Building a virtual mall

Buoyed by demand from small towns, Home Shop 18, the 24-hour shopping channel from Network 18, is eyeing rapid growth. But the journey so far has been far from smooth

It accounts for 4.5 per cent of all digital cameras sold in the country, and is the largest seller of stainless steel dinner sets. No retailer sells more Reebok merchandise than it. Whirlpool has come out with a new range of refrigerators especially for it. TV 18 Home Shopping Network, a joint venture of Network 18 (51 per cent), South Asia Infrastructure Fund (34 per cent) and GS Homeshopping of South Korea (15 per cent), has covered some distance in the two years that it has been around.

It closed 2009-10 with sales of Rs 330 crore. TV 18 Home Shopping Network CEO Sundeep Malhotra hopes to double the number during the current year. But is it profitable? Not at the moment, admits Malhotra. “To make a business profitable in just two years would be a mistake. The priority for us was to put the infrastructure in place. Second was to build a team that knows how to do it the right way and third was to de-risk the concept by getting some consumer traction. Hopefully, this year in the third or fourth quarter we will break even operationally.” But there is value in the company. GS Homeshopping recently paid $18.5 million for 15 per cent in the company, which values TV 18 Home Shopping Network at around $123 million (Rs 578 crore).

It was a bold gamble for Network 18. The broadcaster had a pie in news, general entertainment and films. But home shopping was a different ballgame. Indians have always wanted to touch, feel and compare the things they want to buy. Would they order something they saw on television? The only argument in favour was the reach of television: Malls are there only in about 35 cities of the country, and the internet population is just 40 million. In contrast, there are about 100 million cable & satellite homes in the country and another 20 million direct-to-home television connections. (The assumptions weren’t wrong: Almost 70 per cent of buyers on Home Shop 18 are from small towns where there are no malls and internet penetration is low.)

Some broadcasters had tried their hand at something similar through teleshopping. But it was a low-intensity operation. The products were restricted to health, wellness and spirituality. It was more of a trading operation. There were no brands, no ownership of consumer fulfillment; the company that supplied the product would also give an info-mercial which could be dubbed in the local language.

What TV 18 Home Shopping Network has attempted is quite different. “It is a virtual mall. It is more about brands, not magic,” says Malhotra. In simpler terms, it is an alternative distribution platform. The only expertise of Network 18 that could be leveraged was programming for the channel and its distribution. It requires a call centre to interact with the buyers, a full-fledged merchandise team, and a well-oiled logistics network to reach the product intact and in time to the buyers. The problem was that this had not been attempted before in India. Consequently, there was no business model to replicate. Malhotra and his team had to learn on the job.

Early lessons
Home Shop 18 started with Ferns & Petals. The flower retailer was told that it will be on national television for free; all it had to do was help deliver its products on time. A 15-second commercial was made, and a toll-free number was given to viewers. A call centre with 18 seats was taken on rent in Okhla. The commercial was aired on the Network 18 channels. The very first day, there were 250 calls. Within a week, it had reached 500. But the call centre operations went haywire. The flowers reached late, often to the wrong address. There was total chaos. Malhotra had learnt his first lesson: If the business has to run smoothly, he will need his own call centre.

TV 18 Home Shopping Network thus set up its own call centre in Noida, which is 450-strong now. It handles up to 20,000 calls in a day; Malhotra expects the traffic to double by Diwali. In the beginning, not more than 5 per cent of the calls got converted into purchases; the ratio is now as high as 30 to 35 per cent. The average talk time two years ago was 14 minutes; it is now down to 7 minutes and 30 seconds. This, says Malhotra, means that buyers require less convincing now. This has improved the efficiency of the team and pulled down his costs. In the last two years, the average size of purchase has improved from Rs 650 to Rs 2,650. “The average ticket on the internet for e-commerce is Rs 400. Our numbers are much higher. It’s about confidence and trust,” says Malhotra.

Still, 22 to 23 per cent of the orders get returned (most buyers prefer to pay on delivery because they either don’t possess a credit card or are wary of giving its details to a call centre); when Home Shop 18 started, it was as high as 60 per cent. Therefore, for bulkier products which are difficult to ferry, the company takes the money in advance from the buyers.

Rich customer database
Of course, the call centre has given the company a rich database on 2 million customers: Where they stay, who they are, what do they buy, at what time do they watch television and so on. This opens up huge possibilities for upselling. Malhotra says that already 7 per cent of his turnover comes from upselling — the call centre calls up consumers and recommends products on the basis of their past purchases. And the upside could be huge. In the works is a loyalty programme for buyers, which will be driven through coupons, redemption points and so on. Sixteen per cent of the customers make repeat purchases.

The next step was to get the right brands on board. The proposition to brands was strong: Home Shop 18 could help a lesser-known, foreign or local, brand go on national television for free. It could also help the brand reach 3,000 cities and towns in the country at one go. And this was the only medium which allows the product to be demonstrated. All of this can otherwise suck a lot of money and time. Malhotra and his team told these brands that what can otherwise take up to five years will happen in a jiffy if they sign up with Home Shop 18. Good logic but nobody was convinced.

“When we started going from brand to brand, everybody was sceptical that the image of his brand will get eroded. Such was the legacy of teleshopping. They told us that we will undercut their dealers who will be upset,” says Malhotra. “The first brand we got was Ceasefire because nobody else was ready to stock it and it had lost its distribution footprint; but it had recall and was a good product. Second was Vespro, a camera brand based out of Mumbai. It sold only through internet and catalogues and used to do sales of Rs 4.5 crore per annum. It now does Rs 40 crore through Home Shop 18.”

Today, Home Shop 18 sells 480 brands and 23,000 products. Before a brand joins the bandwagon, there is no way to tell whether it will sell or not — it is a risk the company has to take. “We are going to do lingerie very soon; we don’t know if it will succeed,” says Malhotra. Still, 45 per cent of the sale on Home Shop 18 is jewelry, appliances and kitchenware.

This is buying without touch and feel. There are only two triggers that will compel an impulse purchase: One, the product is unique and the viewer doesn’t know where to find it (because it may not be widely distributed), and two, the value proposition is very strong. Does it mean lower prices? “Not necessarily,” says Malhotra, “it could also mean offers. Not every product can be discounted, not every brand wants to be discounted.” This suits brands fine because they are able to cut out wholesaler and retailer margins. The selling expenses are lower, and that money can be ploughed back into combo offers.

To ensure delivery on time, TV 18 Home Shopping Network has integrated its information technology system with those of all its vendors. Every order moves electronically to the vendor as well as the designated courier company. It collects the merchandise, delivers it to the buyer and transmits the money to TV 18 Home Shopping Network.

Inefficient system
Of course, this system of money collection is inefficient. It can take up to a week for the money to reach TV 18 Home Shopping Network which then needs to pay the vendor. To cut this cycle short, it has piloted a project with ICICI Bank and DHL where the courier goes to the buyer with a swipe machine for credit cards. But it is not certain how quickly and to what extent this can be upscaled — each of these machines costs Rs 14,000. Meanwhile, the company is toying with the idea of setting up its own warehouses across the country. It will help shorten delivery time in categories like jewelry (it sells jewelry worth Rs 5 crore every month). These warehouses will also come in handy once TV 18 Home Shopping Network decides to sell private labels in the future.

Are buyers happy? Malhotra says he has hired an agency to measure consumer satisfaction and fulfillment. What about the brands? “We did one pilot a few months back with HomeShop18 and were pleasantly surprised by the response in both large and small markets. This medium is increasingly getting used by customers who can’t come to our stores for geographical reasons or who want to buy products that can be bought with just a demo rather than touch and feel,” says Future Group Director (food strategy) Damodar Mall.

But not all TV 18 Home Shopping Network products are on television. Those which are not on television can feel shortchanged. There is limited bandwidth, and each product has to be sold for half an hour, argues Malhotra. Of the 23,000 products, maybe about 1,000 to 1,500 have been on television, the rest are on catalogue or net. (The internet could be a route for the product to come on television.) “Products need to be researched, and each feature has to be converted into a benefit. We have to marry that with consumer need. Also, we need to get the call centre trained,” says Malhotra. On average, Home Shop 18 puts 15 to 20 products on air. How are these products selected? “What matters is sale per minute and margin per minute. That is what the core team monitors — what to show on air. The scheduling has to be worked around it,” says Malhotra.

All that is fine, but how does Malhotra get viewers to his channel? Home-shopping, after all is not appointment viewership; it is snacking in between channels. If it is an interesting product, the viewer will hang around. “It is difficult,” says Malhotra. “So far, our priority has not been to force people to watch.” Home Shop 18 is in 30 million cable & satellite homes in the country. It is not yet present on the direct-to-home network.

If a new business model has run successfully, can rivals be far behind? Star CJ, a joint venture between the Star Group and CJ O’Shopping of South Korea, has started with six hours on Star Utsav for now. It awaits the nod for a 24-hour channel. “Television viewing is far from saturated. In India, we say there is 130 to140 minutes of viewing per capita per day, while in the US it is 300 per capita per day. So, consumers have to get used to the idea of doing more with the television,” says Star CJ Network CEO Paritosh Joshi. “The basic trigger (for home-shopping) is the growth in discretionary income. About 20 per cent of India’s population has sizeable discretionary income (twice the per capita income). This would be 50 million households.” Joshi, in fact, wants to soon sell cars on television. It has, after all, been done successfully in China.

At least three other groups are known to be toying with the idea of home shopping. “We want to see how to sell on the three screens: The mobile phone, computer and television. Consumers spend a lot of time there,” says Mall of Future Group. Malhotra learnt from trial and error. Mall and others will know what pitfalls to avoid.