Omnichannel Not the Only Reason Behind D2C Brands' Offline Foray One of the factors behind this trend is the competition in the online world

While on one hand, we are staring at the possibility of a metaverse in e-commerce, on the other, many D2C brands who have had a successful stint in the online world are taking the traditional route of opening offline stores. It is not just the D2C brands, even edtech players are eyeing offline expansion for growth. After BYJU'S and Unacademy, the recently turned unicorn PhysicsWallah has also entered the offline space.

Often these startups say that an omnichannel presence, that is, being available for consumers wherever she or he looks for the brand, is key for growth. However, is omnichannel the only reason behind offline expansion?

Habit formation and a competitive online market

"It has got a lot to do with habits that people have. Those might take a decade to change. One of the most pleasurable experiences is window shopping, the touch and feel of it. Offline provides advantages that online is finding hard to replicate. It's a tad bit easier to choose a shade of lipstick or foundation offline. We have tried technology unlocks, but there is only so much we can do," said Manish Taneja, co-founder and CEO, Purplle.

Purplle was founded in 2012 and is one of India's largest digital beauty platforms. "Also, the growth we envision is another thing that is taking us offline. 25% of our revenue comes from offline. We are navigating uncharted territory, and I believe as long as you are doing the right thing, generally, you will find gold," he added.

Online having only 10 per cent penetration in overall FMCG, in order to reach a wider consumer base, these brands are forced to go offline. "For a brand to grow to a meaningful scale over the next 4-6 years, presence in offline channel becomes very critical," said Rishav Jain, managing director, Alvarez & Marsal, a global professional services firm.

Another factor playing is the competitive landscape. "As many online brands were born out of the competition in the offline space, these online-first brands could provide cost advantage due to savings in the rentals and other overheads. As the online picked up the heat, competition rose. This led to an increase in customer acquisition/retention cost and talent cost to design and maintain the tech interface," said Brijesh Damodaran, co-founder and chief investment officer, Auxano Capital.

Simultaneously, when lockdowns were announced, offline stores had to be shut. And even after things were unlocked, these stores saw lesser footfall. This dried up the revenues which ultimately led to many mom and pop outlets shutting down permanently. "While the online became more competitive & expensive the vacuum in the offline space led to cost-saving and better experience," Damodaran added.

For instance, while a lot of brands rescinded their plans of opening stores and even shut down existing ones since the pandemic started, SUGAR Cosmetics launched 60+ stores in March 2020. The brand started as a D2C startup in 2015 and ventured into offline trade in 2017. The brand grew from 2500+ retail outlets in 2020 to 35,000+ retail touchpoints in over 500+ cities as of today. Recently, it opened its 100th brand-owned store in Chennai.

"Offline for us has turned out to be one of the best decisions as 94 per cent of India still shops offline. And when scaling the entire business online, beyond a point what happens is that the dependence on Facebook or Google, or paid media campaigns become so high that your profitability is impacted. And as a brand, we have been very clear from day one, that we will never acquire a customer by losing money. Your online sales actually benefit from offline because there's a trust factor. And, the discovery for a brand is happening online, but consumption is still happening where she is used to consuming, which is offline," said Vineeta Singh, co-founder and CEO, SUGAR Cosmetics, in an earlier interview.

Another important reason is the geographic play. Tier 1 may have experienced online and has gone back to offline for the touch and feel, Tier 3 and 4 is still embracing online.

Challenges in offline world

In the offline world, these startups will be competing with traditional brands that have existed for decades. Other than finding a niche in the world of legendary brands, they may face other challenges as well.

"Capital along with capital allocation is a challenge which could be there. Resources, as in people , is another key challenge. Pricing power, at these times - known brands will have an upperhand and lastly the established distribution network," said Damodaran.

He feels that given the size of the country and population demographics, building a deeply penetrated supply chain is not easy nor capital efficient. "Brands have taken decades to build it with new-age distributors. Time to market has reduced but the challenges with respect to placement and push sales at the point of sales continue to persist. Many new-age D2C open up distribution channels with an agenda to expand presence but the same sucks up the capital without providing the desired ROI as the presence needs to be converted into the top line which is only possible with a strong effort towards push sales," he said.

The D2C brands would need to build rigorous offline capability across locations including people, processes and networks with potentially higher burn in the initial years. "While the kirana landscape is also evolving in the top tier cities, the shelf is limited, unlike the online channel. This induces the need for shelf share, velocity, flexible channel management and relentless push. However, some of the players have been able to acquire these capabilities through inorganic expansion," said Jain.

Other sectors and future of online-only brands

Edtech, especially, the Test Prep space, is witnessing an omnichannel move, by the major players, over the last two quarters. "Edtech solutions in the non-K12, typically have a personal touch and feel and now with opening up, post-pandemic, Omnichannel could be the approach," said Damodaran.

Besides that, experts also opine that healthcare delivery may have moved online with the pandemic but the repeat usage is seeing a decline while new adoption is increasing.

"Moreover, the availability of catchment level consumer data with the D2C players could potentially help them optimize their offline foray," said Jain.

Further, online-only could be a good approach, to begin with, but as the brand scales, omnichannel approach would be the way forward. To increase the scale at a high pace, beyond a certain threshold in the next few years, expansion into the offline channel will become critical.