Is the trend of online retail companies adding offline stores here to stay? Will online offline hybrid retail work in India?

Retailing in India is not just about only offline model or online, there is a huge gap between the two models that e-tailers are trying bridge by going hybrid- a combination of online & offline retailing.

Over time a handful of online portals like HealthKart, FabFurnish, Firstcry and others have taken their business offline as well, adopting the hybrid model to their retail strategy. But is it here to stay or is it just a passing fad? Are the economics of offline retail sustainable?

Only 0.2% of the $490 bn Indian retail segment is online*, and it would take much effort and different approaches to change the nature of Indian consumers and move them online, says Pragya Singh of Technopak, a consulting firm which focuses on the retail industry.

Hybrid Model Is The Future

One of the major advantages of going offline is the ability to improve customer engagement, brand presence, brand credibility and also bridge the virtual gap between the offline online experience.

Recently online health and fitness store, HealthKart opened its fourth offline store, HealthKart Fit, in Bangalore. The company already operates one store in Chandigarh and two stores in the NCR region.

The Healthkart Fit store offers features like customer consultation, product sampling and a kiosk to browse through their online catalogue and product review.

Showrooming is another trend, that is picking up amongst urban buyers in the country. It is the opposite of the research online purchase offline trend which was prevalent earlier. Shoppers visit offline stores to check out products and then go online, where they might get better deals and prices, to purchase them. This is being primarily driven by the deals and discounts offered by online stores and is perhaps not sustainable. But it signals the need for buyers to touch and feel certain products before they buy it.

“There is a big offline market to tap into and offline stores are at times more convenient for customers. An offline store can help improve the customers experience and engagement by providing hands on experience and educating them on products,” says Sameer Maheshwari, Co-Founder of HealthKart.

Pune based kids and baby store Firstcry started out as an online only store and soon realised the potential of the offline market and tapped into it. Today the online store follows a hybrid model and has opened multiple offline stores across 17 states and the list is expanding.

Online eyewear retailer Lenskart have also adopted the hybrid model by opening up kiosks at mall across Delhi and the NCR region for its customers who prefer the look and feel experience.

Earlier last month the company also launched a ‘Home eye check-up program’, for people who want to get their eyes tested before buying eyewear, using a specialised mobile checkup van.

Mid 2013 Rocket Internet backed online furniture store FabFurnish opened its second offline store in Bangalore, bringing the total number of offline stores it operate to 4. the company already has 2 stores in the Delhi-NCR region and one other previous store in Bangalore.

Some retailers have also opened up to the hybrid model just to improve brand presence and experiment with customer experience like in the case of tele shopping ecommerce company Homeshop18, who earlier last year launched a ‘Virtual shopping wall’ at the Delhi International Airport’s domestic terminal of bringing a different user experience to the offline model.

Economics Of Going Offline

The economics of going offline is not a simple as one may think. It involves maintaining a well stocked brick and mortar store with rental overhead costs, inventory and other legal & commercial procedures.

Ashish Goel, Co-Founder of Urban Ladder says, “Off-line stores involve high capex, and the high rentals in India lead to high operating expenses. In the furniture category, an offline store will suck up as much as 25-30% of store revenues as store expenses.”

Some of the online stores that have gone offline have adopted the franchise model thereby offloading a lot of the economics onto the offline store owners. In June last year online marketplace Craftsvilla had announced that it will adopt the franchisee model for its offline presence.

“Large format brick and mortar chains are having trouble expanding so it’s not worth going after. When it comes to real estate, there are legal issues as well as higher costs that come into play. It doesn’t serve the purpose for us,” says Sachin Bansal, CEO of Flipkart one of India’s largest e-commerce companies.

Horizontal E-tailers Say No To Offline

Most stores that go offline tend to be operating on a particular vertical market. It is not practical for online stores that operate on a horizontal space to go offline, except in some cases where offline kiosks and stores have been opened for customer experience.

Inspite of being a vertical space e-tailer, Urban Ladder Co-Founder Ashish Goel thinks that sticking true to the ‘e’ in e-commerce is the way to go and the hybrid model is only a passing fad.

“If you are an e-commerce company, focus on the “e” part. The world’s largest and most successful retailers have no stores, whether Amazon or T-Mall in China. Online/offline hybrid models are a passing fad,” says Ashish Goel.

Many of the horizontal e-commerce portals have started with the idea of reducing the problems of offline retailing like variety, transportation, convenience etc.

Flipkart’s Bansal says

We decided to solve the problems of offline retail by going online. So we’ve never given going offline a serious thought.

Also in the case of certain niche vertical markets, offline doesn’t work at all. Take for instance a lingerie store. Richa Kar, who runs the online lingerie store Zivame told NextBigWhat that the very intent of starting the business was to solve issues like the embarrassment faced by women while buying from physical stores as well as the lack of variety in physical stores.

“What will I stock? One piece of merchandise each?” she asks. “Unless we figure out a viable way to solve the problems we set out to deal with, it doesn’t help to setup a physical store.”

Due to high costs, with many changes occurring the the growing Indian online e-tailing segment, questions can be raised about the reliability of the hybrid model in the long run. But by the overall picture it looks like the model might work, at least for the vertical players.

What do you think? Is the hybrid model here to stay or just a passing fad?

With Inputs from Jayadevan PK