To,
My Friends,
C/o Offline Space
India
Let us start with the data for Q2 (Source: Counterpoint) on the growth in the two channels – offline and online. Well, offline has shown a degrowth of 4% and online has shown a growth of 26% YoY. Even offline-first brands like #Samsung, #Oppo and #Vivo have shown high growth online.
We can all blame it on various factors such as aggression of online, poor walk-ins at offline stores and so on. Yes, these may be some of the reasons. But, for me, it all starts from why brands prefer to go online.
We all know why customers go online, but why do brands go online and why is it that the failure rates of brands taking the offline route are much higher than the ones which follow the online one?
Start listing the brands which came online and withdrew from India, vis a vis the brands which came offline and failed. The numbers would be higher for offline. Let’s look at it another way. Success rates of brands which were launched online and then came offline or remained online has been high (#Xiaomi & #Realme). On the contrary, if you did the same exercise for offline-first brands, the success rate would be higher. One will also see offline focussed brands not making too much of an impact online when they finally decided to be also present there. Take Vivo and Oppo for example.
Well. So why is the failure rate high for majorly offline brands. It is the:
1. High cost of selling.
2. High fixed costs of the set-up required – large office space(s) and multiple warehouses.
3. Large size sales and back-end teams, and their salary and travel costs.
4. High channel margins.
5. High end cost of BTL activities primarily with respect to the in-store Promoters with demo handsets, in-store branding, outdoor branding etc.. All these increase the end price to the customer. India being a highly competitive market, brands are afraid of going overboard on the pricing and losing out the war being fought on just specifications.
Let’s try and quickly analyse each one of them.
Offline business does require larger offices to support front and back end, and of course much bigger teams to cover the geography. One could try and optimise the headcount but there is a limit to it. Most older brands have already done that and others are in the process of doing it. The expectations from new brands are high and they have to recover the cost by marking up the price, making it more difficult for them to sell. Alternatively they try and initially absorb the cost hoping that the sales would go up and the % costs would come down to a reasonable level. If it doesn’t, there is bound to be an issue on brand survival sooner or later.
My first request to you. Please support the brand by asking for reasonable support in terms of headcount and ensuring that you treat them as your employees. Try and extract the maximum output out of them. Sometimes less is more.
We can already see online brands like Xiaomi and Realme working on very thin margins in the offline channel to be able to maintain parity with the online prices and to compete with established offline ones. If we go back 4-5 years we will find that brands used to charge a premium of Rs. 500-1000 offline for the same product being sold online. Today that may not be possible with the alternatives available to the customer. Even primarily offline brands like Oppo and Vivo have been reducing their channel margins. So for the time being let us assume that there is little or no room to play with margins.
My second request to the channel: Please support the new brands with reasonable demands on margins – higher than the brands already there – to pull them towards you rather than push them to go online. Of course, the business proposition has to be profitable for you in the end in terms of expected revenue and margins. Look at it from another angle. Consolidation in the market at some stage will hit back the channel. We all need more alternatives and need to give a chance to new brands.
While on costs I would like to share my thoughts on the BTL expenses and specifically the in-store promoter expenses which can wipe out a brand. I have seen the cost of promoters exceeding the costs of the entire manpower of an organisation. The responsibility of the in-store promoter is to demonstrate the brand’s device and to enhance the user experience. As mentioned by me in my blog https://promoter.sharmaajay.com/home/rewriting-rewiring-reviving-offline the owner at the retail has to go beyond just being someone who is raising bills and collecting money. He has to get involved with brands, his own team, and the promoters put up by the brands and specially his customers.
My third request- Ask brands for Promoters only if you are confident you can extract a level of business from them which is justifiable. An unreasonable demand today can be one of the major reasons for the downfall of a brand or the shying away of a brand from offline. According to me, the expenses on in-store promoters are the major reason for offline brands not being able to sustain.
The first thing which happens when a company’s employee goes to appoint a distributor, who then with or without the company employee, goes to place the goods on a retail shelf, is that no business will happen without promoters or that we need Xnumber of promoters sometimes with no commitments. It seems to have become a standard requirement not necessarily for customer experience but as a business norm or ‘subsidy’ in offline. New brands have no choice but to put them there and when business does not happen, sack them. The after effects – the company suffers losses and exits and the distributor or the retailer gets stuck with stocks (#Comio, #Homtom, and #Mobiistar for example). So both the company and the channel are the sufferers. Everyone ends up putting the whole responsibility on the brand or the employee. Let me say that all of us are equally responsible for this scenario. Let us not commit if we cannot do what is expected by the brand and if we do accept it, let us ensure we do it. Let all ensure that the quality of promoters are not compromised on, in any case. Let us not consider it as a subsidy. Better to have none than to have two bad ones.
My fourth request – Consider the promoter as your own employee rather than taking him as a company person with no liability on you. His performance will not only affect your own business but the addition or subtraction of promoters overall in the offline space. Offline in the end is your universe and if that gets affected it is going to impact you as a retailer as well.
We can already see brands removing promoters. The Indian brands have more or less moved away from them and struggling brands like #Motorola have started the exercise too. As in the case of reducing margins, the reduction in the headcount of promoters or higher expectations from the promoters will follow sooner than later. It is up to the retail to ensure that they don’t let it happen.
In a way you are the ones in offline who can contribute to more conversions through your promoters leading to increased business and profits not only for you but for the offline universe. Help in retaining employment for tens of thousands of people and of course do your bit in helping in the new or old brands/continuous existence in the offline space. Any further consolidation of the top brands is not going to be good for anyone – a customer or the channel.
New brands deserve a chance, of course with logical requirements. We don’t want offline share to go down too much while online exists and grows. Not everyone will get distribution of the top 5 brands. Doesn’t mean you invest in any brand, but also doesn’t mean you do not encourage a new brand with good credentials. However if you do, don’t leave it to the brand to do everything. Yes, the brand has to do what it should but you should also ensure that you do what you have to. Together you can make offline stronger, and generate more opportunities for all. The best of brands in various fields vanished in no time and new ones took over. Tomorrow can be very different from today and who knows, you may be in the right place at the right time.
My last request – It is your money being invested. No one should be more concerned about it then you. Do your homework before you invest and take the joint responsibility of its success or failure.