MUMBAI: India’s retail landscape has changed rapidly in recent years. Owing to increasing disposable incomes and a growing number of nuclear families with evolving lifestyles, the country is experiencing a shift towards organised retail.
Organised players accounted for nine per cent of India’s overall retail trade in 2013. However, the year saw sales from modern retail formats growing slowly.
Rising costs, combined with India’s infrastructure hurdles have prompted retailers to reconsider their expansion plans. This scenario has forced brands to look for newer mediums to distribute their products, especially in areas where modern retail penetration continues to be low. Backed by domestic as well as international investors, e-tailers such as Flipkart and Snapdeal have taken advantage and created a Rs140 billion ($2.3 billion) online retail industry.
In the midst of this marketing blitzkrieg by e-tailers, TV home shopping, an established distribution platform with a much wider reach, has also taken giant strides.
Although much smaller in comparison to the e-tailing industry, the TV home shopping industry has started to effectively leverage the reach of cable and satellite in India, estimated at 140 million households or 650 million people as of December 2014. In comparison, the number of internet users is estimated at 302 million.
The HomeShop18 and Star CJ Revolution
According to a report released by Media Partners Asia (MPA), although the industry has been in existence since the 1990s, most of the earlier TV home shopping companies were restricted to selling religious or unbranded beauty products by purchasing commercial airtime to run infomercials on TV channels. The pre-digitisation era also saw an attempt to launch a dedicated TV home shopping channel – TVC Online. However, it stopped airing within one year of its launch in 2003. Majority of these products failed to meet quality expectations. As a result, consumers grew skeptical of TV home shopping. “Logistical challenges and infrastructural constraints added to the woes of the industry as they resulted in delayed product delivery to customers,” says the MPA report.
However, following the arrival of 24-hour dedicated TV home shopping channels, there has been a turnaround.
HomeShop18 and Star CJ launched in 2008 and 2009 respectively, focusing on building customer trust by:
· Ensuring high quality products;
· Creating technology enabled delivery and logistics networks;
· Establishing 24/7 multi-lingual customer service support centers.
As the industry’s credibility rose, brands such as Samsung and Videocon started utilising the services of TV shopping players. In addition, leading service brands such as Bajaj Allianz and ICICI Lombard have also experimented with the platform. Since its inception, HomeShop18 has fulfilled over 20 million orders, having served more than 11 million customers, while Star CJ has catered to six million customers since launch.
Industry Dynamics and Business Models
The success of these two channels has encouraged more players to enter the market. Naaptol, which started as an e-commerce platform, has recently launched Blue, a 24-hour dedicated TV channel. In addition, the company has partnered with multi system operator (MSO) Hathway Cable & Datacom to launch Hathway Shopee, which is exclusively available on the MSO’s digital platform.
Similarly, another MSO Den Networks has entered into a 50:50 JV with Snapdeal to launch Den-Snapdeal TV Shop, the pilot for which launched in September 2014. Other key players include Planet M Shopping, HBN Telebrands and TVC Retail.
Growing at 40-50 per cent year on year, the industry, as per MPA, has generated gross merchandise volume (GMV) sales of Rs 32 billion in FYE March 2014. MPA analysis also indicates that the TV home shopping market could generate between Rs 45-50 billion in FYE March 2015. The top three players: HomeShop18, Star CJ and Naaptol, hold the lion share with 85 per cent market share.
Comprising both 24-hour dedicated channels and small and medium-sized firms, which buy independent airtime slots from multiple channels, gross commission revenues are estimated to range between Rs 10-12 billion for FYE March 2014.
On the cost side, while TV home shopping companies pay carriage fees to DTH and cable operators, they also incur airtime charges for slots on TV channels. MPA estimates that while a one-hour midnight slot on GECs costs Rs100,000, news channels charge between Rs 25,000-Rs 50,000.
Overcoming the hurdles
As is the case with e-tailers, India’s low credit card penetration and poor logistics infrastructure are proving to be the main challenges for TV home shopping players. As consumers in smaller towns are used to a “touch and feel” approach to the product before making payment, about 80 - 95 per cent of TV home shopping sales are driven by cash on delivery (COD). However, logistical difficulties often result in delayed deliveries and consumers refusing to accept delivery. Return rates are as high as 10-20 per cent of total transactions and adversely impact the business economics of TV home shopping companies, according to the MPA report.
To counter last mile delivery challenges, players such as Naaptol and TVC use the services of India Post, which has over 155,000 post offices of which more than 139,000 are in rural areas.
TV home shopping versus e-tailers
Although e-tailers function on a similar business model, the strategies adopted by TV home shopping players are in stark contrast to their online counterparts.
On an annual basis, TV home shopping players advertise between 3,000-4,000 products with a high majority being private labels and small to mid-scale brands. In comparison, Flipkart and Snapdeal stock over 15 million and five million products, respectively, points out MPA.
“This strategy enables TV home shopping players to command commissions in the range of 30-40 per cent of the sale price, compared to 5-20 per cent for e-tailers,” says the report.
The consumer demographic is also different. With over 80 per cent of TV households having access to pay-TV, majority of the orders originate from smaller towns. In contrast, sales of e-tailers are driven by markets with high English language proficiency and internet penetration.
Comparison with e-tailers on financials and value creation
The MPA report highlights that despite incurring significant losses, most e-tailers are focused on driving valuations through exponential top-line growth. In contrast, TV home shopping firms have delivered balanced growth with profitability. In FYE March 2014, net revenue growth for HomeShop18 was similar to players such as Amazon India and ebay India. Moreover the TV segment for HomeShop18 was also profitable at Rs 150 million for 9M FY 2014.
For the similar period, TVC Retail, which enjoys superior margins for its product profile, reported a net profit growth of 42 per cent year on year. While Star CJ and Naaptol are on the cusp of profitability, even newer players are exhibiting robust growth.
Den-Snapdeal JV has been growing at 200 per cent month-on month and is clocking a GMV of Rs 1 billion. The network expects to cross the Rs 5 billion mark by the end of the first year of operations.
Similarly, Hathway-Naaptol, primarily offering semi-branded products at high margins, is already enjoying an average monthly run-rate of Rs 15 million, since its launch in June 2014.
E-tailer valuations seem justifiable only as a multiple of GMV. However, it is worth noting that their long-tail strategy is highly dependent on a substantial rise in India’s internet penetration.
“Partnering with MSO platforms or TV home shopping players can enable e-tailers to mitigate the risk of slower than expected internet growth. Hence, going forward, more JV deals such as Den-Snapdeal are likely to occur. This will mutually benefit both partners by drawing synergies from their existing businesses,” says the report.
Becoming future ready
On the back of rising smartphone penetration, global TV home shopping giants such as QVC and HSN have streamlined their m-commerce operations to maximise revenue and profitability.
“Realising that mobile internet, which accounts for 57 per cent of India’s internet users, could drive the next leg of growth, Indian players have followed suit. Although TV continues to account for 70 per cent of its transactions, HomeShop18 has witnessed 100 per cent Q/Q traffic growth on mobile platforms. Similarly, Star CJ expects its mobile website to account for 20 per cent of its transactions in the near future versus 6 per cent at present,” says MPA.
In the meantime, the industry continues to record impressive numbers. Naaptol expects its revenues to increase from Rs 1.65 billion in FYE March 2014 to Rs 3.45 billion in FYE March 2015. “Given that TV home shopping is still in its infancy in India, such trends are likely to continue for the next three - five years,” highlights the report.
The India Today group, recently launched Bag It Today. Business entrepreneur Raj Kundra in partnership with Bollywood actor Akshay Kumar has launched Best Deal TV, a celebrity driven venture. Targeting a reach of 35-40 million households, the channel will tie-up with celebrities such as Ekta Kapoor, Sonakshi Sinha and Yuvraj Singh. The celebrities will be signed on a profit sharing model. The channel will start by advertising 30 products from select categories such as lifestyle, home, health, fashion and beauty. Subsequently, it also plans to tap regional markets by roping in local celebrities in Tamil and Telugu markets.
Apart from these, a few regional players are already working towards setting up TV home shopping channels. It might not be long before global home shopping giants and other strategic and financial investors start to enter the market.
