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If traditional retailers weren’t so busy creating\ndigital avatars to take on their new-age rivals, they might have\nnoticed online stores gaining a firm foothold in their territory, one\nstore at a time. \n
\nSome of India’s largest online stores including baby products retailer\nFirstcry, eyewear brand Lenskart and furniture marketplace Pepperfry\nare beginning to see significant contributions to revenue and\nbottomline from their physical stores.
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\n“We get significant revenues from our offline business and we are\nalready EBITDA-positive (profitable from core operations)\ncollectively,” said Supam Maheshwari, chief executive of Firstcry,\ndeclining to disclose specific numbers. Firstcry was among the earliest\nonline retailers to open offline stores in 2012.
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\nEncouraged, online retailers are preparing to rapidly expand their\noffline presence in the coming years, opening a new front against\ntraditional brick-and-mortar stores that are struggling to wrest\nsimilar success online. India’s largest business groups including\nReliance Industries and Aditya Birla have launched online apparel\nstores in the past year, and Tata Group’s jewellery and watches brand\nTitan Company is acquiring online jeweller Caratlane.
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\nFirstcry and Lenskart have opened hundreds of stores through\nfranchisees, boosting their sales. The physical stores of companies\nlike Caratlane and online lingerie retailer Zivame function more like\nshowrooms, tending to be smaller than those of their brick-and-mortar\npeers as they keep limited products and use a central inventory.
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\nMore importantly, building a physical presence helps these retailers\ntap those millions of customers who are still uncomfortable shopping\nonline. Take, for instance, a Firstcry customer who recently posted on\nthe company’s website that ‘Aloe Veda Castor Oil’ was not available at\nits Ernakulam, Kaloor franchisee in Kerala.
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\nShe urged Firstcry to make it available at that store so she could\npurchase it as “I don’t like online shopping.” To capture these\ncustomers, Firstcry plans to ramp up its offline presence to 700 stores\nin 3-4 years from about 170 now.
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\n“We have seen that offline customers are also transacting online and\nvice-versa, so joint cohorts are much higher,” said CEO Maheshwari.\nCohorts is repeat customer purchase, which helps measure if a company\nis making a profit on each acquired customer, a metric closely watched\nby investors.
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\nFirstcry’s offline network is already bigger than its competitor\nMahindra Retail’s Babyoye, which was known as Mom & Me before\nMahindra group acquired online baby products retailer Babyoye in 2015.\nBabyoye, which runs 115 owned stores, has announced plans to open new\nstores through the franchisee route like Firstcry.
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\nMom & Me made revenue of Rs 210.5 crore and net loss of Rs\n118.9 crore in fiscal year 2015, according to Mahindra &\nMahindra’s annual report. Firstcry reported revenue of .Rs 118 crore\nand loss of .Rs 63 crore for the same year. As for Pepperfry, which\nplans to double its store count to 16 this year, “offline stores are\nthe best marketing channel we have started,” said CEO Ambareesh Murty.\n“It helps us provide that reassurance to customers that we are a\nspecialised player and translates to trust in the brand.” Also,\ncustomers walking into physical stores tend to purchase more often than\nonline buyers and at a higher average price, he said.
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\nPepperfry opens stores based on customer purchase data of the previous\n24 months, which helps it zero in on pin codes with high customer\ndensity. By opening stores in such areas, it is also able to drive\nsupplychain efficiencies as more orders from an area translate into\nlower average cost of delivery.
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\n“These players are already established leaders in online space. The\nquestion they are addressing is how do you redefine the market to grow\nbe-cause only 5% of Indian customers have bought online,” said TCM\nSundaram, managing director at IDG Ventures India, an investor in\nLenskart, Firstcry and Zivame.
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\nOnline shoppers in India are expected to increase from 50 million to\n150 million by 2020, according to a recent report by Google and AT\nKearney, adding that not having an omni-channel presence in categories\nlike consumer electronics, home furniture and personal care could cause\nretailers “to lose out on 20-30% of potential buyers.” Experts spout\nthe adage that retailers need to be where the customers are rather than\nchoose one basket.
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\n“The retail\nbusiness is not divided in black-or-white between old-world physical\nretailers and the upstart online kids – at least the consumer doesn’t\nthink so,” said Devangshu Dutta, CEO at retail consultancy firm Third\nEyesight. <\/span>
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\nSome online retailers agree. “The idea is to create an eyewear brand,\nand channels keep changing. We want a store in 372 towns in India that\nhave a population of over 50,000,” said Peyush Bansal, CEO, Lenskart.
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\nThe company has 200 stores from where customers can book products and\npick up later from the store or get these home delivered. The company\ncharges a franchisee fee and pays a commission to store owners on each\nsale, while it manages the inventory and customer experience. It plans\nto expand to 400 stores by the end of the year. Lenskart, with\nannualised revenue of about Rs 300 crore, is targeting Rs 2,500 crore\nrevenue in the next four years. Bansal expects the physical stores to\ncontribute about half the revenue in the next two years. Lenskart\ncompetes with Titan’s eyewear business, which earned net revenue of Rs\n372 crore in fiscal 2016 from its 404 stores.<\/p>\n