Author — Lokesh Dahiya (LinkedIn)
The DNVB (Digitally Native Vertical Brands) & D2C brands like Mamaearth, Ustraa, Sleepycat, The Man Company do everything on the internet — communicate with customers, execute transactions, and handle distribution. The Indian online retail market has had a dream run in recent years when it comes to transaction value. The e-commerce market in India is expected to grow to USD 200 billion by 2026 from USD 38.5 billion in 2017. The growth has been on the back of an explosion in smartphone adoption and internet penetration (link). The COVID-19 lockdown also helped transform consumer buying pattern, with the majority of consumers shifting to online platforms, even for their essentials and daily needs.
Despite the many benefits of online retail, brands must take advantage of physical stores for growth. While online retail offers scale, wider customer base, customer insights, and reduced overheads, physical retail still rules the sales. Physical retail space offers customers to see and feel products in person, opportunity to pick and return items, and a personalized and private experience. The brands would also benefit from having a brick-and-mortar outlet. They can use physical stores to tell immersive brand stories and expand into geographies. However, going out and building physical retail presence can be risky and expensive. Online only brands do not have the expertise to do so.
These brands can hire companies that offer retail-as-a-service (RaaS) and completely offload location scouting, store design & build, staffing, operations, last mile delivery, and customer support among all other things necessary to run a brick-and-mortar store. RaaS reduces physical retail operations into a single line item on the brand’s P&L and allows them to focus on brand building and supply chain to scale faster. RaaS platform also provides customer insights to improve customer engagement and drive-up online traffic in that geography. The brand controls the aesthetics and experience of the store to tell its unique story.
There are quite a few players that have emerged in this space, mostly in the US. B8ta stores serve as presentation centers for consumer electronics and home goods. It helps discover, try & learn about new tech and innovative products. Leap Inc. makes it easier for digital brands to grow physical retail footprint. Neighborhood Goods fosters connections within local community with brands on rotation, so guests have something new to discover in each shopping trip. Anchor Shops by ShopFulfill is a vertically integrated retail storefront and distribution network that helps digitally native brands thrive offline.
Though likely heavy in upfront capital costs, RaaS businesses do not have the constant concern around supply chain, manufacturing, consumer acquisition and marketing spend. And in certain pricing models based on a monthly fee or percent of square footage basis, platforms can see more stable revenues relative to pure retail startups. By opting to sell their software and brick-and-mortar services rather than creating their own brands, these companies effectively act as a “retail-as-a-service” platform.