Changing consumer behaviour and rising digital customer acquisition cost are making several digital startups increase their offline presence to tap into a customer base that prefers a touch-and-feel experience.
Models relating to opening physical stores varies depending on the segment in which the startup concerned is operating. For instance, Smytten, a beauty and personal care online platform, is opening stores at airports where customers can have a look at their products and later order online.
Similarly, in the case of HomeLane, which is into interior decoration, opening offline stores makes sense to showcase different models for customers to get a feel, which may not come solely through online viewing.
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In the edtech sector, the story is different as offline centres are preferred by many parents and students with the reopening after the pandemic.
For niche players like Smytten or HomeLane, advertising on Google and Facebook has become expensive with the latter two raising tariffs as bigger online companies are willing to pay extra. These players feel that they can offer customers the same experience through their physical stores at a much lesser cost.
“Digital is not the darling it used to be anymore. Our customer acquisition costs (CACs) have increased 3X over the past year or so because of advertising tariff rising and bigger players willing to pay more. We have realised that opening experience centres easily halves our CAC,” Swagata Sarangi, co-founder of Smytten, told FE.
Srikanth Iyer, co-founder of Sequoia-backed HomeLane, agrees. He said: “Platforms like Google, Instagram and others have upped their rates quite steeply. Our digital cost per lead has increased 50% in the past year. So, to find alternatives, we’re doubling down on our offline presence, where CAC works out 33% lower.”
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For Cashify, which is a marketplace for pre-used smartphones, getting into physical stores was to fulfil consumer desire for touch and feel of the product before buying. The company has increased the number of its retail stores from about 80 at the beginning of the year to over 190 now. Nakul Kumar, co-founder, Cashify, said the company would at least double the count by end of 2023 as the touch-and-feel factor was vital “in a country where the customer trust deficit is high”.
Offline stores now contribute around 25% to the overall revenues of Cashify, against about 10% a year ago.
The physical stores trend has also been gaining pace amongst several direct-to-consumer or D2C brands across FMCG, retail, cosmetics, grooming, personal and hygiene care, among others. The players in these segments feel that they have already carved a niche for themselves in the online space, so entering into the physical store space will lead them to expand their boundaries.
In doing so, these companies know they would face competition from bigger, established and legacy players in the industry, which have a strong hold on distribution channels and retail outlets. But they are still willing to take on the challenge.