For companies operating predominantly offline, COVID-19 posed several challenges. Amid lockdowns and implementation of physical distancing rules, demand in the offline market declined significantly. Markets closed overnight, and even after the restrictions were relaxed, fear kept people indoors.
This prompted many participants to go online. Amid the conditions that persisted, it looked like online retail had found its sweet spot. Many Indian SMEs switched to the direct-to-consumer (D2C) channel to sell their goods online during the pandemic that benefited both customers and businesses. While the pandemic may have given a huge boost to online sales, considering the high prevalence of online shopping currently, we believe offline retail still retains its sheen and is poised for a major comeback.
It will be a gross error to assume that online shopping will be the only preferred choice going forward. A recent consumer research study shows that people, especially women, still prefer to touch and feel a product before purchasing it, especially if the price band exceeds INR 5,000. Another factor in favor of offline shopping or physical stores is that they offer in-person customer service which plays a key role in increasing sales. To top it all, even while customers get all product-related information online, they still look for recommendations from the employees at stores when making purchase decisions. (As per the study, 30% of customers would like to consult a sales associate for a better input in decision-making, while 90% tend to buy only after receiving a reliable recommendation from the staff at stores.)
Companies across sectors are increasingly opening boutique stores to cash in on the growing demand for in-store shopping experience. Some of these are personal care companies such as Plum Goodness and Bombay Shaving Company, mattress manufacturers Wakefit, SleepyCat, and Flo Mattress, and online retailer for seafood and meat, FreshToHome. Many of the brands either have a presence in multi-brand outlets and modern-trade stores or are in the process of launching exclusive stores.
D2C businesses leaning towards traditional retailing
D2C brands are increasingly considering going phygital. Offline presence would boost volumes, sales, and penetration, besides lowering client acquisition expenses.
Latest research shows that India is home to more than 600 D2C firms, with a $100 billion addressable market by 2025.
Profitable top D2C brands include boAt, Wow Skin Science, MCaffeine, and Wakefit. Others, such asLicious, Wrogn, Mamaearth, and Mom’s Co., are expanding rapidly. NuttyGritties, Itsy Bitsy, Cosmix, and Captain Zack are just a few of the many enterprises that are vying to take the world by storm.D2C businesses are increasingly attracting investors. In 2021, the D2C market witnessed more than 30 investment deals.
However, D2C marketing is just the starting point. To grow more, a company needs to adopt a multi-channel approach. Given that the need for retail shelves is not likely to diminish anytime soon, new-age firms are adopting a physical format to scale volumes, sales, and operations.
Plum Goodness, for instance, has opened exclusive brand shops (EBOs) in Mumbai and Chennai, with plans to further open EBOs in cities such as Bengaluru and Thiruvananthapuram. Bombay Shaving Company, a major player in the male grooming industry, launched 5 EBOs, with another 45 planned for the year-end. Wakefit, which has outlets in New Delhi, Bengaluru, and Lucknow, also plans to open additional 10 in a variety of locations, including Pune, Chennai, and Hyderabad, by the end of this quarter.
Is there any other reason why D2C businesses, known hitherto for their “non-traditional retailing approach”, are switching to a hybrid model?
Many of these companies are broadening their product offerings and entering new markets. For example, Wakefit, a significant name in the mattress and sleep solutions market, is expanding into the furniture market. This necessitates that they provide their customers an omnichannel experience – hence, the need to open physical stores.
Take the case of Plum Goodness. Along with entering the hair and skincare markets, it is also moving into men’s grooming and makeup products. According to Shankar Prasad, Founder of Plum Goodness, “We have practically increased our product selection in the last two years and need offline locations to display our extensive assortment to the consumers.”
Bombay Shaving Company also intends to use its locations to give customers a unique experience and enable same-day delivery. These companies claim that offering an experience and showcasing products in a physical setting will help them reach out to their demographic target – millennial men – who are not yet a well-developed cohort of clients.
Fintech firms providing BNPL cards to promote usage at offline stores
To encourage usage in the offline mode, fintech lenders in the buy now pay later (BNPL) industry are now issuing real cards to customers. BNPL cards, essentially prepaid payment instruments (PPIs) carrying a credit line, are being distributed by PayU Finance, Slice, and Uni Cards in collaboration with banks.
Regulationsconducive to encouraging partnerships between fintech companies, conventional banks, and non-banking financial firms (NBFCs) are increasingly being implemented. This is leading modern lenders to collaborate with their more strictly regulated competitors to expand the market.
Edtech unicorn opening offline centers
Hybrid coaching is bringing parents, students, investors, and edtech startups together, as the coronavirus pandemic recedes, paving the way for the best of both worlds.
The edtech sector is in a flux, after witnessing a boom during the pandemic years when education largely went online.
As schools and institutions reopen with the pandemic subsiding, it has created an existential crisis for edtech companies. Online classes, while a necessity during lockdowns, were never believed to be very conducive to the educational growth of children, in terms of motivation and engagement. Now as offline classes resume, parents are ditching the online format in droves and not choosing to renew their subscriptions. This has created a serious cash crunch for edtech companies, resulting in delayed refunds.
Confronted with the new reality, edtech startups are forced to restructure their business models, open online centers and lay off employees. Many of these businesses were founded during the pandemic. Lured by the prospect of online education, they prioritized expansion over stability. But now, with offline classes returning, the edtech industry is realizing the importance of adopting a holistic approach to business.
To draw in as many students as possible, some of the biggest names in edtech are providing steep discounts on their courses. All edtech startups, from the most valuable unicorns in India to up-and-coming ones, have launched offline centers. Some of these are BYJU’S, Unacademy, Vedantu, and Physicswallah.
Edtech startups are also in a fray to attract the best teachers in their bid to pull the student crowd. They are poaching some of the top educators from Kota, the coaching hub of India, by offering some of the best facilities. Unacademy’scenters, for instance, are equipped with a multipurpose cafe, a sizable library, question-answering areas, as well as numerous classrooms and functional zones.
If companies really want to have a presence, they need to build a physical brand which people can see and interact with. Companies today would prefer not to be present as a marketplace brand only since the space is bustling with numerous participants. While online operations may continue to rake in revenues, companies need to buttress these by building offline presence. Adopting an omnichannel approach is the next logical step to grow the brand.
In other words, it is time to go phygital.
Suyog Keluskar, Director, Consumer Insights
Dhara Tandon, Analyst, Consumer Insights