Home-shop channel Star CJ Alive plans expansion
Korean home shopping channel's India arm expects to reach monthly break-even shortly, will add more categories to what is being offered
The channel, which saw the exit of STAR India earlier this month as a partner, welcomed private equity company Providence as its new commercial and strategic partner.
Launched in 2009, it is a 24-hour home shopping channel, with 250 international and domestic brands. It started operations with delivery services in Delhi and Mumbai, expanding to the rest of India within two years of launch.
“We are the world’s second largest home shopping company and are happy to have Providence on board. The association is much more than the financial investment they have made. Having invested in media companies in India, and a home shopping company in Germany called HSE 24, Providence has a fair idea about the workings of the industry and they bring that expertise at Star CJ Alive as well,” says Kenny Shin, chief executive of Star CJ Network India.
Three main areas of expansion will be the mobile commerce application, to be launched in October, expanding the presence of physical warehouses to the northeast and east, and investing in an efficient warehouse management system which will allow enhancing of logistics and the back-end.
Shin revealed the company had been growing at 50 per cent annually for the past three years.
The business model is based on commissions on products sold through the channel, Star CJ Alive also charges a placement fee in the case of newer brands which have not established credibility.
It operates through a franchise in its consumer facing business, owing to the cap on foreign direct investment (FDI) in retailing.
“We are essentially a B2B (business to business) outfit. Currently,the FDI rules do not allow us to get into retail, so we follow a wholesale-like model for operations. We also provide the platform to brands that want to showcase their products through a visual medium,” says a member of the marketing and execution team.
Apart from commissions on products sold, the network also operates an e-commerce site, starcj.com, which contributes to 5 per cent of total revenue. The remaining 95 comes from the television business.
The television home shopping segment is around Rs 2,000 crore, by sector estimates, and Star CJ Alive has a share of 40 per cent. The other significant entity in the market is Homeshop18, with nearly 45 per cent channel share.
The Korean parent company, CJ O Shopping Co, has seen success in the business worldwide, with total revenue of $4.8 billion in 2013.
"We have invested close to $10 million in the business here and will continue to maintain investments to increase reach through television and physical means. We want to reduce the delivery time and increase the exposure of the channel to TV viewing households. Our expansion plans are over the next two years and we are confident of the scope of the business in the country," explains Shin.
On an average, a home shopping channel needs to invest Rs 100-150 crore a year to maintain its delivery system, studios and production, personnel and distribution cost on TV platforms. A majority of this cost comes in the form of carriage fees that are to be paid to cable digital platforms for a placement. On an average, 15 to 18 per cent of the total cost goes into paying carriage fees.
The channel will also see expansion in terms of the products and services featured. Currently, kitchen and home appliances contribute to 40 per cent of the total volume and revenue. Star CJ intends to adds two more categories, insurance and travel packages.
"In Korea, the insurance category accounts for 20 per cent of the sales, while travel packages account for five to six per cent. We want to get these to India, now that our business model and delivery systems for other categories are streamlined," says Shin.
The channel will also look at more brands on its television, internet and mobile platform. Shin reiterates his conviction in the home shopping business in India and says CJ O will not be looking at divesting any stake in the future as well. "We have seen that the 50:50 joint venture model works well for us, and we intend to continue that way here," he says.