Startups move physically from digital to the end of the pandemic

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  • As the pandemic craze settles down, several startups in the consumer tech space such as Byju’s, Unacademy, Vedantu, Pepperfry, BlueStone, and CaratLane are rushing to open offline.
  • Brand creation, expansion and a huge offline market are some of the reasons behind the growth of offline models.
  • Also the fact that India still makes up 10-12% of total trade online and 85-90% still offline, which is a much bigger pie up for grabs.

India registers nearly 80 startups every day and the number has grown in recent years. Pandemic saw every other startup investing and launching their strong online presence thinking it will last forever.

Now that the pandemic boom is over, edtech startups like Byju’s, Unacademy, Vedantu or furniture stores like Pepperfry, Wakefit are working to expand their offline presence – into brick and mortar stores, or in some cases launch their own stores.

Experts believe that brand creation, expansion and a huge offline market is the reason why consumer startups should also open offline stores.

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“In India, online is still 10-12% of total trade and 85-90% is still offline, which is a much bigger pie. Online businesses are coming offline for multiple reasons – brand creation, expansion, market is much bigger offline so people want to have a piece of the pie,” Amit Nawka, partner – deals and India startup leader at PwC India told https://gotechbusiness.com/ India.

The emerging hybrid model
After the pandemic, consumers are looking for a personal touch and visiting stores, proving a challenge for such consumer startups. Most cash rich online businesses acquire businesses to help them build an offline presence quickly. It’s already visible in the edtech space as students developed screen fatigue during two years of the pandemic.

“We saw Byju doing the Akash acquisition, which was mostly offline. Today, you won’t find anything offline at Unacademy and they may have to do something offline,” said Amit Nawka, partner deals and India startup leader at PwC India.

In an emerging digital age, even offline stores are still a priority for many, online and offline models should work together seamlessly – store where people can walk in and experience the brand and then buy online too.

Startups open experience centers to expand offline
Byju’s Acquired Tutoring Chain Aakash Educational Services to Expand Physical Branches
Vedantu experiments with a hybrid model, opens offline centers that a learning center will like
Unacademy has 15 offline centers in nine cities by mid-July
IPO bound Pepperfry has opened studios in Odisha, Bangalore
Wakefit announced the launch of 10 shopping stories across India this year

“When it comes to offline play, as people call it omni-channel, which was mainly talked about more when we look at the tech space for consumers. The FirstCry or even Ratan Tata backed jewelry store BlueStone and CaratLane, which were primarily an online player, have now gone offline,” said Nawka.

The Cost, Cannibalization – The Nykaa Case Study
Nykaa, which is more of an e-commerce company for beauty, wellness and fashion products, has opened stores to help consumers personally recognize their brand.

Since 2014, Nykaa has become omnichannel and opened physical stores to get closer to customers. The number of stores has risen to 95 in 47 cities in the country and has announced plans to triple the number of stores to 300 in 100 cities.

“On the surface, this seems like a distraction from the digital-first, tech-enabled positioning the company continues to portray. However, it is important to understand the strategic reasons for the company to aggressively pursue store expansion,” said a report from JM Financial.

However, while it could be a long-term strategy, in the medium term, brokers believe that going offline can put a strain on companies’ balance sheets – especially those moving towards profitability.

“Other than offering some brands (and only a few SKUs within them) the way to market in the physical world in addition to the online domain, we see no reason to enter this company. There will be significant overlap with other providers such as Jio and Udaan, not to mention proprietary distribution in some cases,” said an IIFL report on Nykaa.

The report also says brick-and-mortar stores could lead to cannibalization of the beauty and personal care trade in Nykaa. It gets a lot of business from small towns that don’t have a retail presence, and this business could be eaten away from its own brick-and-mortar business, according to IIFL.

Will buy online but want to ‘see’ offline
However, JM Financial thinks otherwise. In both urban and rural areas, a majority of the population still feel comfortable transacting on digital platforms when they can also pair it with a physical presence.

“The retail footprint provides peace of mind to the customers and is therefore also becoming a strong brand-building factor,” according to the JM Financial report.

Tech innovations like virtual try-ons work to some extent for certain products, but the ability to access a store can be a game-changer. “Even Purple took over Faces Canada, which was mostly offline while they played online,” said Nawka.

Fast trading by adding warehouses or dark store
Retail companies need physical presence the most. Fast delivery platforms — Zomato, Dunzo, Bigbasket — are also expanding their warehouses because they promise to deliver groceries within 10-15 minutes.

A dark store is generally a large warehouse that can be used to facilitate a ‘click-to-collect’ service, where a customer picks up an item they have ordered online, or as an order fulfillment platform for online sale. These fast trading platforms rely on these dark shops for fast deliveries.

During the pandemic, online businesses have grown and prospered, but when they tried to “take over” the brick-and-mortar businesses, they saw something they’ve probably never seen before: how close they can get to their customers and how much more they can physically achieve. . This is the starting point of the trend reversal in startups and new-age digital companies.

Dunzo operates 120 dark stores in the eight cities and is looking to expand
Zomato’s new addition Blinkit has about 400 such stores and can expand further
Bigbasket wants to expand its dark store network to 300 stores

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