Indian retailers hobble online as e-commerce firms race ahead

Future Lifestyle Fashions

17/11/2014 21:00

By Nivedita Bhattacharjee 
    MUMBAI, Nov 18 (Reuters) - The head of Future Group, one of 
India's largest and most established retailers, admits he can't 
keep up with web sites like Snapdeal and Flipkart when it comes 
to spending money to entice shoppers to buy online. 
    Private investors have poured $2.3 billion into India's 
e-commerce companies so far this year, according to consulting 
firm Technopak, giving them financial firepower to overwhelm 
shoppers with bargains and deals that brick-and-mortar retailers 
like Future Group, which runs a host of chains including Future 
Retail Ltd  FURE.NS  and Future Lifestyle Fashions  FLFL.NS , 
cannot match. 
    "It's all about money. The e-commerce guys have money to 
experiment - I don't have this kind of money to blow," Kishore 
Biyani, who pioneered modern retail in India and is chief 
executive of the Future Group, told Reuters in an interview. 
    In an attempt to match up, traditional retailers are forging 
partnerships with well-funded websites such as Flipkart.com, 
Amazon.com Inc  AMZN.O  and Snapdeal to put their wares on the 
web without investing heavily in their own online 
infrastructure. 
    This tentative approach to e-commerce, however, leaves 
traditional retailers vulnerable to being completely overtaken 
by their better-funded online rivals in a country where a 
rapidly expanding middle class is doing more and more shopping 
on the web. 
    In October, Future Group tied up with Amazon's Indian arm to 
sell its brands online. A month earlier, electronics retailer 
Croma, owned by the Tata Group, struck a similar arrangement 
with Snapdeal. 
    According to Technopak, organized retail in India is 
expected to grow to $182 billion in 2020 from the current $46 
billion. E-tailing is forecast to expand at a faster clip, to 
$32 billion by 2020 from $2.3 billion now. 
    India's protectionist government policies have long shielded 
established retailers from competition. As a result, they never 
felt the need to invest in state-of-the-art technology, said 
Bhavit Desai, a U.S.-based strategy consultant who has worked 
with companies such as Walmart International, the global unit of 
Wal-mart Stores Inc  WMT.N , and Target Corp  TGT.N . 
    "Many huge players in the market have invested very little 
in technology and have been followers at best," Desai said. 
     
    MOM-AND-POP TO ONLINE SALES 
    In 2012, then Prime Minister Manmohan Singh's government 
opened India's retail industry to foreign operators, allowing 
companies such as Wal-Mart and Tesco Plc  TSCO.L  to own 
majority stakes in Indian chains for the first time. 
    But the government left it to individual states to decide 
whether to let in foreign retailers. Few have stepped up, and 
the big foreign chains that might have shared their online 
expertise with India's stores are largely absent. 
    Instead, local online marketplaces have proliferated, backed 
by billions of dollars coming in primarily from abroad. Last 
month's $627 million investment by Japan's SoftBank Corp 
 9984.T  in Snapdeal illustrated a widening gap. The portal has 
also attracted funds from eBay Inc  EBAY.O  and Indian 
billionaire Ratan Tata. 
    Flipkart.com raised $1 billion earlier this year, in a round 
of funding from Singapore sovereign wealth fund GIC  GIC.UL , 
along with existing investors Tiger Global Management LLC and 
South African media company Naspers Ltd  NPNJn.J . 
    That leaves traditional Indian retailers vulnerable, say 
industry advisers. Online marketplaces don't need to pay high 
commercial rents or build stores to serve India's 1.3 billion 
people, and they're soaking up outside investments and expertise 
from their international backers that can help them move faster 
to profit. 
    Organised retail is still developing in India. More than 90 
percent of shopping is done at informal roadside shacks and in 
bazaars. These small shops are seen as the lifeblood of India's 
economy and successive governments have protected them. 
    But the same policies have also shielded much larger players 
like Shoppers Stop Ltd  SHOP.NS , Future Retail and others. At 
the same time, online stores are racing ahead, modernising the 
retail industry at a pace that traditional chains cannot match. 
    "It is exactly like what happened in telecoms," said 
Harminder Sahni, managing director of Wazir Advisors. "In India, 
we never took landlines to every single home - mobiles came in 
and leapfrogged that." 
  ($1 = 61.6200 Indian rupee) 
 
 (Reporting by Nivedita Bhattacharjee; Editing by Clara Ferreira 
Marques, Emily Kaiser and Miral Fahmy) 
 ((nivedita.bh@thomsonreuters.com; +91 22 6180 7123 ; Reuters 
Messaging: nivedita.bh.reuters.com@reuters.net, follow me on 
twitter @tweetsfromnivi)) 
 
Keywords: INDIA RETAIL/