Changing Retail Landscape (volume 2)

RedSeer

A Whitepaper by

Shubham Anand

Changing Retail Landscape: Volume-2

Head, Retail-CPG practice, RedSeer Consulting

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Customer segment of age 20-40 years’ behaviour has confused marketers and retailers about the optimal channel strategy mix to match their paceYoung customer buying preferences

Young customers with high disposable income are not

consistent with their preferred search and purchase medium

This has confused retailers and marketers alike about the ideal

strategy to target them

Illustrative

RETAILERS,MARKETERS

Typical customer journey (age 20-40 years)

Product category Preferred Search medium Changing Preferred final purchase point

Online penetration

Books Online 2%

Jewellery Offline 2%

Fashion, brown goods

Deep diveOffline Online 4-5%*

Appliances

Deep diveOffline Offline 6-7%**

Both online and offline medium are influencing buying decision of customers* Online penetration for fashion category only, **Online penetration for Large appliances

Source: RedSeer Analysis

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Appliances Experiential goodsLarge appliances Refrigerator, air conditioner, television, etc.

Furniture, eyewear, innerwear, etc.

Online market size- 0.76 Bn*• Search mostly happens online as specifications are

available online• High ticket value & replacement cycle• Part of home interiors• Not confident about online channel’s ability to

deliver same service

Online market size – 0.9 Bn*• Customer prefers experiencing product before

making final purchase• Ready to invest more time before buying even

though it might cost higher

Small appliances/Brown goods Mixer, shaver, router, games, etc.Online market size - 0.3 Bn*• Low ticket value and replacement cycle• Comfortable buying online as service delivery

expectations are not high

Large appliances and experiential categories remains a tough market to crack for online retailers, owing to customer preferences and perceptionLarge appliances, brown goods & experiential products Deep dive – consumer preferences

Online players will need to reach out to customers by assuring service quality and providing experience like physical stores which lacks in online channels* Current e-tailing GMV is $16 Bn


Consumer preferences Key implications

Makes difficult for online players to enter

Multiple users for each large appliance and furniture – customer will be skeptical of online purchase unless they get enough assurances of service delivery

Experiential goods will remain a tough segment for online players unless they follow consumers and open up experiential stores

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Impact on offline retailers Descriptive

As online platform matures, these big retailers are expected to expand product portfolio categories and range offered online


Drivers for change Case studies

A Customer Target customer at every stage – shortlisting, buying or exploring

B Participate Participate in India’s online retail journey and ensure brand value & presence without risking dilution in 3rd party marketplace

C Product Electronics with high online GMV and Fashion with high margin and traffic are preferred categories

Big retailer

Online venture

Launch year/ product category

1 2016 Fashion, electronics

2 2015 Fashion

3 2016 Fashion, electronics (limited)

4 2016 Fashion

5 2012 Electronics

Large organized retailers are cautiously opting for omni-channel strategy by entering online retailing in mature categories like fashion and electronics

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Market forces are influencing decision making of e-tailers by pushing offline presence and experimenting with private labelsImpact on offline retailers Descriptive

Market dynamics is leading decision making and pureplay online players who never stated entering offline as their group strategy might have no choice but to end up doing so

Expect more offline stores going forward as online channel standalone does not provides enough traction for long-term sustainability


Drivers for change Case studies

A Online growth stagnation

Total monthly online shoppers stagnant at 15-17 million since the past 6 months

B Funding – drying up

• Players who could attract funds earlier based on GMV are now finding it difficult to justify valuations as growth stagnates.

• Total funding in 2016 was $ 2.7 Bn which is 60% lower compared to 2015

C Product & customer

In experiential categories like eyewear and innerwear, customer wants to experience product first before buying

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Launches fashion private label in June 2017

• Launches first Pepperfry Studio experiential store in 2014

• Expands to 18 studios (as of May 2017)

Testing waters before opening offline horizontal stores?

Will rival Urban Ladder push Pepperfry to makes this a sales channel?

Never came out as group strategy earlier

Control offline temptation to one category or private label only?

Sub-franchises Mango retail stores in India, 2017

Launches first retail store in Bangalore, March 2017

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About author

About RedSeer

Shubham Anand is heading Retail-CPG practice at RedSeer and working with clients across fashion, retail and other CPG verticals on Growth, Market Entry & Store Roll-out Strategy. He is also working with PE & VC funds to help them with sector scanning and their portfolio growth. Shubham has an overall work experience of 12 years across Management Consulting, Strategy, Marketing, P&L, etc. He has done his MBA from IIM Lucknow.

RedSeer is one of the fastest growing research and consulting firms in India. It’s unique service offerings serves decision makers across the value chain. RedSeer works across the sectors with specific focus on auto, construction, farm equipments, healthcare, CPG/retail/e-commerce, funds, investment banks and technology sectors.

Shubham AnandHead Retail-CPG practice

Changing Retail Landscape (volume 2)

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Transcript of Changing Retail Landscape (volume 2)