Tech is the Best Way

Amazon and Shoppers Stop: Will this Blending Work?

The pioneer of the one-stop departmental store concept in India back in 1991, Shoppers Stop started small in Mumbai’s Andheri, initially selling only men’s wear, before slowly expanding to women’s and children’s. By the time it listed on the stock exchanges in 2005, it was cool, premium and aspirational, even though it had just 16 stores across India.

But in just five years it would descend into a tailspin of falling profits due to high-interest costs on its debt and sales not keeping up. By 2017 it reported a loss of nearly Rs 20 crore ($2.8 million). This would cascade into accumulated debt of over Rs 550 crore ($75.6 million) by the time Amazon decided to swoop in as a knight in shining armour.

Online retailers have realised that they can’t grow beyond a point and that’s why they are buying stakes in physical retailers

Govind Shrikhande, former managing director of Shoppers Stop.

“Over the years, I think it’s lost its experience,” says the head of omni-channel operations of a large retail company, who did not want to be named. “Until and unless, you are a local loyalist, you don’t go to these stores. At least the cool people don’t.”

But why would Amazon, the infinitely-patient, cash-spewing, take-no-prisoners giant want to invest in an Indian apparel and fashion chain struggling to regain its mojo? What possibly could the company that beat all its established competitors in the world’s most competitive and innovative apparel market, America, want with a middling chain in India?

The answer to that starts with sour grapes and thwarted ambitions.

Thrice bitten, fourth-time shy

Amazon has done a tremendous job of scaling up in India in just five years, running neck-and-neck with Flipkart (now owned by Walmart). But there is one area where it struggles and lags woefully—fashion apparel. After years of dogged effort, Amazon’s market share in fashion is estimated to be just about a third of Flipkart’s.

Although, it has had pretty bad luck with acquisition attempts, probably the result of a corporate culture that prefers to build and overrun, than buy.

It tried to buy a stake in online grocery company Big Basket earlier this year, only to lose out to Chinese internet and e-commerce company Alibaba in February. Then, in April, it tried to buy Flipkart, but by May, arch American nemesis Walmart made a quick move and snatched Flipkart from under Amazon’s nose in a whopping $16 billion deal.

Shoppers Stop is barely Amazon’s first try at fashion. In 2014, it attempted to buy Jabong, only for Flipkart’s subsidiary Myntra to scoop it up.

As a result, Amazon doesn’t have the kind of deep partnerships Flipkart enjoys with fashion brands thanks to Myntra and Jabong, says Vikram Bhat, who served as the vice-president of product management at Myntra. Bhat also previously worked as the chief product officer at Aditya Birla Online Fashion. Amazon has been working over the last few years to tie-up with brands exclusively, expand its own fashion team by hiring stylists from other companies.

Meanwhile, Flipkart claims it has hit an annualized “revenue run rate” of close to $2 billion and a 70% share of the online fashion market, including subsidiaries Myntra and Jabong. (Amazon continues to claim it’s ahead of the Myntra-Flipkart pack in fashion, on a standalone basis, in terms of “units sold, gross merchandise sales and customer share”.)

So, perhaps, even though Amazon may have saved Shoppers Stop, the latter could really help save face for Amazon. Using Shoppers Stop’s knowledge base, Amazon wants to get to know the Indian fashion shopper better. Because, to conquer India’s retail market, Amazon will have to conquer fashion retail, too.

Despite all its investments, innovation and efforts, Amazon continues to face a pesky problem. Bargain hunters. “People who shop at Amazon are discount and value seekers, who do not have any brand loyalty at all,” says another former Aditya Birla Online Fashion official, who requested not to be named. “That’s the only set of people who are right now coming to Amazon at mass.”

Right from its “landing page” (the home page for its fashion section) to the catalogue of products, Bhat says is very underwhelming. “It’s the worst fashion landing page,” he says.

But discount-seeking customers, bad design and poor catalogues are all interrelated, as rival Myntra can show. It attracts a significantly richer customer base on the basis of a vast selection of premium brands, all tied in through one of the best-designed websites or apps for fashion retail.

Thus, to fix one, you fix the others, too.

It’s not that Amazon isn’t trying to remedy this. But what it lacks is good data on the behaviour and preferences of premium customers for premium brands. This is partly where Shoppers Stop comes in.

Shoppers Stop claims it has a loyal customer base that contributes to 75% of its total sales and doesn’t mind paying full price. That’s the kind of premium customer Amazon could use.

On the one hand, Shoppers Stop would sell its full catalogue on and Amazon would meanwhile install experience centres or kiosks inside all Shoppers Stop stores in India. Through these centres, Amazon would showcase its Kindle e-reader, Echo speakers and its other products. In return, Shoppers Stop would get instant access to Amazon’s nearly 150 million registered users in India. That’s a huge jump from the nearly 14 million people who visit its current website.

Amazon is learnt to be currently attempting a new shopping experience design through user data learnings via the Shoppers Stop partnership. When Amazon learns more about the fashion buyer in India, it can assess the data about customer preference and use its Prime customer loyalty program to target those customers, says the head of fashion business at one of the largest retailers in India.

With data-based knowledge via Shoppers Stop, Amazon, according to multiple retailers we spoke to, eventually wants to roll out its own private brands, as in the US. Even though it is estimated to be the number 1 apparel retailer in the US by the end of 2018.

Lastly, the partnership with an established departmental store chain could get Amazon some buying power, especially for fashion products, Bhat notes.

A floundering pioneer

Two weeks after the Amazon deal, Shoppers Stop sold its 51% stake in Hypercity—a chain of large-format grocery hypermarkets it started in 2006—to competitor Future Retail. In return, Shoppers Stop got an infusion of cash and shares in Future Retail. This was even after concerted efforts, Hypercity couldn’t report an operating profit in the last three years.

The sale also removed Hypercity’s debt of over Rs 125 crore ($17.2 million) from Shoppers Stop’s consolidated balance sheet. Shoppers Stop also cashed out of two joint ventures, one with Nuance Group’s duty-free stores in Bengaluru’s international airport, and another in the family entertainment space called Timezone.

The genesis of all these ventures can be traced back to 2005 and Shoppers Stop’s popular ‘First Citizen’ program—that helped frequent shoppers gain points that could be used as currency. Spurred on by the premise of loyal customers shopping across multiple formats, Shoppers Stop’s parent, the K Raheja Group, expanded into newer retail formats such as grocery, food and beverage and family entertainment centres through Shoppers Stop, apart from its shopping mall and other real estate businesses. Like its peers Reliance Industries-controlled Reliance Retail and Kishore Biyani’s Future Group, all besotted with owning all possible retail formats under their own brand umbrellas, the Raheja Group went all in too.

In May 2006, it launched its hypermarket format store, Hypercity, in Mumbai. Then Shoppers Stop launched its home improvement concept store HomeStop, before entering into airport retail through a joint venture. It then segued into family entertainment with Timezone and set up spaces like bowling alleys inside malls.

This expansion coincided perfectly with the onslaught of venture capital-funded e-commerce fashion retailers like Myntra and Jabong who used discounted prices, fast delivery and vast assortments to wean customers away from established physical retailers. This impacted established retailers across the board, including Shoppers Stop.

An analyst at a Mumbai-based brokerage agrees. “I think, at some point of time, they have lost their mojo relative to others.” As it got distracted with mindless expansion, Shoppers Stop’s private brands business started floundering. From being nearly 21% of total sales 10 years ago, it fell to only 10% by 2018. Margins and profitability have been falling too.

“You don’t make a margin by carrying powerful brands,” says the official from the large retailer quoted above. “Because powerful brands dictate the terms at which you can retail their products, and how much they want as a percentage of the margin, how much profit they want to make. You make money when you have what is technically called a private label [or brand].”

There is only so many third-party brands that a retailer can sell. At Shoppers Stop’s competitor Tata Trent’s Westside, the private brand sales form 90% of total sales, while at Landmark Group’s Lifestyle stores, it’s 50%. Shoppers Stop is aiming to bring its private brand share back to 20%.

“Private label is where they [SS] have been languishing if I compare them to others, especially Westside,” the analyst quoted above said. The company is now trying to boost its private brands, fashion and beauty or non-apparel business and is doubling down on its omni-channel play to get its mojo back. The Ken reached out to Shoppers Stop and sent a detailed questionnaire, but the company did not respond.

“You can have any flavour, as long as its Omni 2.0”

By 2015, Shoppers Stop’s in-store sales growth had halved to 5% from the year ago, thanks to aggressive competition from online players like Myntra and Jabong. So it decided to pick a horse to ride into the e-commerce battle, e-commerce site Snapdeal. The battle was “omni-channel sales”—a seamless offline-to-online shopping experience.

In hindsight, it made a terrible choice of horse though, because Snapdeal itself floundered and is currently a barely recognisable shell of its former self. Which meant that after three years of its omni-channel effort (let’s call it Omni 1.0), Shoppers Stop’s omni-channel sales were an abysmal 1.5% of total retail sales of Rs 1,048 crore ($144 million) in the June quarter.

But if Amazon can get a fourth chance with Shoppers Stop, no reason why Shoppers Stop can’t get a second one with Amazon

Shoppers Stop told analysts in July that the Amazon partnership could help it achieve the target of 10% omni-channel sales earlier than 2020. It topped that up by announcing that for the June quarter, its omni-channel sales rose by nearly 50% compared to the preceding quarter. Now, Shoppers Stop is eyeing Amazon’s reach in Tier-II and Tier-III cities, which make up nearly 65% of the e-commerce retailer’s sales in India.

Quite a mutually symbiotic relationship, this.

Shoppers Stop’s customers can now buy a product online and collect it from the physical store, which the industry lovingly calls “click and collect”. But this is a difficult strategy to implement. The Tata Group’s retail subsidiary Trent tried it at its Westside chain of apparel stores and failed, said P Venkatesalu, the company’s CFO to attendees of a retail CFO summit in Mumbai at ITC Maratha on 4 September.

“In-store pick-up is never a successful strategy in India,” says Bhat “It’s not very valuable [to a customer].” What’s of value is being able to order a product that is not in stock and get it delivered home.

Shoppers Stop has also set up a new private brand team. It has hired new designers and set up a studio to improve its private label business which has been losing its share in its overall sales. Having your own private brands allows you to control costs, and as a result keep prices low. That’s the only way to eventually boost margins in the face of a discount war from online retailers.

In the last few years, stores that have not been making money have been shuttered.

Shoppers Stop’s last goal is to bridge the gap between Tier-I and Tier-II cities through Amazon. This way it won’t have to spend precious capital to set up stores. Amazon meanwhile claims it can service “100% pin codes” in India.

The former managing director at Shoppers Stop, Govind Shrikhande, sees another opportunity in the Shoppers Stop-Amazon marriage: marrying their respective customer loyalty programs – First Citizen and Amazon Prime. There could be exclusive launches or merchandise planned in the future as well, he adds.

This exclusivity is what makes a fashion brand endearing to a customer. The likes of fashion brand Zara can command a high premium on their products because they refuse to discount their products. And brand affinity is what will make customers come back for more. Shoppers Stop realises that and is investing to expand its reach. It will have to move away from being a brand aggregator and create brands of its own, just like Westside managed to do over time. But for now, the company wants 20% of its total sales to come from private brands.

It will be hard for Shoppers Stop to pull a Macy’s or a Nordstrom and become a complete omni-channel player. These department store chains used their own stores as distribution channels to establish their online presence. Bhat says this is the model that most western retail chains have used to ward off competition from online retailers like Amazon. They run a complete offline to online model through which they sell customers products at full price.

But in India, because of the size of the market that is left unconquered, and the need for capital by physical retailers to invest, the omni-channel model will be different. Here, it’s more of a “you scratch my back and I’ll scratch yours” strategy for global investors and physical retailers, says the omni-channel head at the large retailer.

In a way, Shoppers Stop and Amazon are exchanging real estate; Shoppers Stop’s storefront for’s virtual real estate. To put it in perspective, the total number of e-commerce shoppers in India are just 100 million, Bhat says. Out of this, fashion buyers are closer to 50 million. Out of this customer base, Flipkart has nearly 55% of the online fashion market, while Amazon has just 17%. There is a point after which no amount of discounting would add new consumers because the pie is so small.

So Amazon is attempting an approach keeping the Indian shopper in mind. It is stepping out of the cloud, into a physical store, to learn more about the Indian consumer, who still loves to shop offline.

With the knowledge and learnings from the Shoppers Stop investment, Amazon’s next round of investment in the fashion and lifestyle space in India is bound to be more informed. Could that involve buying out Shoppers Stop? As things stand now, a foreign entity can own only 51% in a multi-brand retailer, but this comes with local sourcing conditions, like 30% of the purchases for the business have to be local.

For now, Amazon’s investment in Shoppers Stop has certainly borne fruit—a 50% rise in the market value of Shoppers Stop in the past year alone. And the more Shoppers Stop grows its business, the better a return Amazon gets on its investment.

Shoppers Stop, as it stands, is an easy bet for Amazon, a willing guinea pig even. Till such time, the e-commerce giant looks into another round of investment in its own fashion business and launches private labels. Till then, it will sit tight inside the glass walls of Shoppers Stop stores, looking around, looking out, quietly observing the Indian shopper.

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