BPL takes online-only route

Back in the market after 10 years, the firm finds physical presence a costly proposition

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At a time when online start-ups such as Lenskart and Urban Ladder are turning toward brick-and-mortar sales networks to move closer to consumers, electronics appliances brand BPL is rebuilding its business on the back of an "online only" strategy after being away from the market for 10 years. BPL's faith in e-commerce is in stark contrast to its competitors' (including Samsung, LG and Sony) cautious approach towards the online channel. "All these years, we continued selling our products in smaller numbers in Tier-II towns. Even as our joint venture (JV) with Sanyo collapsed, we kept getting calls from our 3,000-strong dealer network for products. So for us, it was only a question of scaling up our operations," says Ajit G Nambiar, chairman and MD of BPL.

However, since the company lost a lot of infrastructure in terms of stores and warehouses following the JV's failure, BPL was clear that it had to rebuild its business with an eye on keeping costs low.

And this is what explains the company's foray into e-commerce. The BPL brass is of the view that the traditional brick-and-mortar-led sales model is a costly proposition vis-a-vis an online sales model. BPL sees no merit in investing in large retail spaces and incurring huge marketing spends to woo customers.

With an "online only" strategy, BPL says it has avoided pricing conflicts and achieved higher levels of operational efficiency. By optimising stock levels, reducing logistics costs and through targeted marketing, it creates savings of eight per cent.

With an exclusive partnership with Flipkart, BPL aims to hit a sales target of Rs 75 crore this year and within three years it expects to do business worth Rs 500 annually. Currently, BPL is selling 7,000 TVs every month on Flipkart. With the online portal, search costs for consumers are lower, they can browse a large variety of products and the brand can showcase stock keeping units (SKUs) without physically holding them.

"The ability to display a wide product variety helps draw a lot of consumers. But a brand has to ensure that whatever it's showcasing online is actually in stock. The brand has to manage the assortment that it's displaying online with the inventory that it has at the back end," says Milind Sohoni, associate professor - operations management, Indian School of Business, Hyderabad.

Keeping such challenges in mind, as part of its comeback strategy BPL had to reorient a number of processes. First, it had to build a product portfolio which would appeal to online buyers who have the freedom to compare brands, product specifications and prices.

Anil Talreja, partner, Deloitte Haskins and Sells, says, "As regards to consumer electronics goods, gone are the days when people used heavyweight machines. Now the products are smaller and smarter. For brands to succeed they have to be big on innovation ensuring that a product is consumer-friendly both in terms of size and looks."

In terms of product portfolio and pricing, BPL says the brand is certainly not the cheapest nor is it expensive going by the quality it offers. For example, BPL's 24- and 32-inch TV is priced at Rs 10,490 and Rs 14,990, while its 40-inch TV is priced at Rs 24,990.

Second, BPL had to decide between manufacturing and assembling the TV sets. It opted for the latter as the company realised that in all these years technology had leapfrogged and global and domestic markets had undergone great changes. For instance, Japan is no longer manufacturing semi-conductors. The electronic components industry has moved to other hubs.

In line with these changes, BPL is now importing components from China and Taiwan and assembling the same at its facilities in Baddi, Himachal Pradesh (HP), as it enjoys excise benefits in the state. From its assembling plant in HP, BPL caters to four markets - Bengaluru, Tamil Nadu, Kolkata and Delhi. Nambiar says last-mile connectivity continues to be a challenge when one wants to deliver products in 48 hours. From the four states products are directly transported to Flipkart's warehouses across the country.

To manage its inventory judiciously, BPL works closely with Flipkart and uses data analytics to predict market trends and demand.

"We are working hard to try and ensure a just-in-time process so that inventory matches demand and is available as and when required. By limiting the number of models and closely tracking sales, we have been quite effective in managing inventory," points out Nambiar.
Cost savings are a big benefit: Milind Sohoni

For brands pursuing an "online-only strategy" one of the big benefits comes through cost savings on the supply chain side. For example, if a company has two stores in different cities and it wants to carry the same SKUs in both the stores, it would be carrying duplicates in the two cities. It will have to bear the cost of maintaining both the inventories. By going online, the company centralises this inventory into central warehouses. Let's assume there is demand and certainty. And this demand is not correlated, that is, it does not move up and down simultaneously in both the locations - the company sees its inventory holding costs go down through inventory reduction or risk pooling.

Milind Sohoni
associate professor, Indian School of Business, Hyderabad