Offline retailers in apparel, lifestyle rue losing festival sales to online players

Written by fe Bureau | Bangalore | Updated: Dec 19 2014, 14:30pm hrs
Discounts offered by online marketplaces like Amazon, Flipkart and Snapdeal this festive season have taken a toll on the business proceeds of their brick-and-mortar counterparts, especially in the apparel and lifestyle segments. Several store managers of popular apparel brands like Arrow, Allen Solly, Pepe Jeans and Indian Terrain FE spoke to rued that their Diwali business has taken a hit due to a surge in popularity of online stores, thanks to the discounts.

For instance, the store manager at an Allen Solly outlet on a plush Bangalore locality said on the condition of anonymity that the store sold products worth Rs 14 lakh in the two weeks leading to Diwali against Rs 18 lakh in the corresponding period last year.

We have witnessed a slump in business this Diwali. Customers want discounts, even on fresh stocks, pampered by e-commerce discounts. We can't afford that, the manager said.

The store manager at Indian Terrain concurred. We did a business of Rs 26 lakh last Diwali.This year, we did only Rs 19 lakh. An internal survey of our stores have shown such a slump in most places. This, despite running promotions and discounts for end of season sale. Customers don't always understand that the products available online and different from those available in the stores. These are fresh products which usually comes once in six months, the manager said.

The backlash from retailers has, for the time being, prompted e-tailers to withdraw direct discounts. However, e-tailers have promotional coupons that are equivalent to discount. For instance, on Flipkart, no discount is offered on Van Heusen shirts priced at Rs 1,899. But a promotional coupon offering a discount of 32% on all purchases over Rs 1,799 reduces the price of the product to Rs 1,291.

In a bid to give some relief to the brick-and-mortar stores, manufacturers had recently shot off letters to e-tailers, threatening to stop supply if the discounts were not withdrawn. We have a written agreement stating that they need our approval before putting products on discount, which they did not adhere to. The letter had an effect. But e-commerce is going to grow. The best way is to offer non-competing products to the online and offline channels, said Woodland India managing director Harkirat Singh.

In the electronics segment, it has, however, emerged that in some cases brick-and-mortar stores offered better deals to customers looking for a discount. According to a survey by gadget research site, brick-and-mortar retailers are neck and neck with e-tailers when it comes to offering competitive prices. The survey, which took into account 30 popular phone models, suggests that some of the popular models are priced a meagre 5-8% cheaper in online stores.

For instance, iPhone 5S, which costs anything between Rs 35,000 and Rs 41,000 in brick-and-mortar stores, was available at Rs 34,000 on Flipkart, a mere 3% additional discount. The same phone was available at Rs 37,789 on Amazon and Rs 36,650 on Snapdeal. Again, an HTC Desire 516, available at anything between Rs 11,999 and Rs 13,000 in brick-and-mortar stores, was being sold at

Rs 10,890 on Amazon and Rs 10,836 on Snapdeal while Flipkart priced it at Rs 11,700. A Sony Experia M, priced at

Rs 9,700-Rs 10,500 in physical stores, was available for Rs 9,557 on Amazon, a mere 1% discount.

"This kind of sale at lower than cost price is discontinuous disruption and is against all fair practices of trade. This is creating chaos in the whole distribution network and has resulted in loss of sales for companies and downtrading happens in the market," Himanshu Chakrawarti, CEO of The Mobile Store, told FE. The company has its own online platform that generates roughly 8% of its revenues.

According to Chakrawarti, while e-commerce firms get foreign direct investment (FDI) to indulge in predatory pricing, the rule clearly says FDI is disallowed in the sector.

This brings in lack of transparency and regulation about the way the business is carried out. FDI is clearly funding this subsidisation of consumers. We are asking for a level playing field. Let the government change the law of land and make FDI permissible in e-commerce.