Click and mortar: Why D2C brands are launching offline stores

Creating an omnichannel experience

Some D2C brands are launching physical outlets to create an omnichannel experience for their consumers, especially, as they expand their offerings and enter new categories. For instance, Wakefit, a major player in the mattress and sleep solutions segment, is diversifying into the furniture category.

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“We now have about 500-600 stock keeping units (SKUs) in the furniture category and the segment now contributes 20-23 percent of our monthly revenue. Hence, it makes sense for us to get offline because it is a category, where people would like to experience a product before buying it,” says Vishal Khandelwal, head of retail, Wakefit.co.

Plum Goodness, too, has expanded into several new categories besides hair and skincare and has also entered the men’s grooming and makeup product segments.

“We have almost doubled our product range in the last two years and need offline stores to display our wide assortment to the consumers,” says Shankar Prasad, founder, Plum Goodness.

Bombay Shaving Company, too, wants to create an experience for its consumers and enable same-day delivery by leveraging its stores. According to Deepak Gupta, COO of the company, since its target group of millennial men is not very evolved as a customer cohort, it helps to offer an experience and demonstrate products in a physical setup.

While these brands have so far thrived on online channels and apps, experts say they must diversify into other channels as they try to scale up. According to a recent white paper released by retail consultancy Technopak, there are about 600 D2C brands in the country, of which only 5 percent have more than Rs 100 crore in revenue. About 2 percent clocks Rs 20-90 crore in annual revenue, while 75 percent has an annual turnover of less than Rs 20 crore.

“D2C companies have scaled up to a certain level and a few of them clock revenue over Rs 100 crore. But to grow beyond this level, these players need to expand their markets,” says Ankur Bisen, senior partner and head, food and retail, Technopak Advisors.

“They have to find new customers and create new routes to the market. Only then can they grow in triple digits,” added Bisen.

Limitations of the D2C market

Experts also indicate that although the D2C market offers opportunities for companies to innovate, its reach in India is limited currently as the channel is yet to take off, especially, when compared to countries like China.

“In India, the channel has not become as big. In China, the whole D2C business is $1.25 trillion. It is going to take time to reach that size in India,” says Rajat Wahi, partner, Deloitte India.

The D2C market in India, estimates Technopak, is worth about $1.9 billion. While Techopak estimates that the market contributes 1 percent to India’s FMCG segment, other analysts estimate its share to be 3 percent, which is still quite meagre. However, the D2C market size is estimated to grow to $22 billion by FY25, according to Technopak, and will account for more than 10 percent to the total FMCG, home and consumer accessories market.

However, these companies will have to look at other avenues to not only reach consumers but also to create brands till the D2C market matures in India.“They have done well in the initial stage but to get beyond this point, they need to put their products on shelves,” says Wahi of Deloitte.

Roadblocks

The offline segment, however, has its own set of challenges and requires a lot of investment. Bombay Shaving Company is spending Rs 7-8 lakh in just the initial set-up of a store (sans inventory). Most D2C companies claim to be witnessing high footfalls at their newly launched outlets.

“During the Covid period, it was taking time to break even — almost 12-18 months — but in the recent stores we will break even in six-nine months,” says Gupta of Bombay Shaving Company.

Generating revenue, however, indicate experts is not the only incentive behind opening these stores.

“The objective is to also drive brand visibility — even if the unit economics do not work, it is helping these companies create brand awareness,” says Bisen of Technopak.“Also, even setting up an online website or app involves a lot of investment these days in digital marketing.”

D2C companies, hence, are leveraging the offline channel to drive sales on their online channels.

“We create a unique identity of a consumer using their email ID or phone number and we track their journey offline and online. The idea is that we should be able to service our customers irrespective of the channel they use to interact with us,” says Khandelwal of Wakefit.co.