Rewriting. Rewiring. Reviving Offline.
With the online channel feasting, and the offline surviving on morsels, it’s time they change the game before the game has ended. My ideas (outlandish it may seem to some) on how to get the offline get up and get moving.
Online hampering the offline channel is a HOT topic today. Mobile phones, typically, constitute close to 60-65% of an online channel’s product portfolio, making it the single largest product category in terms of revenues for any online player. Thus, leaving the offline trade in jitters.
There is a lot of ongoing debate I see and hear on how badly online has affected offline, and that if we do not take immediate action, offline will be dead. Logically a lossmaking business model over years is not sustainable. And the need of the hour is to rewire it correct sooner than later. After #Walmart took over #Flipkart, cost cutting measures are planned, possibly with chopping of Headcount and scrapping of some projects planned earlier. Usually that’s how it starts, followed by support cuts. A typical example would be the realignment of costs done in terms of reduction of margins and supports by brands like #Oppo, #Vivo and other global giants.
Today, online is going strong and as per data, could contribute to 42% of the total mobile phones sale in OND and 38% for the year 2018. Overall, it’s a growth of 5% over the last year.
The rise of online shopping, or e-commerce, is widely blamed for the demise of traditional retail. Actually in many ways, the offering provided by the traditional bricks and mortar store has remains unchanged for too long. They have been slow to respond to the changing social and technological landscape. And today’s customer expects something more.
The digital age has caused a shift in how consumers engage with their favourite brands. We can now purchase anything online with convenience and confidence, have it delivered to our doorstep within 24 hours, often with the offer of a free return and refund.
But a tale of a typical physical retail outlets seems to remain unchanged.
The smartphone market is growing year on year. With the smartphone penetration in India being below 30% vis a vis China at around 90%, one can see the potential that exists over a medium term. Launch of 5G in 2021 should be a booster in the long term.
One can see that despite the online aggression in the festive season, the offline sales grew by 6% YoY. So in terms of volumes, it’s safe to say that total volumes generated offline can only grow in the short term. I agree that it may not be the right way of looking at things, but one has to learn to look at the bright side as well.
Things should only get better if brands, distributors and retailers are able to regroup and align.
So what can be done?
Let’s first start at the government level. Though I am no legal or Government affairs expert, strong intervention is required in terms of approaching the:
1. Competition Commission of India (CCI) to look into the “predatory pricing” or “unfair competition” which could lead to oligopoly and then exploitation.
2. RBI for the receipt and utilisation of foreign funds to promote this.
3. Department Of Revenue for the continued losses being booked by these companies for years and the loss of taxes.
We do have a unique situation of loss of tax coupled with heavy outflow of foreign exchange neither of which is healthy.
4. Support to Indian brands to remain competitive and relevant. Yes, as a free market it’s good not to control the market, but one has to find a way to ensure that the local industry does not get wiped out. They are already on a ventilator.
One would need the support of national organisations like #ICEAand the just floated All India Mobile Distributor Association (#AIMDA)and the already active All India Mobile Retaliers Association(#AIMRA)and the Indian brandsto support ICEA on these core issues which I believe have already been taken up by ICEA.
So what should offline do meanwhile as effects of these representations would take time?
Some thoughts that come to mind are as follows. These may not necessarily be in the right order.
At Brand Level
1. Today all the leading brands want to be present on both channels. While online is seasonal business and does have swings over the year, offline is relatively stable so needs to be treated equally to balance out the sudden high and lows associated with Online.
2. Clear differentiation of the goods being sold offline and online with similar specs, prices and margins in terms of SKUs to have a level playing field.
3. For AIMDA/AIMRA to consider jointly committing a minimum qty to show its equal effectiveness vis a vis online. It would mean convincing everyone to agree to work at smaller margins with withdrawal of some supports specifically on these models ,for brands to be able to match up to the pricing online.
At AIMDA/AIMRA level
1. AIMDA/AIMRA creating an online portal where customers could raise their requirements and the portal would direct them to the nearest stores in their area from where the product can be bought. The retailers will also get notified of the requirement and they’ll have to be proactive in approaching the customer. Look at the #JustDialmodel.
2. Discourage the offline channel to buy from online and sell offline. For starters, it does not show in their revenues, and is an evasion of tax and indirect promotion of online leading to self-destruction. The channel has to be educated through workshops that today’s culprit is going to be tomorrow’s victim. This could bring down the online contribution from 38% to less than 20% immediately.
3. One could also consider the following:
a. Cluster activities by AIMDA with the support of brands and AIMRA during festivals in key markets.
b. Just as Oyo has brought together a whole lot of hotels of different categories under their fold, AIMRA could also do the same. Act as an umbrella for buying and selling for these stores through the services of AIMDA. With physical stores running into thousands, one could work with brands for special pricing and offers and delivery could be almost immediate with the customer deciding the nearest pick up point. The mobile would be delivered by a trained sales people from stores, who will offer much more value-added service than any e-commerce website can do at present.
At Store level
1. Offering free screen guards and data transfer services – transferring from old phone to a new phone.
2. Purchasing old phones.
3. Opening a Facebook page for their respective outlets, for customers to share the great shopping experience they had at the stores along with the special offers/freebies, if any at that time, for them to avail. This could lead to an increase in overall walk-ins.