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| Edited By: Ashish K Tiwari |Source: DNA |Updated: Jul 10, 2017, 07:30 AM IST
Backed by Indian entrepreneur, bureaucrat and politician Nandan Nilekani, 10i Commerce Services Pvt Ltd (ShopX) is a Bangalore-based start-up that is disrupting traditional retail ecosystem by transforming e-commerce to an 'everyone commerce' through technology and bringing it to the mainstream mass market in India and beyond thereby expanding the overall addressable market size in the coming years. Amit Sharma, chief executive officer and co-founder, ShopX, in conversation with Ashish K Tiwari, speaks about how his start-up is helping the neighbourhood retailer make more money by offering a host of other services, popular regional brands to sell their products in other markets across India, established brands to undertake target marketing and testing of their products among others.
There is a completely new industry that needs to be created especially for emerging economies. India is one example but I think what we are doing can be taken to Africa and other parts of Asia. There is a certain part of the world like Europe and USA where the retail sector has taken a certain path. However, developing economies are witnessing what we call the leapfrog effect, which we have seen in other sectors. India certainly is leapfrogging ahead. We don’t have to spend 85 years modernising the retail through the Walmart model. We can do it in 5-10 years. The way to do it is by building a digital layer on top of the kiraana stores in order to empower and enable them. And when you hook up these 10 lakh retailers -- which is our goal into a digital network -- like Uber and Airbnb have done, you can create a massive network that has the same buying power as Walmart and has access to the latest products and information. These platforms can negotiate with brands much better and make them a part of the network. The retailers can get access to the products that they didn’t have access to earlier. Their income can increase, they can modernise. That’s our story. We can leapfrog ahead with this new model in India and eventually take it to other markets across the world.
We are currently working with 50,000 retailers strategically selected in the low to middle-income areas across the country. There are 1,000 retailers from Mumbai mainly from Thane, Panvel, Bhiwandi, Dahisar etc. The retailer signs up with us by paying a small amount (Rs 1,000 of which Rs 500 is immediate cash back) as a one-time fee. The fact that retailers today are willing to pay this amount, shows how much they value the concept. They get the app with which they can do many things around retail and commerce. One of the main things being that they get access to digital services. So, when they register for the app, the store gets converted into a recharge point, DTH recharge, and a bill payment point which becomes a huge convenience to lower and middle income people who have to stand in the queue for 1-2 hours every month to pay bills at the government office. This also eases the burden on the government infrastructure and that’s why the Andhra Pradesh government has tied up with us. Every retailer also becomes a travel agent. You can just open the app and book the tickets.
On the physical product side, they can start ordering products directly from brands, which is of big value. Even in a city like Mumbai, the big brands don’t service every retailer very well. They service some top retailers and for the rest, the service levels are very volatile. The smaller you are as a retailer, the worse service you get. The brand will not come to the retailer every fortnight, but only once a month, they won’t give you credit or good margins. So, the terms of trade and the service all retailers get are bad, even for big brands. With ShopX what happens is they get the same margin structure, service and products that a big retailer might get.
In theory, yes you can say we compete with Amazon, Paytm and others. But the reality is that these e-commerce companies have one thing in common. They require you as a customer to download an app on your own and then do all your business on your own – in self-help mode. You don’t have any assistance. You have to do the recharges through Paytm, net banking accounts or through a credit/debit card. Almost 95% of India does not have a credit/debit card or an active net banking account. The problem is how do you deposit money in your wallet? They are also not comfortable with that idea. We are still an assisted economy, unlike the USA. We have maids and chauffeurs. If you really want to create something for the 400 million people, you need to think differently. The services are the same – commerce, digital commerce, recharge, but the channel matters a lot. It is an assisted channel, which is what is needed for the next wave of the economy.
We never try to get into a price conversation. The reality with the offline businesses of the names you mentioned is that they typically have a narrow catchment area. Besides, they require the retailer to travel to the store which is a difficult proposition for the retailer. They are also moving in the online direction that’s when they enter our area of expertise in technology for questions like how good are the website, how easy is the ordering system and how payments are made. Historically, it’s been true that traditional offline companies have not been very good at mastering the new technology based models.
These are big players and would definitely have a seamless online experience.
Sure enough, but if you take for example some of these big electronic players, why didn’t they become an Amazon or a Flipkart? They could have as they knew retail. Or why did Shoppers Stop for example not become Myntra, they knew lifestyle more than anybody and they were the original inventors. This business of product management and delivering an experience using technology requires a different mindset. To answer your question, we today are the biggest partners of Walmart in every market that we are present in. So we partner with them and don’t really have to replace them. We say you guys are good at inventory and merchandising, and we are good at customer experience and technology. We’ll pick up stock from you will deliver it to the retailer at a special rate. In fact, just last week, the Walmart team in Indore cut a cake for us. They were appreciating that we are one of the biggest clients for them. We picked up like 50 lakh worth of products from them last month. Making us their biggest customer.
The kind of retailers we are targeting is more of the smaller retailers in Tier II, Tier III towns and also smaller retailers in big towns. S/he is typically a multi-generation entrepreneur. In a small town, they will make about 8-10-12,000 net monthly. That’s not a lot of income. They work very hard, typically six-and-half-days a week the shop is open. If you ask what are the opportunities to upgrade their lives or will their sons be interested in running the same shop, they will be uncertain. A platform like ShopX will increase their income from 8,000 to 15,000 because now they start offering more services and products. It really makes a difference in their lives.
There are retailers who are doing Rs 50,000-100,000 of business with us. This is new revenue, over and above what they were already doing. What we found is that if you increase the income of a small retailer by about Rs 1,000, that’s about 10% of their net income. If you can impact his net bottom line by 10%, he really values you. Because then he has a trajectory as well. Today, it's 10%, slowly it will become 15% and 20%. Thousands of retailers in ShopX have achieved and crossed that threshold.
Absolutely! A classic example is when we launched we saw tonnes of sales of the brand L’Oréal in Hubli. They don’t have the distribution of L’Oréal in Hubli. But there is a demand. Customers do want L’Oréal products. I went to place called Kolar, close to Bangalore, just last week. It is a small town with a population of about 1 - 1.5 lakh, famous for gold mines way back. That town does not have proper distribution for Micromax, Lava, Carbon and other brands. Even in FMCG, if you look at the top five brands, three of them don’t have distribution in Kolar. And Kolar is not an exception, it’s a norm. So where do the retailers get access? They’ll have some inventory, but it will usually be dated, end of life or rudimentary. They don’t get latest products in the full range that customers want. So, they are left behind a little. With ShopX they can be connected to the latest happenings.
One very fascinating story is that we are working with a top FMCG company, which I can’t name yet and we are launching deos for them. The interesting thing is that deos are not being sold in traditional deo shops. We are placing them in shops who don’t sell deos. These are high margin products wherein a retailer can make as high as 30% margin. Usually, a kiraana store makes only a 10% margin. What we tell a non-deo retailer is that, you can easily make Rs 50 margin on this product priced at Rs 200. Why don’t you start carrying it? We saw that it has been a massive success. Some 500 retailers placed an order for that deo kit. We gave them a display unit so they can display units properly. And suddenly this opened a new line of revenue for retailers because of its high margin and fast rotation, those deos helped make an additional Rs 2,000-3,000. To me, that’s success, the guy who was running a recharge shop suddenly becomes a deo shop. And he definitely would not have been able to do it on his own.
Absolutely. Ours is a direct-to-retailer channel and every brand wants that direct connect with the retailer because they may have data, they can do many things. But in the traditional 50-year old model, they had to go through multiple intermediaries. Super stockists, C&F, stockist, distributor and then a retailer and so on. That is why these brands partner with us. We give them the direct access. And the important thing is that what we become is something like a distribution utility where brands can get access to like a plug-n-play distribution model. Let's say a Marico or a P&G is weak in a certain market or they want a direct access. They can build their own infrastructure, their own technology, their own workforce. Or they can just plug into our network and we can give them full data, access, marketing ability, distribution ability, payment collection ability, logistics, everything. But if you extend that to beyond the big guys, there are tremendous opportunities in India for smaller brands to come up. I mean, the shoes I am wearing are not from a brand that is very well distributed. There are hundreds or thousands of small and regional brands which you do not even hear about. Because they struggle to distribute.
I was in Pune a week ago in a village called Manjari just outside Pune towards Baner and Pashan side. There is toothbrush brand called ‘Cliff’. No one would have ever heard of it. So, retailers put Cliff on one side and there is Colgate on the other side of their shop, and guess what is selling? Of course, Cliff. It is selling five times more than Colgate. And then you dig deep and ask. The point is such brands have a good value proposition. They are good brands. But is very hard for them to scale up distribution. So, our model gives them this plug-n-play platform that can take you to 230 towns overnight. Today, that is the power we have. Today, we have 230 towns. Any brand wants to, we can launch them with 50,000 retailers overnight.
On the Tier-I side, every brand that you can think of. There are about 10 top FMCG brands, about 10 top mobile brands, from Apple to Samsung to Micromax. With all of them, we have direct partnerships. We work with right from CXO level down to sales level. Same with the FMCG. All the names that you can think of. Plus, we partner with over 100 smaller brands who want to build a market. And for them, the value is even larger. Imagine, that Cliff guy could be present in Kalyan in a kirana store near your home, it is a good value proposition. There is no reason why people should not buy it. But they do not have the marketing and the distribution muscle. So even if we are solving this problem for retailers, we are also solving it brands big and small.
Nandan Nilekani is the only investor who’s put in $10 million (about Rs 70 crore) and we are quite comfortable with that. The main approach towards capital was to be really capital efficient. So not to spend too much money or burn too much money. I think in India, a few companies are guilty of burning too much. So, we were clear that we wanted to be capital efficient and build it in a fundamentally sound way. Our burn is very low. Therefore, we do not need much money. We do not do deep discounting. We do not do any huge, this deal, that deal and all. It is just proper structured sales.
We measure profitability at different levels. It’s still early days, we are not totally profitable today. There is a little bit of delta. It is very limited. One of our goals in 2017 is to turn net profitable at a transaction level which I think we are very close by. We will get there.
The first step is to establish this fundamentally sound core cycle of business which is profitable. After that, over the next three years, the goal is to reach one million retailers. Give them this retail operating system. Basically, our technology which will allow them to create and run it profitably. Make sure that retailers make money, be present in all the four regions of India. North, East, South and West. Probably, 1,500 towns may be and then start going down to village level also. Our success will be when the remotest retailers have access to the latest products.
Interestingly, when GST came up, retailers turned to us. They asked us what to do, how to file and do I have to comply and they are small guys nobody goes and trains them. One of the realities of GST is that the only way to do GST for a trader, the retailer is through technology. Every month three returns you can’t do it manually you don’t want a CA coming and for a retailer spending Rs 1,000 or 2,000 a month on a CA is too much right. So we are now considering developing a GST module in our app.
