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Brick-&-mortar retailers are a house divided against itself

Digbijay Mishra  |  New Delhi 

At a time when the battle between e-commerce and traditional brick-and-mortar retailers is hotting up, the latter is increasingly split over how to meet the challenge.

Even as deep discounts by e-tailers hurt the bottomlines of running physical stores and smaller traders resort to protests, the larger ones are looking to leverage the online medium to their advantage. They see in the e-commerce marketplace model fashioned by the likes of Amazon, Snapdeal and Flipkart an opportunity to spread both reach and sales.

Brick-and-mortar stores account for the bulk of India's $600-billion retail market, a majority of which is unorganised; e-commerce's share is still a minuscule 3-4%.

For large groups with deep pockets, the online marketplace model reduces the real estate cost of opening and maintaining physical stores. This would allow them to pass on the savings to consumers in the form of large discounts, say analysts. Smaller traders, wary of the deep discounts they would also have to offer if they went online, are resorting to protests since they often don't have the wherewithal to pay for or handle the intricate storage and supply chain of an online marketplace.

Recently, the Confederation of All India Traders (CAIT) led a nationwide agitation that saw about 250 unions (primarily of smaller retailers) holding street protests. Major retailers chose to stay away in spite of efforts to get them on board.

According to CAIT Secretary-General Praveen Khandelwal, the larger players form about 10% of the total offline retail trade. "We are trying to communicate to them but many of them are keeping off the protests and favouring discriminatory laws. This is also because of cut-throat competition among themselves," Khandelwal says.

Ajit Joshi, chief executive of Croma Retail, Tata Group's electronics and durables chain, says his company is against predatory pricing, but that street protests are not the ideal way to address the issue.

"We have to reach our consumers and, if some of them are online, we should to take a balanced path and make an attempt to reach them as well... Of course, selling below cost price will do no good to anyone," Joshi says. As an analogy, he adds that the digital presence of media outlets will not kill the traditional medium.

Online retail has grown over time, but the recent pre-Diwali mega sales by Flipkart and Amazon, which offered deep discounts, drew severe criticism from offline traders.

The Mobile Store, promoted by the Essar group, is another large offline player not in favour of street protests. "We have our own way of communicating against predatory pricing. We cannot go to the streets and protest. We have directly communicated the issue to brands, and their response has been positive," says the company's CEO Himanshu Chakrawarti. The Mobile Store has chosen to stay out of the ambit of the All India Mobile Retailers Association.

After voicing his protest against Flipkart's 'Big Billion Day' sale, Future Group CEO Kishore Biyani, too, has softened his stand against online retailers. In fact, barely a few days after his fulminations, Biyani tied up with Amazon India to sell Future Retail's fashion and food products in the country for three years.

Snapdeal co-founder Kunal Bahl recently told Business Standard that major offline retailers, understanding the advantages of the marketplace model, were joining the bandwagon. Croma is one of the many sellers on Snapdeal's website, and more are expected to join soon. In fact, the day Snapdeal signed a deal with Japan's SoftBank for a funding of $627 million, Bahl was on his way to meet the CEO of a retail company and get it on to the online platform.

"I think associations cannot just protest over assumptions that prices are predatory. Had there been a case of competition abuse, the Competition Commission of India would surely have taken action," said Arvind Singhal, chairman of Technopak, a retail advisory firm.

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First Published: Tue, November 04 2014. 00:56 IST