Online retail in India is over-emphasised and contributes little to consumption growth.
That’s billionaire Kishore Biyani’s take on Walmart Inc.’s $16-billion deal to acquire 77 percent in Flipkart, India’s largest e-commerce company. “E-commerce has not created a dent in India’s retail market except for in a few categories,” the founder and chief executive officer of Future Group, the operator of Big Bazaar outlets, told BloombergQuint. The cost of venturing into online retail is also very prohibitive, he said.
Walmart will now take on Amazon.com Inc. in Asia’s third-largest economy where foreign investment rules bar the world’s largest retailer from launching brick-and-mortar stores. That offers the U.S. giant an opportunity to tap the $672-billion retail market as e-commerce, though popular, still contributes less than a tenth of it.
The deal seems bold enough to change the face of retail in India, Biyani said. “Its impact will be seen much later because as of now it only signals the change of hands from a financial to strategic investor.” Besides, Amazon has already ventured into grocery by taking over Whole Foods Inc. while Flipkart has no groceries in its portfolio yet, he said.
Another problem with online retail, according to Biyani, is that it doesn’t build brand loyalty. That’s because nearly 65 percent of online business comes from selling consumer durables, electronics and mobile phones, which are bought for the brand name irrespective of the platform they are purchased from.
On the other hand, offline retail stores that sell groceries, staples, clothing, housing items create brand names and loyalty that consumers follow.Kishore Biyani, CEO, Future Group
For him, while the deal marks the beginning of online-and-offline convergence in India, brick-and-mortar remains the “real business” in the country. An online business model gets funded for the idea it proposes, while offline retail doesn’t have that leeway, he said. “You have to make money in offline business and cannot get funded for the losses you incur.”
In the case of Flipkart, their losses are to the tune of Rs 8,000-11,000 crore per year, as per what I’ve heard...I don’t think any offline company has that kind of wherewithal or funding which can make this kind of loss just to acquire customers. The cost of business is really high in online.Kishore Biyani, CEO, Future Group
Flipkart’s losses mounted nearly threefold to Rs 8,771 crore in three years through March 2017, according to its filings in Singapore.
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Watch the full conversation with Biyani here.
The Future Group also sells online. The company’s large-sized clothing business is doing well, both offline and online, said Biyani. Nearly 10 percent of payments at Big Bazaar stores happen through Future Pay, the group’s digital wallet service. The company also provides home delivery, which contributes 10 percent to its sales. Future Group has tied up with Facebook to allow customers to place orders through WhatsApp.
On Selling Stake
Biyani didn’t rule out chances of a strategic partnership. “We have much more to offer than what an able partner can offer us,” he said. Any alliance will be purely to strengthen the company’s balance sheet. It won’t sell more than 10 percent. The group is not in discussions with anybody at the moment for stake sale, he said.