and eggs or when looking for that perfect dress for the office gala, customers will still prefer to run to the nearest store.

The in-store retailer at the same time is working on a number of factors like the in-store look and feel, value added services and customer engagement to ensure customers are in the store and buying. Retailers are also experimenting with innovative marketing and promotion campaigns especially through mobilephones. These include launching shopping apps, SMS alerts during sales and communication of discount codes or coupons. Validating this strategy, 79% of respondents have admitted that they would be happy to receive offers or coupons via mobile phones.

It is imperative that they provide customers with an experience that would convince them that the new product would change their life. The trend of online retailers entering the physical space by opening offline stores only emphasises how multisensory customer experiences contribute immensely in building lasting relationships with the customer relationships with the consumer.

Future of modern retail in India

Disruptors are the order of the day. In the next stage of evolution, how will the online and the offline retailers work? Do we see a possible amalgamation of the channels or at least collaborations to begin with?

E-commerce: the benevolent distributor for several small scale businesses

 The success of the online marketplace

The success of online marketplace has encouraged several entrepreneurs and small businesses to build their presence online. Not only have they benefitted from the extensive reach of the e-tailer in the country, but have also been able

to piggyback on the existing supply chain infrastructure and marketing and advertising campaigns. Be it saree weavers in Varanasi, handicrafts and curio makers or even local manufacturers of bags, small manufacturers are finding it easier to grow and sustain their business on online marketplaces.

A more viable long-term strategy for growth

Offering lower prices will not be viable in the long term. The combined losses faced by e-tailing companies as a result of their discounting strategies now stand at almost 1,000 crore

INR. Further, with valuations of eCommerce companies skyrocketing, there is increasing pressure from investor firms to

cut down on discounts and concentrate on making profits. The more mature firms in the business are gradually implementing this change in strategy.

Emergence of Tier II and III cities as consumption centres

Retailers

Retailers continue to face challenges like high real estate costs, labour, sourcing and supply chain along with the conditions on multi-brand and single-brand retail trading in India. E-tailing is therefore emerging as a viable alternative by which organised retail can expand its share in the total retail pie. Keeping this in mind, traditional retailers are fast expanding into the online space.

Tie-ups between online and offline channels

Another model that can result from Tier II and Tier III cities driving consumption is that of collaborations between online and offline retailers. According to our survey, customers pick their favourite retailers based on a number of factors that are characteristic of both the online and offline channels of retailing.

According to the PwC survey, 83% people wish Indian online retailers would provide the same product range across all their channels. Cross channel collaboration could create a win-win situation for both the customers as well as the retailers. The customers would enjoy the seamless shopping experience that they desire. Additionally, offline retail could benefit from the reach of online retail while online retail could capitalise on the presence of traditional retail in territories that were left uncovered. The objective would be to cover as many PIN codes as possible.

Over the last few months, several large format as well as specialist physical retail chains have forged partnerships with online companies to this end. 

One way of dealing with change is to embrace it and the future of modern retail seems to be ushering in an era of symbiotic co-existence between the multiple channels. In reality, e-tailers

could do with the volumes of business that existing offline retailers possess whereas the latter, especially local businesses,

can gain exponentially by harnessing the nationwide reach of the large eCommerce players.

 

Courtesy: Based on PwC's annual global survey (more than 19,000 respondents in 19 countries across six continents) of shopping behaviour across channels.

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