With a check on discounting, high cost of customer acquisition and mounting losses, online fashion companies are now looking at an offline play as a last ditch effort to save their businesses.
While YepMe has launched its own retail stores, other brands such as FabAlley has tied up with the Central – a multi-brand store operated by the Future Group. Similarly, Zivame plans to open 40-50 brick-and-mortar stores by the end of FY2017.
“Online brands have been acquiring customers by aggressive pricing and discounting or spending heavily on marketing. Both being expensive propositions, we see today that many of them are resorting to a multi channel play. These could be on their web site, to selling on market places, to own stores to joining hands with multi brand retail outlets,” Sreedhar Prasad, partner, e-commerce and start-ups, KPMG in India, said.
To be sure, mounting losses is a key reason behind the shift in strategy. For instance, FabAlley reported losses of Rs 1.39 crore on revenues of R14 crore in FY15. Compared to this in FY14, the online fashion company posted a loss of R36 lakh on revenues of Rs 2.78 crore.
“While we are able to sell through online, including third party sites such as Myntra and Jabong, besides our own site, the tie-up with Future Group’s Central allows us to strengthen our distribution,” says Tanvi Malik, co-founder, FabAlley.com.
Online lingerie player Zivame also reported a total loss of Rs 30 crore from Rs 12 crore in the previous year. At the same time, the total sales of Zivame also doubled to R45 crore from R23 crore in FY14.
Similarly, online fashion brand YepMe which is run by Vas Data Services, is clocking losses of R4 crore per month. The business is reporting revenues of R20 crore per month. Sandeep Sharma, co-founder and COO of Yepme.com points out that losses will only increase in the next one or two years with the company opening new stores. “As we go on opening new stores losses from retail operation is expected to increase,” he adds.
Sharma claims that for the year ended March 31, 2017, the company will see equal amount of revenue coming from online and offline.
Flipkart owned online fashion company Myntra is the latest one to join the club. The company plans to open offline stores to sell its private labels including Roadster, HRX and All About You, under Myntra Fashion Brands.
“The stores will be opened to provide superlative customer experience. The idea is to create different touch points to be able to provide access to our brands,” says Ananth Narayanan, CEO, Myntra.
The company this week announced that it has achieved $1 billion in gross merchandise value (GMV) in July this year, with a year-on-year growth of 70%. It should be noted that sale from private labels accounts for 20% of the GMV.
While e-commerce companies pay a high price to acquire new customers as well as retain old ones on the web, a shopping mall comes with guaranteed footfalls. While bigger firms such as Myntra spends Rs 250-300 to acquire new customers, mid-size fashion e-tailers spend R400-500 for each new customer.
Moreover, the rent of the store and employee cost is offset against the rate of return which is as high as 25% apart from the cost of logistics.
“There is a chance that once a customer enters a shopping mall, she may enter the store and end up buying our products. We are not required to chase every customer with different deals and discounts every time,” adds Sharma of Yepme.
However, the omni-channel strategy has not worked in favour of all e-tailers. For example, in 2013, American Swan, an online fashion brand from the house of To The New had gone offline by selling its products through multi-brand retail outlets. The company had also opened a few stores in the National Capital Region (NCR) through franchise based model, which were later shutdown. Singapore-based To The New Ventures is planning to sell of the brand and is scouting for a buyer.