India still wary about shopping online; Ex-Asos boss to list Indian venture on Aim

Last updated: November 12, 2013 4:54 pm

India still wary about shopping online

By Amy Kazmin in New Delhi

For largely bricks and mortar retailers such as Marks and Spencer India presents a big challenge, with an acute shortage of suitable physical space for modern shops, sky-high rents and a geographically diffuse potential customer base, spread across megacities and scores of smaller cities and towns.Yet the very obstacles that make India so tough for traditional retailers make it a fertile field for ecommerce. India has a profusion of new eretailers, many with foreign backing, and hoping to cash in on customers’ desire for better access to a wider array of goods, often at better prices.

“The cost of doing physical retail is rising very, very substantially,” said Arvind Singhal, head of Technopak, a New Delhi-based retail consultancy. “At the same time, consumers in India are getting more discretionary [and] looking for value. Ecommerce gives you an extra margin of 5-7 per cent to pass on to the consumers.”

Ecommerce, especially the selling of physical merchandise, is still in its early days in India, where finicky customers like to study items closely – and often haggle over prices – before making purchases.

Indian bought $10bn worth of goods and services over the internet last year, though the majority of sales were services, such as airline, railway and bus tickets, and hotel bookings. Sales of merchandise – including books, baby nappies, electronics and clothes – accounted for just $600m.

But Technopak estimates internet sales of merchandise could grow a hundredfold in the next nine years to be a $76bn market by 2021.

India’s biggest eretailer is Flipkart, which was started by two former employees of Amazon, and offers products in a wide range of categories. Sites promoting products for babies and children are popular, while sites such as Myntra and Jabong target Indian fashion fans.

Yet profiting from India’s potential market remains a challenge. Many Indians are still averse to credit card payments online. Indian eretailers overcome this barrier through cash-on-delivery payments. But this method – which still accounts for 60 per cent of all sales – raises costs.

 

November 12, 2013 11:30 pm

Ex-Asos boss to list Indian venture on Aim

By Duncan Robinson

The former chairman of Asos is set to take Koovs, his new Indian fast fashion business, public early next year as it attempts to benefit from the glut of young Indians moving online.

Entrepreneur and Labour peer Lord Waheed Alli spent more than a decade at Asos, during which the fast fashion group expanded from a small start-up worth about £5m to a global retailer with a market capitalisation of nearly £3bn.

Koovs – which is aimed at India’s fast-growing young middle classes – intends to raise £22m with a listing on Aim.

There are about 120m internet users in India, according to McKinsey. But this figure is expected to more than treble to 370m by 2015.

Koovs was set up late last year by Lord Alli and Anant Nahata, a scion of the wealthy Nahata family behind Indian telecoms group HFCL.

The owners plan to float about 35 per cent of the company. The remainder will be split between the Nahata family, which owns about 44 per cent; Lord Alli, who holds 11 per cent; and management, who retain the balance.

Parallels between Asos and Koovs have been drawn. The Indian group’s collection is overseen by Rob Bready, a former product director at Asos. Koovs and Asos have the same young, fashion-conscious crowd as their target market. Their websites resemble each other.

“The website has started from a similar place [as Asos] because we were the architects [of Asos],” said Lord Alli. “It’s like saying Selfridges looks like Harrods – it’s a shop!”

Koovs will launch a menswear range early next year. India is one of the few markets with more male than female clothes shoppers online, as substantially more men than women in the country have access to both the internet and a credit card.

Because it is aimed solely at the Indian market, Koovs is slightly cheaper than western rivals, such as Asos. “We are not Primark, but we are mid-market,” said Lord Alli.

Relatively few Indians have access to credit and debit cards, so ecommerce groups have had to find ways around this. Koovs has opted for payment on delivery, whereby customers will pay for clothes when they are delivered, as they would with a takeaway meal.

While this is more expensive than traditional ecommerce methods, being based solely in India meant that margins would not be unduly affected, said Lord Alli. “What you lose on payment margins, you gain on production margins,” he added.

These added complications of trading in India – coupled with limits on foreign direct investment in the retail sector – have curtailed expansion by ecommerce groups in the country, even as online retailers pour into other emerging markets, such as China.

“There are general retailers, like Amazon, but there are no other fashion outlets online [in India],” said Lord Alli. “This market will be conquered by us, or it won’t. It’s binary: you either win or lose.”

Peel Hunt estimates that Koovs could have revenues of up to £193m by 2019, although the broker’s base estimate is a much lower £58.8m.

Koovs’ management team will start to talk to investors this week.