Consolidation Phase:The best time for offline players to enter the Online Market!
To begin with – the number of Internet users in India has tremendously grown from a mere 50 Million in 2007 to 100 Million in 2010, 354 Million in 2014, to a stunning 462 Million currently; making India the world’s second-largest Internet market.
As per a report submitted by Morgan Stanley – the size of the Indian Internet market in terms of GMV (Gross Merchandise Value) is estimated to grow from $11 Billion (2013) to a whooping $137 Billion by 2020, and the market value of the industry by then would also be touching a close $160-200 Billion, as well.
The report further said that – the $11 billion Indian Internet market in 2013 was greatly dominated by the Travel that accounted for $8 Bn, and was followed by eCommerce and Classifieds / Online Advertising that accounted for about $3 Bn & $800 Mn, respectively.
Going ahead – eCommerce is being forecasted to transform and account for the largest part of the overall Internet market with $102 Bn, while the travel industry with 28 Bn will drop down to the second position, followed by classifieds/online advertising with $7 Bn.
Recent Online Acquisitions by the Offline Players, and their motivation behind it!
Lately, we have seen the offline players dive into the lucrative online market, by way of acquisitions, some of which include: FabFurnish by Future Group, CaratLane by Titan, India Circus by Godrej Group!
Let’s give you more detailed insights…
Future Group acquires FabFurnish…
Future Group acquired Rocket Internet’s online furniture platform – FabFurnish (Alix Retail Pvt. Ltd) for approximately ₹20 crores in April 2016.
This is a huge step by the Future Group, given that it is their first online acquisition. It is going to be merged with their home and furnishing business – HomeTown, which is now being expected to become a ₹800 to 1000 crores business by the end of this fiscal year.
This acquisition is being said to create waves in the sector and the online industry as a whole, and would also open the gates to many more such offline-online acquisitions in the future.
Founded in 2012 by Vikram Chopra, Mehul Agrawal, Vaibhav Aggarwal; FabFurnish is an online shopping portal for furniture and home ware with a diverse range of products. They are backed (with $30 Mn) by Rocket Internet, which is an eCommerce-focused Venture Capital firm and start-up incubator, and is well known for creating clones of successful Internet businesses and then selling them once the business gains scale.
Ashish Garg will remain the CEO of FabFurnish, and the management team along with their 100 (approx) employees are likely to join the Future Group as well.
Why did this deal take place?
The primary reason for Future Group to acquire FabFurnish, as per media reports, is to help grow the online presence along with the delivery model of their brand HomeTown, and also to grow their presence in markets where they do not have offline stores or have minimal reach, as well.
In addition to that, this move will also help the Future Group to build a wall ahead of retail giant IKEA who intends to enter India in 2017, and will take at least two to three years to become a ₹1,000 crore company.
On the other end – Rocket Internet, who had entered in the Indian market by incubating half a dozen companies including––Jabong, Foodpanda, Fabfurnish, OfficeYes, HomesandHeaven and Couponnation; found itself to be in a fix, when to their surprise, none of these companies had managed to become big enough to offer an exit.
FabFurnish will be the German group’s first exit.
Rocket Internet had been trying to exit its India businesses for a while, and had been desperately and aggressively looking for buyers. However, to their luck; most of their deals never managed to see daylight!
More specifically – FabFurnish, was bleeding like never before, had fired almost one-fourth of their workforce, and was now making monthly revenues of ₹1 crores (which used to be ₹3.5 crores, two years back).
Hence, despite being an early entrant; when FabFurnish was not able to sustain its position, Rocket Internet decided to put it on sale.
Titan acquires CaratLane…
Watches and jewellery maker and a part of the $108 Bn conglomerate Tata Group, Titan Company has acquired a majority stake in the Chennai-based online jewellery portal – CaratLane. They would be acquiring the stake from Carat Lane’s long time investor, Tiger Global, in an all cash deal. There will be no dilution by the promoters.
The acquisition would be completed after the company completes their due diligence, which should be completed by June, post which the exact stake of the deal shall be revealed. But media reports suggest that, Titan’s stake would be more than 51% in the company.
Founded by Mithun Sancheti and Incorporated in 2007 – CaratLane follows an Omni Channel strategy wherein it not only sells online, but also at 13 offline stores across the country in Bangalore, Delhi/NCR, Hyderabad, Coimbatore, Chandigarh, Chennai, Thane and Pune. The company had raised a total of nearly ₹350 crore in funding.
Interestingly, CaratLane currently competes with players like BlueStone, who have raised funding from Tata Group’s Chairman Emeritus Ratan Tata.
Post the announcement of the deal – Shares of Titan Company rose up by 1.74% and closed at 365.45, on NSE.
Why did Titan acquire the stake in CaratLane?
To begin with – Titan could have easily launched their own platform, but this acquisition made more sense to them, since there are synergies between their operations.
Tanishq the jewellery arm of titan; even after accounting for about 80% of their business, still has its limitations, and is restricted by its boundaries. Whereas, CaratLane is able to reach out to more customers, given that it is a leader in the online jewellery market in India across the value chain (design, manufacturing and marketing).
But even after that and even after having revenues of ₹250 crore with good gross margins, CaratLane is said to be making losses, given their heavy spending on advertising. Basically, Offline Brand Value and Funding is one of their biggest limitations!
So, when both come together – while Titan will get a stronghold in the online space, CaratLane will get the backing of Tanishq, a big brand in the jewellery industry.
For CaratLane – the collaboration is sure to get them a lot of credibility, along with access to Titan’s strong backend capabilities.
While for Titan, the acquisition would get them significant capabilities in the eCommerce space along with overall digital capabilities that are far superior than the rest in the space.
Godrej Group acquires India Circus…
The 10,000 crores Godrej and Boyce Manufacturing Company Limited, the holding company of the Godrej Group has acquired a 51% stake for an undisclosed amount, in India Circus Retail Private Limited that runs an online home decor and accessories portal Indiacircus.com. This acquisition was lead by Navroze Godrej, Head of Strategy and Innovation at Godrej & Boyce.
It is an online-led retail venture of designer Krsnaa Mehta, and will close the Fiscal Year 2016 with revenue of ₹20 crores.
As per media reports, they have acquired the stake in India Circus, because they also run a company that provides similar offerings that includes contemporary and affordable home decor and personal accessories, similar to that of India Circus.
Going Ahead – Krsnaa Mehta, Executive Director of India Circus will be focusing on the Design, while Godrej & Boyce will take care of the Operations and Marketing of this end of the venture. All 35 India Circus employees have been retained. India Circus will continue to retain its identity and brand name, but under Godrej.
Since Godrej Group holds further interests in furniture, consumer durables and packaged consumer goods sector, they would be continuing to expand their portfolio in the segment by investing in existing brands and also creating their own as well. Furthermore, they would also be looking at acquisitions and collaborations in the areas of security, energy and renewable in India and abroad, too.
Why did Godrej Group acquire the stake in India Circus?
The primary reason was to strengthen their lifestyle footprint and also complement their existing lifestyle brands like Godrej Interio.
Additionally, Godrej is also seen to be aggressively expanding its footprint in all the sectors it holds business in, either by acquiring ventures or by starting one of its own!
Their target is to increase their revenues by 10-fold in the next 10 years, and would mostly be doing so by acquisitions and collaborations, and has set the ball rolling, by acquiring a major stake in India Circus.
And since they are in the process of launching their own website that would be showcasing their entire range of products available across the different group companies, shortly; this investment in India Circus would only help add value to their offerings, strengthening it furthermore!
Hence, going ahead –– since they saw a complementing synergy in the philosophy, functioning and offering of India Circus and Godrej Interio; Godrej aims to strengthen India Circus’s market position as a lifestyle brand even more, by adding their own brand value to it.
They would be including all of India Circus’s products at all the 50 company owned stores and 200 franchise stores of Godrej, and plan to grown their market revenue by 500% over the next two years, as well. In turn, this would automatically strengthen and increase their online presence, and on the other end, India Circus would get the much needed offline channel of sales.
Is it time for offline players to start acquiring the mature Online Businesses?
It is a given that the online shoppers and the internet market is going to grow dramatically in the next few years. The earlier you get on this boat, the better!
Since brick & mortar retailers will require a considerable amount of time and investment to build their eCommerce business, acquisition of online companies is the best solution, and many online start-ups are more than happy to get acquired by reputed offline companies too!
We have already seen the transition begin as well. Leading legacy retail brands have begun to recognize the potential of the online market and are looking at ways and means to go online. They are increasingly looking at associations with existing online players or acquiring them as well.
Some of the other recent acquisitions include: Ek Stop by Godrej Nature’s Basket, Freecultr by Textile firm Arvind, etc…
As a matter of fact – Indian offline companies are not the only ones who are interested in the online start-ups, and many international firms are eyeing the Indian online market too!
Recently, it was announced that Chinese handset maker Xiaomi, who has made a total of 55 investments, was looking to acquire several start-ups in India. The focus in India will remain on software and Internet companies.