At a time when the country?s e-tailers are finding it tough to grow in a fiercely competitive market, newbies are trying a new hybrid online-offline business model. E-tailers across categories have been opting for an offline presence along with e-stores in a bid to create differentiation and customer activation, deviating from the earlier trend of sticking with online sales.

Experts point out that the major advantage of having a hybrid model is the faster inventory cycle compared with pure-play offline or online players. Consumers get to shop through multiple channels and the companies are not missing out on any buyers. Facility of pick ups and returns at stores reduces overheads on the return logistics.

Finding the hybrid business model more attractive, Bangalore-based Playgroundonline and SportsNest merged in December last year in a bid to gain more muscle in the sports goods space and focus on a multi-channel retail format. While SportsNest is completely focussed on B2B sales and distribution of various brands like Puma and Speedo, Playgroundonline is an e-store. At present the combined entity has three stores across Karnataka and the flagship property is expected to open in May with the new merged entity, which recently raised an undisclosed amount from seed-fund Blume Ventures.

?Optimisation of supply chain is the game here and since this category is completely disorganised, the hybrid model makes a lot of sense. We see this as moving towards Omni-channel strategy of being present across B2B, B2C, online, offline and mobile,? said Sanjay Rao, founder CEO, SportsNest, which was started in December, 2011. Currently 60% of the company?s revenue comes from online platform.

Karthik Reddy, managing partner of the R100-crore seed funding firm Blume Ventures, is a strong believer in the hybrid model. The fund has invested in six such companies forming 15% of Blume?s current portfolio. According to Reddy, the ?hybrid consumer brands? reflects the combination of self made brands following a multi-channel distribution strategy and not just aggregators.

?Even in mature markets like the US, online retail is still in high single digits of the organised sector. After 16 years, if this is the case, it is not going to be dramatically different in the next few years, especially for countries like India where the e-commerce journey has just started,? said Reddy. He added that for smaller and niche players it is difficult to follow the capital intensive model of the bigger e-commerce companies.

Bangalore-based Cherishmaternity, an e-store selling maternity wear and infant products, opened its first brick-and-mortar outlet in the city in 2009. The company, which currently has two stores, is planing to ramp up its online presence while scaling offline through pharma distributors.

Cherishmaternity has managed to raise two rounds of funding. Last year, it raised an undisclosed amount from angel investors including Blume Ventures, Rajan Anandan, Sunil Kalra, Rehan Yar Khan, Farooq Oomerbhoy and others, while the second round of financing is under process. ?Online business just in itself is not big enough and is passing through its formative years and will take time to mature. Since we are also a niche brand and not just a reseller, we follow a hybrid model partnering with other e-commerce players,? said Arathi Kuppu, founder, Cherishmaternity.

Typically gross margins for online is less than offline as it focuses on discounts and deals. According to Rao of SportsNest for online the margins varies between 10% and 25%, whereas offline ranges between 10% and 45% depending on the brands.

Pragya Singh, associate director (retail) at Technopak, feels categories like apparel or footwear that are non-standardised like electronics and where touch and feel is important, the offline format will help consumers shed their inhibitions. ?A first offline purchase will make them comfortable to buy the products online later.?

Globally also internet giants Amazon and Google follows a hybrid model though the latter is still in an experimental stage. The Google Shopping Express, helps local retail stores to sell products on an online platform provided by the search giant that will deliver the goods to shoppers at their doorstep. Google, which started getting into shopping only recently, itself arranges for third-party couriers to pick the products up from local stores and deliver them to consumers.

According to Chaitanya Aggarwal, founder and CEO, Juvalia & You, combination of online-offline business is a popular trend globally and catching up fast in India. ?It also allows you to take a successful online business offline. It endeavors to address both these markets simultaneously,? said Aggarwal.

Juvalia & You, a year-old online store that sells fashion jewellery, has stylists and pop-up stores for offline customers. The India edition of the international brand was incubated by Springstar in collaboration with the Smile Group, which is known for parenting e-commerce portals such as FashionandYou.com, DealsandYou.com, Bestylish.com and Freecultr.com.

End of last year even Rocket Internet-backed online home furnishings and furniture platform FabFurnish opted for a hybrid model with the opening of its first retail outlet in Gurgaon. Rocket Internet, a German online startup incubator has also invested in online fashion and lifestyle store Jabong.com.

According to a Technopak report released last year, the biggest challenge for retailers lies in integrating their physical stores with online stores, which can result in cannibalisation of physical store sales and store productivity. This makes it necessary for retailers to adopt a multi-channel strategy with a strong focus on creating synergies in multiple areas such as customer relationship management, supply chain and processes and systems to maximise benefits.

At present e-commerce in the country forms 6-7% of the organised retail market. The e-commerce market in India, which includes all financial transactions on the internet, is estimated to be $10 billion in 2012. The Technopak report also projects e-commerce to grow at a CAGR of 45% to reach $200 billion by 2020. Currently the travel transactions account for about 80% of all online sales in the country.

Singh of Technopak said this format helps to them acquire customers and gives opportunity to try multiple models that reinforces the brands. ?Especially if you are doing it through the franchise model, there is not much investment. This is not going to be a fad,? she said.

Statfacts

Retail therapy

* The hybrid model has a faster inventory cycle compared to pure play offline or online stores

* Gross margin for online is less than offline as it focuses on discounts and deals

* Globally, Amazon already follows the hybrid model, while Google is experimenting it

* At present e-commerce in the country forms 6-7% of the organised retail market

* Overall e-commerce sector is expected to touch $200 bn by 2020, growing at 45% CAGR