The Covid-19 pandemic has battered the $80 billion strong fashion and lifestyle industry (comprising apparel, footwear and accessories) in India, with industry revenues expected to decline 25-35 percent in FY21. Consumers are likely to cut down on discretionary spending, down-trade across price segments and approach offline stores with caution, especially those in high density locations such as malls and shopping complexes.
The online channel has been the quickest to recover and now stands at the top of the growth agenda for brands and retailers. It is still worth putting into perspective how small the online segment is (or was, pre-Covid).
Online (urban) penetration in fashion and lifestyle stood at 9-10 percent in CY19, significantly lagging other markets like the US and UK (20-25 percent), and China (>30 percent). Covid-19 is expected to accelerate the penetration to 14-17 percent by CY22; leading brands should aspire to 20-30 percent share of business coming from online channels.
For established fashion and lifestyle brands across categories, there are two avenues to grow share of online business—marketplaces (like Flipkart and Amazon) and brand.com (own website / app). For most brands, the former is the dominant channel of sales (80-95 percent share of online business) today.
A marketplace play allows brands to reach more consumers faster, with lower upfront investments in technology and team. However, marketplaces in India are strategically growing their Private Labels (PLs) in a bid to improve profitability. More recently, brands selling on marketplaces have seen margins erode, as marketplaces push brands to shoulder customer discounts, increase marketing spends and take up accountability for returns (as high as 15-35 percent across categories).
Brands cannot simply pull away from marketplaces, though. The brand.com play has been challenging for established brands, driven by their legacy offline mindset, inadequate capability building (esp. across 'new areas' like technology, digital marketing) and limited patience to fund the early losses.
However, the burning platform to build a stronger brand.com play is compelling. This channel maybe the only logical avenue for brands to capture their customers migrating from offline stores to online. Plus, some brands will have a unique advantage given their existing customer base / brand pull (lowering acquisition costs) and offline footprint (lowering fulfillment costs and delivering a superior experience, driven by omni-channel initiatives such as endless aisles, ship from store, return to store etc).
We believe there are six key elements for success– 1. Clear channel strategy: It is important to clearly define the role of each online channel and allocate investments accordingly. For instance, leading brands prioritise brand.com for fresh merchandise, exclusive assortment and customisations. They also clearly define which marketplace partner(s) is(are) more strategic (and will get the highest mind and investment share), with others being tapped opportunistically (e.g. for liquidation).
2. Differentiated assortment/offering: Online-only assortments help draw consumers online and avoid conflict with offline channels (leading global and Indian brands have as much as 30 percent of online sales coming from online-only assortments). Further, brands could create marketplace-specific merchandise to grow their share.
3. Targeted marketing: Brands with existing offline customers can optimise acquisition costs through online targeting of existing customers, while also improving retention through omni-channel loyalty programmes. Partnerships for new customer acquisition can also help subsidise costs (e.g., Puma’s partnership with Cred), while organic initiatives take time to scale. On marketplaces, brands should invest in platform-specific marketing, with clear ROI markers jointly owned with the marketplace.
4. Right capability stack: To gain speed to market and build a competitive (technology) product, brands should build the right ecosystem of partners (across technology development and up-keep, digital marketing, omni-channel implementation, cataloging, analytics etc.) in a brand.com play. On marketplaces, it is critical to invest in the relationship managers that conduct Joint Business Planning (JPB) exercises with the respective marketplaces.
5. Advanced analytics: For brand.com, it is imperative to develop a single view of customer across channels to be able to drive hyper-personalisation and superior omni-channel experience. Frequent A/B testing can help drive critical insights for both online and offline channels (e.g. right-stocking stores basis online off-take). Web crawling can be deployed to capture competitor data around assortment, pricing etc. which in turn can be used to drive interventions on both brand.com and marketplaces.
6. Fulfilment excellence: Building a single view of inventory (SVI) across all channels and fulfilment points (including all stores) is imperative. Omni-channel offerings can be extended across both brand.com and marketplaces (e.g., ship from nearest store option on Myntra, listing own EBO with accurate information of product availability, delivery time etc.)
Brands that get these elements right will emerge successful in the post-Covid world.
About the authors: Siddharth Jain is Partner, Deepak Maloo is Principal & Prabhu Dhev R is Manager at Kearney