Retail Chronicles September Edition

Retail Lab

Retail

Chronicles

Monthly Newsletter | Volume 5 | Issue 6B | September 2020Â

CONTENTS

03 W A L K I N G

THE LINE OF BANKRUPTCY Some well known, century old retailers are hearing the toll of bankruptcy while others are managing to stay afloat, what’s creating the difference?

07

WRITERS Parth Reshamiya | Abhishek Wakode | Sawant | Keerthana Sontam |

Bhairavi

Guest Writer- Pearl Sardana

SENIOR DESIGN TEAM

JIO MART:THE REVOLUTION IN VALUE RETAILING

Ayush Goyal | Jeet Doshi | Pushpak Holani | Shikhar Gupta |

The Indian retail space is ripe for disruption. Best time for India's digital revolution for the kirana store.

JUNIOR DESIGN TEAM

11 I M P A C T

OF LOCKDOWN ON FRANCHISERS AND FRANCHISEES Albert Singer is widely considered the father of modern-day franchise model, particularly in the United States

Nilesh Agarwal | Prachi Sharma | Prashant Sihag | Shivani Kunkolienkar | Sneha Patel |

EDITING TEAM Abhishek Wakode

15 E F F E C T

OF E-COMMERCE ON TRADITIONAL RETAIL STORES

With the e- commerce industry booming in India, have the traditional retailers lost the edge?

2 3 AFTER

COVID: LOGISTICS IN RETAIL SECTOR

Due to the lockdown, there were various restrictions on the travel moment which has caused a lot of logistics problems.

A

WALKING THE LINE OF BANKRUPTCY

PEARL SARDANA Retail Chronicles | Page 3

September, 2020

Across every industry today the ripple effects, or to stay it accurately, the huge tidal wave-level effects of COVID-19 are causing immense damage. Companies are struggling.

Jobs are quickly disappearing. Customers who had resources and money to spend are shifting their spending to more essential “things.”

Across every industry, we are looking at a decade or two worth of disruption taking place in just months, weeks, and sometimes, even days.

The retail industry has certainly not been immune to the effects of COVID-19.

Some very well-known names like Hertz, Forever 21, Gold’s Gym, JCPenney, ALDO, Brooks Brothers have filed for bankruptcy protections. There have been significant changes in consumer behaviour, factory and logistics service availability, product demand, and this impact has been majorly uneven.

Retail Chronicles | Page 4

Fashion, electronics and furniture have been hit hardest as people forgo heavy purchases in favor of stocking up household supplies and new essentials.

This has, foreseeably, resulted in many well-known brands in retail, across industries, hearing the toll of bankruptcy; and thousands of smaller shops and retailers across the world may be headed the same way.

To state the obvious: coming out of this pandemic, Retail is not going to be the same and the established by-the-book rules may be rendered ineffective.

As entire countries slowly emerge from quarantines, and consumers around the world become wary of human contact in public spaces, retailers will find themselves scuttering to adapt while also having to stabilize their financial positions. They know that the situation is changing daily and that they will have little time to respond.

September, 2020

Over the last few months industry experts and enthusiasts alike have been monitoring and understanding what aspects of business are becoming more important and can prove to be fundamental in managing the crisis.

There are a few key areas and strategies which must be focused upon by retail brands: Riding on Liquidity: Retail industry is highly dependent on cash and with COVID pandemic came an overwhelming cash crunch. A suggested plan of action for retailers will be to shore up the cash reserves by liquidating carefully chosen assets or borrowing against assets. The industry will have to work hard to help itself. Macy's, for example, raised $4.5 billion dollars by selling secured bonds and raising additional cash based on their assets to secure themselves financially.

Long-term Supply Changes: Since different sectors have been hit unevenly, some have come face to face with where they stand in terms of efficiency of their supply chain. Grocery and essentials’ retailers experienced stock-outs due to panic buying and immediate surge in demand; others are yet to, it will be best for retailers to work with their key suppliers and create contingency plans, assess risks and strategize to manage demand fluctuations.

Safety is going to be on the top of people’s mind no matter what activity they are doing, so right now is as best a time as it gets for retailers to scale up their digital capabilities. There’s a lot of pent-up demand among consumers and it is imperative to enable safer, easier ways for your consumers to have access to your products.

Dial up on Digital: The current scenario has made the digital store or an online sale channel a “need-to-have” rather than a “nice-to-have” factor for anyone selling anything.

Retail Chronicles | Page 5

September, 2020

Protect Your People: This goes for both, the employees and the consumers. Retailers must understand that just a crisis communication plan and social media plan will not be enough, they must think beyond it and ensure that their employees are protected from, alongside the deadly pandemic, the huge fluctuation in industry behaviors, work-hours, overwork while still maintaining business activities. Your consumers need you to take measures to ensure that the products/services and the stores are safe and they need you to tell them this over and over again.

Retail Chronicles | Page 6

No one is quite sure how long the current situation is going to last, what’s sure is that the global response to this and measures that we have been forced to take have changed the realities that retailers have been operating in and it’s time to accept that this new reality will take a whole lot of adapting.

September, 2020

JIO MART: THE REVOLUTION IN VALUE RETAILING

PARTH RESHAMIYA PGDM RM

Retail Chronicles | Page 7

September, 2020

InGrocery is around 70% of the Indian retail market and comes under the physiological needs section of the Maslow's hierarchy of needs pyramid.

More than 90% of sales in this section happens through mom and pop stores and unorganized markets. For the grocery market organized penetration is lessthan 10%while online penetration is less than 1%.

Recently, in a lockdown period, there was two news making headlines in Indian newspapers.

1. Increasing cases of Corona 2. Increasing investment coming to the Jio from various companies globally

WhatsApp, and Messenger. Facebook shops will be complimentary to WhatsApp business use to sign and onboard Kirana stores for the grocery app of Reliance Retail - Jio Mart The platform launched by Reliance retail has covered the majority of the grocery categories like fruits and vegetables, staples, dairy and bakery, snacks, beverages, personal care, home care, and baby care. With the help of JioMart, Reliance is planning to offer over 50,000 products and connect 30 million offline retailers with more than 200 million households across the nation.

Facebook has made a bigger push into e-commerce by investing in Jio. The launch of Shops on Facebook will enable free online stores for small businesses and retailers and expand Facebook presence across Instagram,

Retail Chronicles | Page 8

September, 2020

The value chain created by JioMart connects local offline retailers on a large scale with its merchant point of sale (POS) solution, where it provides user-friendly digital platforms for inventory management, customer care services, and other services required by the retailers. JioMart plans to bring in electronics and clothing and footwear under its scope shortly. The food & grocery sector is tipped to be the next business battle for online retailers in India. Retailers, both domestic and international, have been proactive in their approach towards the rapidly growing online food & grocery (F&G) sector in a bid to capture a large customer base.

India offers even more fertile ground for growth than Europe or North America. In 2019, only 0.8 percent of India's $551.8bn grocery market was

Retail Chronicles | Page 9

operated online – well below more mature markets such as the US (4.8 percent) or the UK (8.2 percent). Now, largely due to the impact of coronavirus, 35.9 percent of Indians are buying food & grocery products online more frequently – second only to China (56.0 percent) out of the countries surveyed.

The 'kiranas', as they stand today, have a demand-side problem as modern trade, discounters and online are gaining market share and a supply-side problem. Jio Mart platform offers to retailer's greater demand generation from taking the store online and leveraging the existing Jio customer base. On the supply side, a tie-up with Jio Mart is likely to benefit the store from the analytics-led understanding of

September, 2020

the assortment at stores and the better cost of procurement by benefitting from Reliance's scale.

Retail Chronicles | Page 10

Reliance is always known for its innovative business strategies and products. Now as Jio has the backing of global companies, the thing which we need to see is how local Kirana shops and consumers are accepting the product.

September, 2020

IMPACT OF LOCKDOWN ON FRANCHISERS AND FRANCHISEES -Abhishek Wakode MBA RM

Retail Chronicles | Page 11

September, 2020

“Not every dark cloud has a silver lining” The world has witnessed the great pandemic of the 21st century. Even the world super-powers are struggling to recover from this unfortunate bane to mankind.

Millions have suffered, businesses have shut down, economies have crashed, and the world development is standing still. Countless people have lost their jobs and things do not seem to get back to normal anytime soon. But evolution has taught humanity that it is always the 'Survival of the fittest' and the same applies to every business that wants to live to fight another day.

As industries have begun to negotiate the extension of the lockdown, the micro, small and medium enterprises (MSME) have emerged as one of the most vulnerable groups. Among them

Retail Chronicles | Page 12

are the franchisee businesses who are the backbone of multi-million brands and it seems they are being left alone by their franchisors to fend for themselves.

With the government directing companies to pay full wages to employees and the big brands trying to retain their market share alongside their competitors in anticipation of the post-lockdown economic revival, the brand outlets would be the ones getting the short end of the stick, who would have to comply with both the government orders and their franchisors’ instructions. They are the ones to whom monetary support is withheld to strengthen the company’s liquidity position.

The retail industry in India is one of the pillars of its economy, accounting for

September, 2020

about 22 percent of its GDP and contributes to almost 8 percent of the total employment. Franchising has proven to be the best way to expand a business, especially in the retail sector.

The standardization, the technical know-how, and even the staff trainings are some of the things which result in making franchisees as successful as their parent franchisers. This can be compared to the hub and spoke model where the franchiser acts as the hub with centralized decision making and the franchisees follow all the practices to give a consistent experience to all their customers.

So, not only franchisees are the legs on which the franchisers stand on, they are the face of the franchisers in the market. So, it is the responsibility of the franchisers to look out for their franchisees in the hour of need. Since they both are interdependent, the franchisees suffering today will cost the franchisers everything in the future thus collapsing the entire system like a domino effect. The franchisers are

Retail Chronicles | Page 13

loaded with the franchising fee which was paid in advance by the franchisees and is also enjoying the government tax benefits amidst this lockdown It is the individual franchisees that have suffered the blow and are now on the verge of closing one by one. Strict action should be taken on those who are allowing their retail outlets, many of whom have been in the business for decades, to shut shop. Corporates must support their distributors who have brought them to the heights they are at now, and the defaulters should be penalized to the extent of 10 years’ profits.

To support their franchisees the franchisers can extend the tax benefits given to them by the government. Staff training according to the latest safety measures, marketing support, reduction in the commission fees, and essential credit are some of the things which the franchisers can do to support their franchisees. Extending the duration of the franchising license will not only get the franchisers the goodwill of their franchisees, but it will also attract more potential franchisees thus bringing in more profit in the long run.

September, 2020

While one can hope that companies readjust their business practices and adopt the idea of shared value, without a new law, the exploitative and unethical activities would continue unchecked. The unequal relationship between the franchisor and the franchisee would continue to allow the corporates to arm-twist the small businesses to serve their interest at any cost. After all, the pandemic has

Retail Chronicles | Page 14

only exposed the exploitation of the smaller businesses that have always existed in the franchisor-franchisee relationship. Thus, a law is crucial to protect franchisee businesses from further exploitation in the future.

Franchisees are like employees, the better you treat them, the better they perform and that is what defines the success of every great company.

September, 2020

 EFFECT OF E-COMMERCE ON TRADITIONAL RETAIL STORES

BHAIRAVI SAWANT MMS Retail Chronicles | Page 15

September, 2020

In 2009, the Indian e-commerce industry achieved approximately $3.8 billion in revenue. By 2012, that number was $9.5 billion. And while predictions estimated growth of 33%, the industry managed to surpass even that, to achieve $12.6 billion – a tremendous 35% growth in revenues.

These numbers are driven primarily by anticipated growth in consumer durables, electronics, apparel, accessories, in addition to the firmlyestablished product lines such as books and audio-visual media. And, as ecommerce offerings continue to evolve, nowhere is the impact of their efforts felt more than in India’s traditional retail industry (today referred to as the brick-and-mortar or physical system of retail).

Retail Chronicles | Page 16

With a major chunk of the industry occupied by local, mom-and-pop stores, the retail sector is experiencing a great deal of churn as physical retailers take new and elaborate measures to keep up with their online competitors. One example of such a measure is with a major player the Aditya Birla Group announced, in May 2015, that they were consolidating their branded apparel businesses under a single company, encompassing a network of 1800 stores – with 200 more scheduled to be added in 2015. Upon introspection, it appears that the largest player in the physical retail industry, Reliance Retail, accounts for a mere $3 billion of the entire market – which in total is valued at $540 billion. Where is the rest of the $537 billion, then?

September, 2020

What is driving the organized retail in India?

The remarkable increase in population, the 37.6% increase in annual income in the last four years, and the fast-paced urbanization is only fuelling the growth of the organized retail sector in India.

The biggest retail spenders belong to the working population of India (in the age group of 15-54 years) and 50% of the total population of India is in this group! Unlike the average working-class family who, until two decades ago, saved most of their income and barely indulged themselves, today, the 500 million individuals under the age of 25 years are the main drivers of the retail growth, mainly in fashion, mobile and fast-food in India.

The empowered middle class (300 million individuals in India) is now on

Retail Chronicles | Page 17

the buying mode with increased household incomes. Owing to their innate desires to live independently and well, Indians are spending like never before. They are now looking for products and services that can be bought with convenience, in addition to high quality. Millionaires on the rise are driving the demand for luxury items like branded jewelry, fine wines, and watches; millionaires are growing at an incredible rate of 51% each year.

The high demand for retail shopping is further fueled by easy access to credit cards and personal loans. Spending habits of the youth now heavily involve the use of plastic money. “Buy now, pay later� is the mantra for most.

Evolution of E-commerce in India The developed nations already had their head start years before the dot

September, 2020

com boom in India made online commerce happen since 2000. India's first brush with e-commerce was in the year 2002 when the government of India launched a website for online railway ticket booking via IRCTC. This was especially directed for the common man who then didn't have to stand in long queues, waste time, and reduced the burden on the ticket bookers overall.

This was a remarkable achievement for India. Airlines in India such as Spicejet, AirDeccan, Indian Airlines, and the like followed suit to launch online air ticket booking in the year 2003. This trend was observed around the world, where the majority of online sales were accounted for the travel industry.

Although retail sales were available online since the year 2000 with Rediff shopping and even eBay, online shopping was, in effect, relaunched in India when Flipkart offered very high discounts on their website. Since then, a great number of other merchants like Amazon and Jabong have jumped onto the online bandwagon, wanting a piece of the e-commerce profits.

retail and marketplace) grew at a whopping 56% since 2009.

What is Driving E-commerce in India?

The young population of India, internetsavvy, and driven by western influences in fashion, food, and other lifestyle choices, is one of the biggest driving forces of ecommerce in the country. Of the 3 billion internet users in the world, the 200 million internet users, and the 120 million smartphone users are expected to increase nearly three-fold (~600 million) in the next five years.

The young populace is driving e-commerce sales up, mainly owing to peer pressure, growing aspirations, rising careers, and of course, to keep up with the latest trends in both fashion and digital devices (such as the latest releases of mobile handsets or laptops).

There is great potential for e-commerce in India, owing to its (continually growing) vast population, in addition to the increasing number of internet and smartphone users. There seems to be a direct link with the increase in the number of internet users and online shoppers, too. The e-commerce sector in India has grown at a furious pace of 34% and of which, E-tailing (a mix of online

Retail Chronicles | Page 18

September, 2020

Major developments like new and improved mobile apps make it convenient for shoppers to make purchases on the go.

Since then, e-commerce transactions via mobiles have more than doubled in the past few years. Consumers in tier-2 and tier-3 cities, who may not have access to top brands, fulfill their desires by going he online way, too. Moreover, it is the convenience, quick delivery, vast range of products available online, and the online power pricing that makes e-commerce a better proposition in India. When only 19% of internet users of the total Indian population can make such an impact on ecommerce today, with a higher penetration of internet, 3G, and now 4G broadband connections, the overall sales are bound to increase to even greater heights in the coming years.

It's not only the customers who are benefitting from this e-commerce boom but the society at large as well. Small business owners, merchants, and even the rural population now have a chance to multiply their business both within and outside of India. Even other industries such as IT, Marketing, Advertising, and Logistics are benefitting due to the e-commerce boom in India.

Current Scenario in India In the initial years, online shopping was fairly simple with placing orders and pay on delivery model, besides there were very few options to choose from, as well. There has been a gradual but drastic change in the way online shopping works in India today.

Online shopping has seen greatly adopted by the Indian consumers because of attractive websites, user-friendly interfaces, multiple online stores – with countless options and trending fashion, easy and very secure online payment methods and of course, the liberty of choosing the size, color and even the best price for a favorite item. Moreover, the chance to get discounts around the year, coupons, getting referral and reward points, 30 days return guarantee, less than a day or week delivery timelines have played a key role in the success of e-commerce in India.

The frenzy of online buying has severely hit offline retailers. Buyers quite obviously prefer shopping online for lower prices and dependable delivery options. Consumers in India have become smart shoppers, preferring to do exhaustive research before

Retail Chronicles | Page 19

September, 2020

they find the best prices, and deals for the things they want to buy.

E-commerce vs. Traditional Retail Model in India

Companies like Reliance, Godrej, Pantaloon, and Raheja (just to name a few) have already made their presence known in Indian organized retail; they are expected to invest more than $15 billion in the retail industry by 2021. The FDI in the last 15 years, has been $275.4 million, as the demand for consumer goods increases across different segments, there has been a lot of investments in the past months. To name a few: Amazon unleashed a $5 billion investment to make India the next big market after the U.S.; Wal-Mart plans to set up 500 stores nationwide by 2030; British major player Tesco has already invested $133.8 million with Tata Group.

E-commerce retailers, along their growth path, have capitalized significantly on the relatively fragmented nature of India’s physical retail institutions, by offering a wider portfolio of products, a simple purchasing experience and a significantly higher level of comfort and convenience, visà-vis the traditional stores may not always have the required items in stock or there may be a waiting period for the consumer to acquire products from the offline store.

The inherent attitude of 'touching and feeling' the products before buying for the Indian consumers who still haven't come to terms with online shopping, this notion seems to be capitalized by industry giants and the increasing number of foreign investments made in the retail industry. So let's look at what is the real difference in e-commerce and traditional retail models in India.

Retail Chronicles | Page 20

There are similarities to the brick and mortar which are equally annoying – case in point, the sales associate who follows you around in a store is much like the 'retargeting' that happens online, where the ads follow you after you've visited a dealer site. With warehousing or other constraints, physical retailers may not be able to display a vast array of products, while online e-commerce has the liberty to display it all – including those that are not even 'in stock'. That's a definite added advantage for e-commerce retail model in India. Amazon India is capitalizing on the "Aur Dikhao” Indian mentality today.

September, 2020

In a twist of the tale, MakeMyTrip has physical outlets in more than 40 cities in India and operates through 63 such outlets; so does BharatMatrimony and now, Yatra.com plans to open 100 new physical stores. These were the three giants who tasted the first 100 million Indian internet users. Why? Is it to convince the skeptical Indian to move from physical to online purchasing or to cater to the millions who have yet to purchase online? Although there are over 200 million internet users in India, only 32 million are the actual shoppers.

The Indian skeptical mindset still yearns for that 'physical touch' of products like those for the baby or expensive items like jewelry or watches. Keeping this in mind exactly, merchants like Caratlane.com and firstcry.com have set up physical shops for customers to try out their items. "We found that since some jewelry items are priced Rs. 15,000 onwards, a customer typically wants to try it out before buying it," says Kalaivani Sadagopan, Senior Vice President, CaratLane.com.

One of the biggest pain-points (other than the whopping 20% real estate cost) for the offline retailers, is the pricing of the products offered online. To win over more

Retail Chronicles | Page 21

customers, online merchants make such discount offers that the Indian consumer just cannot refuse. The pricing could be via direct discounts or offers at checkout. Either way, when the prices online seem much lower than the physical retailers; consumers tend to touch and feel the items first at a retail store on location and then buy them online – this phenomenon is termed as 'showrooming' which offline retailers have now started to take note of and are unhappy with.

Offline retailers have spent years building their brands and creating brand loyalty. With products and price points slowly moving towards a level of approximate parity, ecommerce retailers are turning increasingly towards consumer experience differentiators – such as shorter delivery timelines, reduced (or altogether eliminated) delivery prices, doorstep delivery, at home jewelry-clothesspectacle frame trails (before purchase), a broader variety of payment methods and so much more.

E-commerce– The Millennials’ favorite way to shop Flipkart wasn't the pioneer in e-commerce as many may assume. It was eBay that first recognized the huge potential in the Indian online market and forayed into the market by making a $55 million investment 2 years before Flipkart. eBay came in too early, even before the 'cash-on-delivery concept' gained the wary Indian's trust.

Moreover, the boom is largely due to the Millennial generation, which is more tech-

September, 2020

savvy than the previous generations. They are social animals and they love to shop!

The convenience of being spoilt for choice and getting the best price offers, right at home adds a whole new dynamic to the experience of the Indian shopper.

Millennials not only want to save time but also get the best bang for their buck!

Enablers like smartphone and tablet devices and access to 3G internet have only made it easier for the online shopping channel to be the preferred way for Millennials. With the release of 4G networks this year, the clout of ecommerce is only expected to become more robust.

Conclusion The e-commerce boom has led the way for job opportunities in the marketing and the e-commerce industry, in general. The working class already established in the IT and other consumer goods sectors is expected to get a 35-50% pay raise this year. The e-commerce industry in India is expected to contribute significantly to the total GDP of India; such growth will have a positive impact on other related industries such as logistics.

Retail Chronicles | Page 22

With the digital age, there is a paradigm shift leaning more towards e-commerce. However, for e-commerce to be successful throughout the country, key challenges like low internet network in rural areas, or even low connectivity in urban areas causing high drops in payment processes can impede the expected e-commerce growth. However, brands that decide to be strictly offline are likely to lose the patronage of the tech-savvy Millennial. It is estimated that millennials have the total purchasing power accounting for $170 billion every year, worldwide. The brick and mortar retailers must comply and adjust themselves to new strategies like going online, or merging with established online businesses if they want to partake in the profits that the online e-commerce brings to their existing portfolio.

September, 2020

- KEERTHANA SONTAM PGDM RM

Retail Chronicles | Page 23

September, 2020

Did we ever think that a tiny, almost invisible particle, would cause so much fear, would destroy so many lives, would cause thousands of businesses to shut down and cause a disruption in the lives of people? This is exactly what COVID 19 has done; it has caused a huge change in the lives of people, leaving a lasting impact for years to come.

Due to the lockdown, there were various restrictions on the travel moment not only internationally but also in India and this caused a lot of logistics problems. The blockage of people and material movement disrupted every supply chain and it was a huge challenge to keep global supply chains of essential goods going while some parts of the supply chain have stopped operations and many businesses had to shut shop. But this didn’t stop some business and they tried different ways

Retail Chronicles | Page 24

to reach their consumers. examples of companies are.

Some

Big Basket tied with Uber to deliver products to customer’s doorsteps, thus not only providing livelihood to the employees of Big Basket but also to Uber, thus helping both the companies.

Domino's Pizza has tied up with packaged staple brand ITC Foods to deliver everyday grocery essentials at customer doorstep.

Under the partnership, a combo pack of Aashirvaad atta and spices including chili, coriander, and turmeric powder will be available on Domino's app.

Lenovo tried to combat logistics problems by using a different mix of transportation, like using alternative vessels, more road, rail freight and 'sea air' services – i.e. where a product might leave for the first part of the

September, 2020

journey on a vessel, but then from a hub destination such as Singapore or Dubai, it makes the rest of the journey by plane.

POST COVID CHANGES IN LOGISTICS: This crisis will accelerate digital transformation initiatives for businesses across the globe, as they are forced to face their weaknesses and vulnerabilities. Technology-led business models will emerge as more critical and important and will play a key role in defining strategy.

There are several ways in which businesses can go about creating resilient supply chains in the postCOVID world. For one, there is an urgent need to reduce dependency on physical labour across transportation, logistics, and warehousing. This can be enabled

Retail Chronicles | Page 25

through core digital technologies for Industry 4.0 like Internet-of-things, blockchain, control towers, artificial intelligence/machine learning-enabled demand forecasting, rule-based, and self-adjusting stock allocations, autonomous devices such as AGVs and drones, among others. From a business perspective, COVID-19 presented unprecedented challenges for organizations, including a possible liquidity crunch, global supply chain disruptions, an increase in trade barriers, and a shifting consumer mindset. However, the post-COVID world will see digital technologies playing a critical enabling-role in delivering improvements throughout the breadth of businesses, including more resilient supply chains, significantly enhanced user-experiences, and intelligent optimized processes to deliver business outcomes.

September, 2020

Retail Lab

/retaillabsimsr @Retail_Lab @Retail_Lab