Brands that can only be purchased online will see strong growth in future: study
Tuesday February 09, 2016,
2 min Read
'Digital-first' brands, or brands that can only be purchased online, can expect to see strong growth across categories like budget fashion, furniture and groceries with the increasing adoption of e-commerce, a study said.
"We expect digital-first brands to make significant advances in the unorganised retail segment such as furniture, budget fashion and groceries. The lack of known brands in these areas presents a unique opportunity to the digital-first players to become synonymous with a particular segment," a report by Deloitte said.
Deloitte further predicts that spurred by the growth, some brands in these segments may go international as well. These categories have strong domestic design and manufacturing capabilities, thereby allowing companies to set up an efficient supply chain and sell the products at high gross margins, it said.
Internet as a medium of sale and promotion effectively addresses challenges faced by traditional consumer brands, like maintenance of huge inventories that incur significant storage costs, the report noted. Besides, high real estate costs in major Indian cities are comparable with global metropolises like Tokyo and London.
However, the purchasing power in India is significantly lower than developed countries, resulting in lower cost recoveries, it said. As per Deloitte estimates, international retailers have average sales of USD 120-180 per sq ft, whereas Indian retailers average USD 22-38.
Physical retail stores also have to deal with other costs such as employing sales staff and store overheads. Considering these challenges for physical retail, Deloitte predicts wide-scale adoption of digital-first brands. A massive opportunity for digital-first brands also arises from the fact that e-tailing is expected to increase ten-fold over the next five years.