Discount-based models deployed by several etailers aren't sustainable in the medium term. Over time business models will strive to compete on consumer experience rather than discounts, says Kulin S Lalbhai, Executive Director of Arvind Limited.
Optimistic about the launch of fashion portal NNNow.com, Kulin S Lalbhai, Executive Director of Arvind Limited, told CNBC-TV18 that the "digital omni-channel portal" will not take to deep-discounting. NNNow is all about integrating the online and offline worlds, he said.
NNNow faces a huge challenge to attract consumers, despite a relatively low-cost business model, especially in the times of deep-discounting led by the likes of Myntra, Flipkart and Amazon.
Lalbhai, however, doesn't feel threatened. "Discount-based models are not sustainable in the medium-term. Over time, models will evolve which will compete on experience rather than just discounting. We are not in this business to quickly gain gross merchandise value (GMV) and valuations. We look at it as a way for brands to engage with consumers," he said.
Lalbhai said he expects the company to do well in terms of revenues. He said: "Well-executed omni-channel models have great unit economics from Day One and they can fundamentally improve the overall return on capital of the end-to-end online plus offline models."
The company will also focus on consumer experience with sops like a four-hour delivery, optimised pick of products ordered on the portal. Lalbhai said the NNNow will digitise Arvind's 1,200 offline stores.
Below is the verbatim transcript of Kulin Lalbhai’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: Tell us about the rationale behind this new portal that you have launched and why should people go to Nnnow.com? There are so many options in the market. We were just talking about Amazon; there is Myntra, Jabong so much competition here. How do you plan to wade through all of that?
A: That is a very good question. Nnnow.com is not just a dotcom. In fact Nnnow.com is an omni-channel portal. Omni-channel is about bringing the online and offline world together. So, it is about integrating everything across stores, the web, smart phones, their stops and warehouses. So, with omni-channel we bring a very new set of experiences to the consumer.
The first thing is authentic brand experiences, so in the offline world we have standalone stores where consumers can experience brands. So, we will be hosting the official online store for all the brands that are from the Arvind’s table and many more brands as well in times to come. Which means for the consumer for the first time you will get the entire range a brand has which means if there is a garment in some corner of India you will be able to see it on Nnnow.com. So, one of the first comprehensive offerings of the latest and freshious mechandise and obviously great content from all the brands.
The second set of features is what we call exciting omni-channel features. If you are sitting in Bandra Kurla Complex (BKC), and ordering an Arrow shirt you will get it from a store in Bandra in as less as four hours, so same day delivery. It is a huge convenience and the ability to just walk back to any store and return it, click and collect. You don’t want to optimise a pickup with one of the delivery guys. You can just pick it up on the way home. These are all the exciting things that an omni-channel model gives you and finally the digital store.
I think in the future stores are not just about sale, it is also about experiences. So, soon Nnnow.com will digitise all of Arvind’s 1,200 stores. You walk in you will never every have to walk out without a garment because stock outs go away. You will get endless aisle; you will get personalise services so when you walk into stores we will know who you are and we will be able to give you personalised services, so that is what Nnnow.com is about. It is not another dotcom; it is an omni-channel, seamless online offline experience.
Latha: What is the money in it? Ultimately, is it making money? When will it make money standalone? What kind of an return on equity (ROE) are you foreseeing in that space?
A: The thing about omni-channel is it is a very different unit economics and margins model from a typical e-commerce business. Here you just do not have resell a margins, you have an originator margins. So, you have brand margins. The other thing is that most of the cost associated with a typical digital only model are very different in an omni-channel model. You have a lower rate of returns, your logistic costs are very different because you are not flying inventory around from one part of the world to another. You are actually doing local, hyper local fulfilment. You are also not having to discount where excessively because you are not taking excessive inventory risk, you are using the same inventory.
The store network fundamentally can get a lot more productive because from the same store you are now not losing the 7 to 8 percent sales you lost because of stock outs. You are able to sell a lot more inventory, so the store model also becomes a lot more robust. So, good executed omni-channel models in fact have great unit economics from day one. They can fundamentally improve the overall return on capital employed of the end to end online plus offline model.
Sonia: The problem with this model is that a lot of your costs are lower but the discounts have to increase because of so much competition? If you look at Myntra, look at Jabong every other day you get 40-50 percent discounts on products. You haven’t offered discounts just yet but do you think that will be the need of the hour and would that eventually put pressure on your blended margins?
A: The discount model, whilst there will be discounting in e-commerce and if a discount based model is difficult to sustain in a medium-term, so discounting whilst it’s here to stay what will happen over time in India is models will evolve which will be able to also compete on experience rather than just discounting. We intend to make Nnnow.com one of the business models which through all of these new value added services we would like to bring the consumers to enjoy this new experience led world. Obviously, that will mean that one does not play in a pure discounting world.
We are not in this business to quickly gain gross merchandise volume (GMV) and valuation. For us we look at this business as a way for our brands to engage with their consumers in the right way. We will grow this business with fundamentals in mind and we will not push this business beyond fundamentals. However, we believe India is ready for new kinds of business models in the fashion space where new experiences will come to the consumers.The Great Diwali Discount!
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First Published on May 16, 2016 10:22 am