BETTING BIG

With India stocking up festival season crackers, Amazon just delivered an explosive package at Flipkart

Obsession
Consumer Class
Quartz india
Obsession
Consumer Class
Quartz india

Bang in the middle of India’s biggest festival season, Amazon has thrown a surprise.

The American e-commerce giant picked up a 5% stake in Shoppers Stop, a Mumbai-based departmental-store chain, for an estimated Rs179.25 crore ($27 million), according to a filing made (pdf) to BSE on Sept. 23 by the two companies. The stake purchase is routed through Amazon.com NV Investment Holdings, the e-tailer’s investment arm.

The Jeff Bezos-led firm, through its local entity Amazon Seller Services, has also entered into a retailing partnership (pdf) with Shoppers Stop. Under the partnership, the two companies will run joint marketing campaigns. Also, Shoppers Stop will list its entire portfolio of over 400 brands on Amazon.in and the e-commerce portal will open its “experience centers” at the offline retailer’s stores.

At a time when online retailers are taking the omnichannel route, this deal is likely to give Amazon an edge over competitors, particularly its closest rival, the home-grown Flipkart.

“Online retailers have realised that they need some kind of offline play. With this deal, Amazon has made a very intelligent start while Flipkart is still trying to figure out its strategy,” Ankur Bisen, vice president at management consulting firm Technopak, told Quartz.

Winning e-commerce

Of late, Indian e-commerce has slowed down. Online retailers have struggled to make inroads into smaller cities, particularly due to poor infrastructure and slow internet speeds.

Many have realised the need for an omnichannel strategy, selling online as well as offline, which helps reach even those who like to touch and feel before buying. Stores on high streets and in prominent markets also help retailers first grab shoppers’ attention and then convert them into online buyers.

Among e-tailers that have so far opened physical stores are Urban Ladder, PepperFry, Zivame, Nykaa, and Firstcry. Not surprisingly, India’s largest home-grown e-commerce firm, Bengaluru-based Flipkart, has been keen, too.

“Basically we want to have some sort of a connect with the offline world as well—this is one of our upcoming initiatives, but it’s not something that’s out there yet. As we are looking ahead and trying to grow the market and win over the next three-five years, there are a few things we need to do,” Flipkart’s engineering chief Ravi Garikipati told the Mint newspaper in October 2016.

In March, the company’s fashion subsidiary, Myntra, opened its first store in Bengaluru.

However, with the Shoppers Stop stake in its kitty, Amazon now has access to a wide offline presence with established footfalls.

Amazon will set up its own experience centers across Shoppers Stop’s 80 outlets across India, a company statement (pdf) said, without sharing functional details. These stores will now “bring in the touch and feel aspect on Amazon.in’s exclusive assortment,” it said.

“The Shoppers Stop deal is in line with Amazon’s global strategy. The company recently bought organic groceries chain Whole Foods in the US. So they are experimenting with the same strategy in India,” Bisen of Technopak said. “Even though the stake is small, there is no doubt that Amazon will leverage from its deal with Shoppers Stop.”

Meanwhile, Amazon is not the only party benefiting from the deal.

Shoppers Stop posted a revenue of Rs3,648.04 crore and a Rs19.94 crore loss in the financial year 2017. It will use the funds from the Amazon deal to expand its offline and online business. The partnership will also help it expand into tier 2 and 3 cities.

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