Why big boys of India Inc lost the e-commerce game to Flipkart, Amazon

While the physical retail businesses of those like Tata group, Birla, Future and Reliance are doing well, they have failed in their online foray

The Walmart-Flipkart blockbuster $16-billion deal has put the focus back on the top Indian conglomerates which tried their hand in the e-commerce business but failed to make any dent in an ecosystem dominated by nimble-footed new players. 

However, the big Indian corporate groups' foray into physical retail has gone well, especially in the fashion vertical, even as the grocery business remains a laggard. 

Analysts say the big boys of India Inc missed the e-commerce bus as they focused on the Walmart model of setting up offline retail stores across India, instead of following the Amazon model of an online marketplace. The company founded by Jeff Bezos changed the way consumers shop as the penetration of digital services improved in India.

“They didn’t want to burn billions in e-commerce. And, at the same time, they did not have the patience to wait for a decade to see positive cash flows. Be it Birla, Tata or Reliance, none of these conglomerates was able to match the nimble-footed Flipkart or Amazon,” said an industry analyst. 

The performance of the Tata group’s online business Tata Cliq was limited to selling Tata products and ensuring home delivery. Its offline business – Trent and Croma brand of stores have done better. 

Reliance Industries, India’s largest private sector company, invested heavily in its offline retail business – setting up 3,837 stores all over India – selling everything from groceries to apparel, but it has a marginal presence in the e-commerce segment. 

As of March 2018, Reliance Retail’s offline business revenue, including the retail fuel business, doubled to Rs 691.9 billion over the previous year, while its revenue (excluding petrol and connectivity) grew by 37 per cent on a year-on-year basis. The group has an online presence through its fashion portal Ajio.com. 

Similarly, Aditya Birla group’s online business has failed to make a mark, with the group shutting its online fashion apparel platform Abof.com within a few years due to mounting losses. The group’s offline grocery business under Aditya Birla Retail has, in fact, made a loss of Rs 6.44 billion on revenues of Rs 41.9 billion in 2016-17. “Though ABRL is on the path to EBITDA (earnings before interest, tax, depreciation and amortisation) breakeven, it will continue to incur net losses over the medium term because of high interest burden. Despite no explicit support to ABRL, we expect the group to continue funding the business and invest in capital expenditure in the medium term,” said an analyst who did not wish to be named. Aditya Birla Fashion Retail, a listed entity, however, is doing marginally better.

The big success story in offline business is Avenue Supermarts, the operator of D-Mart stores, which received a good response from the stock markets as it focused on the mass market. 

“Companies like ABRL will have to wait for an opportunity for foreign investors to come into the sector for a possible sale. The only risk is that by the time they sell it, value would have eroded. And their lucky break would be if Walmart, Carrefour or some other foreign retail giant decides to get into offline in the next few years, as the government guidelines become clearer,” said an industry analyst. 

The acquisition of a 5 per cent stake for Rs1.8 billion by an Amazon investment arm in Shoppers Stop, a leading departmental store chain in India, is the best example of this strategy.

The way forward for Indian conglomerates will be to forge strategic tie-ups with online businesses, says Kishore Biyani, considered the original retail king of India. “We are open to strategic alliances with online players. That is the way forward. Our relationship with Amazon is transactional, not strategic,” said Kishore Biyani, chairman of the Future group.

Walmart’s acquisition of Flipkart is unlikely to have much impact on physical players. “Despite the three large online players being now heavily funded, we do not expect online discounting to increase, as Walmart, after the deal, is likely to focus on private labels. Thus, we do not perceive the deal as negative for listed physical retailers,” said Abneesh Roy of Edelweiss. Also, all large physical retailers are moving towards the omnichannel model. Hence, the probable threat, if any, from these online platforms would also be limited. Also, considering that organised retail constitutes only 9 per cent of the overall retail pie, there is enough room for all the players to grow, he added.