Amazon and Future Group ink deal to sell goods online

The world’s largest online store Ama­zon and Indi­a’s largest list­ed retail­er Future Group have signed a deal to joint­ly sell goods over the Inter­net amid grow­ing fric­tion between online and offline retail­ers over heavy discounting.

Future Group will sell more than 45 own labels of appar­el ini­tial­ly, fol­lowed by in-house brands in the home, elec­tron­ics and food cat­e­gories, while the US-head­quar­tered com­pa­ny will han­dle order ful­fill­ment and cus­tomer ser­vice for the mer­chan­dise on its por­tal. Both firms will also devel­op a new line of prod­ucts across cat­e­gories to be exclu­sive­ly sold at Ama­zon and Future Group’s retail stores.

“The deal is deep­er than just trans­ac­tion­al involve­ment with Ama­zon. We are explor­ing sev­er­al syn­er­gies in data shar­ing, co-brand­ing, cross pro­mo­tion and dis­tri­b­u­tion net­work shar­ing through the part­ner­ship,” con­firmed Biyani, who has been quite vocal on whether ecom­merce firms’ deep dis­count­ing strat­e­gy makes busi­ness sense, sug­gest­ing that offer­ing cheap­er prices would­n’t help in the long run. 

“We are tar­get­ing gross mer­chan­dise sales of Rs 6,000 crore in next 3 years through the alliance,” he added. The deal comes soon after Flip­kart’s Bil­lion Day Sale on Octo­ber 6 led to protests by tra­di­tion­al retail­ers that they were being hurt by the alleged preda­to­ry pricing. 

The com­plaints by tra­di­tion­al retail­ers led to the gov­ern­ment say­ing it would exam­ine the pol­i­cy on ecom­merce. Fol­low­ing this, Ama­zon’s Octo­ber 10–16 Diwali Dhama­ka Week has been a sub­dued affair with sharp dis­counts restrict­ed to stock clear­ances and prod­ucts only being sold on the site. Under the deal, Ama­zon and Future will also joint­ly devel­op dis­count­ing strat­e­gy and price tags on their prod­ucts won’t be very dif­fer­ent from rates at stores so that both chan­nels don’t end up can­ni­bal­is­ing each other.

Fol­low­ing the India deal, Future Group’s four dozen own brands such as Lee Coop­er, John Miller and Indi­go Nation will be tak­en off from oth­er online mar­ket­places where they are cur­rent­ly being sold. 

Ama­zon’s agree­ment in India also indi­cates its aggres­sive intent to spread itself across many prod­uct areas quick­ly in India — espe­cial­ly foods — a rel­a­tive­ly niche cat­e­go­ry for online retail, which it has only recent­ly entered. In July, the US com­pa­ny announced it would invest $2 bil­lion in India oper­a­tions that exceed­ed gross mer­chan­dise sales of more than $1 bil­lion with­in a year of its launch. It com­plet­ed a year in June this year. Mean­while, it was report­ed recent­ly that Ama­zon plans to open its first brick-and-mor­tar store in New York.

The com­pa­ny’s main rivals in India are Ban­ga­lore-based Flip­kart and Snapdeal, the lat­ter a Del­hi-based com­pa­ny that counts eBay, Azim Pre­mji and Ratan Tata as investors.

Togeth­er, they have sold goods worth more than $4 bil­lion, with Flip­kart alone esti­mat­ed to have crossed $2 bil­lion. The bat­tle is set to inten­si­fy. Accord­ing to a report by con­sult­ing firm Technopak, the $2.3‑billion e‑tailing mar­ket is expect­ed to swell to $32 bil­lion by 2020 and account for 3% of the total Indi­an retail sector. 

In the offline retail mar­ket, just three com­pa­nies — Aditya Bir­la’s Madu­ra Gar­ments, Arvind Brands and Future Group — either own or sell more than two dozen brands each, thus becom­ing the pre­ferred options for any online play­er look­ing to part­ner retailers.

The move holds ben­e­fits for both sides, but there are pit­falls as well. 

“The upside is Ama­zon get­ting instant prod­uct diver­si­ty and capa­bil­i­ty while Future Group can explore a new chan­nel for sales,” said Devang­shu Dut­ta, chief exec­u­tive at retail con­sul­tan­cy Third Eye­sight. “How­ev­er, if the busi­ness is not aligned in terms of ori­en­ta­tion and cus­tomer ser­vice, then it could cre­ate issues going for­ward, espe­cial­ly when one of the biggest bar­ri­ers for online sale is incon­sis­ten­cy of prod­ucts.” Future Group has more than 75 own brands that earn it at least 15% high­er mar­gins on aver­age com­pared with nation­al brands, which is why Biyani is bull­ish on pri­vate labels across cat­e­gories. The tie-up means Future Group’s brands that now have a pres­ence in 98 cities and towns will be mar­ket­ed to 19,000 PIN codes ser­viced by Ama­zon across India. 

Indus­try insid­ers also said the Indi­an retail­er’s move reflects a bid to expand into new dis­tri­b­u­tion chan­nels such as ecom­merce in the search for growth. Last month, Snapdeal agreed to cre­ate Cro­ma’s Flag­ship Store on its ecom­merce por­tal to sell elec­tron­ics items includ­ing mobiles, tablets and laptops. 

The $3‑billion Future Group, on its part, has opt­ed for SAP’s Hybris Omni­Com­merce solu­tions and plans to invest near­ly Rs 100 crore to beef up its ecom­merce ven­ture. It is tar­get­ing about 20% of rev­enue from online sales over the next 18 months. By 2020, the aim is even high­er — at 40% of its sales through ecom­merce or vir­tu­al platforms. 

Source: Eco­nom­ics Times