The good and bad of Future Retail and Amazon tie-up

Kishore Biyani may have complained about the predatory pricing mechanism used by e-commerce companies like Flipkart, but that has not stopped him from tying up with one of the largest players globally – Amazon. Clearly Biyani has made it clear that he has never been against e-commerce but does not agree with aggressive pricing followed by some of the players, where goods were sold below cost. In the recent ‘Big Billion Day’ discount sale by Flipkart, Amazon did not sell its products as aggressively as Flipkart or Snapdeal, but still managed to post its highest ever sale on that day.

 

Commenting on the tie-up, Biyani said that their company’s focus to ‘know your customer’ is in agreement with Amazon’s obsession of being a customer centric company. But behind the jargon is a clear design by the Future group to get back on the growth trajectory.

 

After selling a majority stake in its pet high margin Pantaloon Retail venture, Biyani group has been looking for growth. The sale of Pantaloon has impacted the future group in more than one way. It has not only taken away its high margin business but the new owners of Pantaloon, Aditya Birla Nuvo, has considerably cut down Future group’s private brands and replaced it with its own, according to recent reports.

 

This forced Future group to look for new avenues to increase its growth, and the fastest way to do so is through the internet. Future group will use the Amazon platform to sell its private labels like Lee Cooper, Converse, Indigo Nation, Scullers among others. The company has a portfolio of over 40 brands. 

 

Garments form an important segment for Future Retail as it has a comparatively higher inventory churn and highest sales growth as compared to its other segments. Further contribution to the operating level too is among the highest. According to a Prabhudas Lilladher report, Future Retail plans to exit from slow moving segments like heavy furnitures, plumbing, sanitary ware and hardware segments.

 

An obvious question is why tie-up with Amazon and not do it themselves. It is not that the Future group had never attempted to enter e-commerce. The company has made a half-hearted attempt in e-commerce by following a omni channel retail strategy. In the Omni channel retail system, consumers can order online and collect the goods at the nearby Future Retail store or get it home delivered.

 

But Amazon would give Future Retail a bigger platform and a faster reach than what the company could have managed itself.Future group also benefits from the logistic network Amazon provides and does not need to spend on it, especially in areas where it has no presence. Further, Amazon will also partner with the Future group in promoting existing and new brands, explore co-branding opportunities and accelerate new product development in categories which are currently not served by retailers.

 

There is however, one area where Future Retail needs to protect itself. Amazon needs a retailer like the Future group as it expands itself in the country. However, as per reports some retailers like Toys R Us and Target Corp in USA have had bad experiences with Amazon. The relationship turned sour after the e-commerce company gained size and attracted other bigger players. Walmart too has decided not to tie-up with Amazon and instead prefer to go alone.