Pandemic-Marred Quarter Shows How Reliance’s ‘New Commerce’ Can Pay Off
When modern retail fared poorly in the first quarter, hamstrung by the Covid-19 outbreak, Reliance Retail managed to drive sales.
Large retail chains struggled in the quarter ended June as Indians stayed indoors amid the raging pandemic and stores remained shut. But for Reliance Retail Ltd., India’s largest retailer, the period shows how Mukesh Ambani’s marriage of content, carriage and commerce is paying off.
Indians faced the world’s most punishing restrictions after Prime Minister Narendra Modi announced a complete lockdown in March 24. Economy remained frozen for nearly two months, but for supply of essentials. Consumption of everything except staples collapsed.
The pandemic forced Reliance Retail, operator of supermarkets, India’s largest consumer electronics retail chain, fast-fashion outlets and a cash-and-carry unit, to shut nearly half of the stores. Footfalls, the company said in its earnings presentation, tumbled nearly 57%, and about 39% in June alone. Revenue contracted 17%.
Yet, it could have been much worse had it not been for connectivity, or the data recharges by Reliance Jio Infocomm Ltd.’s subscribers, and the grocery business. Both these verticals grew during the quarter when everything else contracted.
The two businesses are central to Ambani’s bid to offer everything consumers through a hybrid offline and online retail model. And these are part of his effort to build a digital behemoth that rivals the likes of Alibaba Group, Tencent Holdings and Amazon Inc.
Data recharges through Jio outlets, housed under the retail business, spiked as Indians consumed more content during the lockdown. Jio, Ambani’s first step in creating a digital conglomerate, has upended India’s telecom market by offering cheap data, causing the consumption of online content to explode in India.
And the grocery business, an essential service during the lockdown, grew as the company launched and quickly scaled up JioMart, an online platform that lets people order from Reliance Retail stores via WhatsApp.
“The big hallmark of our performance this quarter and a big highlight that I'd like to call out is really about bringing new commerce to life because of the convergence of online and offline,” Dinesh Thapar, chief financial officer at Reliance Retail, said during a post-earnings interaction with media and analysts.
Reliance Retail launched JioMart in the middle of May and ramped it up to cover 200 cities and 3,500 pin codes, including supply chain and infrastructure support. It helped offset lower footfalls in the grocery business by delivering higher bill values during the lockdown, the company said.
Servicing orders on JioMart through our network of 800 stores in grocery has been well established and the company is geared up for the scale of orders it gets, said Thapar, adding that offline stores were used as fulfillment centres. He didn’t quantify sales through JioMart.
Connectivity, or data recharges, contributed the most and grew 30% year-on-year during the quarter. Grocery followed with 5%. Everything else, including consumer electronics, fashion and lifestyle and petroleum retail, contracted.
Fashion and lifestyle, the most profitable business because of a higher proportion of private labels, saw margins contract as all stores remained shut in April and 65% throughout the quarter.
The segment’s revenue dipped 18% over a year earlier during the first quarter, while operating profit fell nearly 47%.
While the company cut costs to cushion the segment, it too was aided by online sales through AJIO, online fashion retail portal linked to Reliance Retail’s Trends stores.
“Had it not been for AJIO, you know our fashion & lifestyle portfolio would have been much lower. In this period of time, we have actually doubled business, even though it could function for only about 40 days this quarter,” Thapar said.
He said the company realised that a lot of Trends stores are going to be shut during the lockdown since most of them are in malls and high street locations. “What we then ended up doing was to divert a lot of traffic on to our digital platform AJIO for driving Trends’ revenues.”
Trends stores linked to online retail platform increased from 30% to 80% during the quarter.
The company also launched a digital platform for its jewellery business—www.reliancejewels.net.
It also linked all Reliance Digital electronics stores to reliancedigital.in portal. Digital store bills through the platforms have jumped 11 times over pre-Covid period, Thapar said without giving details.
“Given the fact that we now have a store footprint across the country which we (are) able to leverage, which we’ve now connected to the digital platform and (this) allows us to do hyperlocal in electronics (and) positions us to be able to deliver the fastest to customers on electronics orders,” said Thapar.
Moreover, apparel, footwear and consumer electronics will also be available on JioMart in the second quarter, the company said. And Jio Platforms Ltd., the holding company of Reliance’s digital and telecom assets, will develop marketplace and subscription models for scaling up these businesses.