Competition is rife between online retail stores and their brick-and mortar compatriots as survival worry forces the latter to increase their advertising spends, offer bigger discounts and redo stores to improve customer experience.
Some of the frontline stories like Future Group, which runs Big Bazaar, FBB and Central chain stores, along with Shoppers Stop Ltd, Crosswords bookstore and HyperCity hypermarket, are forced to go for complete makeover against the backdrop of the competition from online retailers such as Flipkart, Snapdeal and Amazon, a report from Livemint said.
“We have increased our advertising budget for the new fiscal by Rs.100 crore over last year,” said Kishore Biyani, chairman and chief executive officer, Future Group.
Last year, online retailers raised more than $3 billion as they looked for growth in India’s nascent modern retail market. The money was used to fund their heavy discounting and promotions. In 2014, firms in the e-commerce space spent over Rs.1,000 crore on advertising across media, of which a majority was spent on television, said a report published by industry lobby Federation of Indian Chambers of Commerce and Industry (FICCI) and consulting firm KPMG.
However, as brick and mortar retailers raise spending on promotions and refurbishing stores, they could see increased pressure on profitability, feel experts.
“Refurbishing stores and advertising campaigns are all attached with costs. They have instant gratification, but are not sustainable in the long run,” said Rachna Nath, leader (retail and consumer) at PwC.
Brick and mortar retailers will have to go digital to increase sales as physical expansion has limitations with limited number of retail space, she said. To be sure, in the past year, brick and mortar retailers have also ventured online. Future Group has tied up with Amazon and has also launched its omni-channel strategy. Shoppers Stop, which has made all its private labels available across all online retailers, is also working on its omni-channel strategy, which will unfold in the next 18-24 months.
In five years, the e-commerce market is expected to catch up with organized brick and mortar retail trade in India. “The share of e-commerce is expected to jump from 2% in 2014 to 11% in 2019, while the share of organized brick and modern retail is expected to fall from 17% to 13%,” said a February report by property consultant Knight Frank India and lobby RAI.