How will Flipkart and Aditya Birla Fashion Retail deal benefit both entities?

Flipkart decision to pick up 7.8 percent stake for Rs 1,500 crore (Rs 205 per share) in Aditya Birla Fashion and Retail (ABFRL) is seen as a win-win for both parties. In fact, it has come at a very appropriate time when retailers are beefing up their online presence.

Experts are of the view that a combined market approach of these two large fashion, apparel and lifestyle entities will usher great synergies in manufacturing and supply chain, which will enable them to capture a bigger slice of growth.

Some industry experts are of the view that the deal will give ABFRL the most favoured status on Flipkart’s page.

With the deal proceeds, ABFRL plans to scale-up its play in emerging high-growth fashion categories: innerwear/ thleisure, casual wear and ethnic wear.

ABFRL will accelerate execution of its large-scale digital transformation strategy that will deepen its consumer connect and augment its backend capabilities, positioning it among the most comprehensive omni-channel fashion players in the country.

For FY20, ABFRL reported a total revenue of Rs 8,743 crore, up 8 percent year-on-year.

However, the COVID-induced lockdown has had a significant impact on the company’s results in the first quarter.

In Q1 FY21, ABFRL reported a consolidated net loss of Rs 410.36 crore. It had posted a net profit of Rs 21.56 crore in the same quarter a year ago.

ABFRL can use proceeds from Flipkart to scale up its existing businesses and enter into newer categories.

But experts told Moneycontrol that one of biggest benefit of this strategic tie is strong partnership with one of India’s top e-tailers: Flipkart.

“For any retail brand having strong online and offline presence is hugely advantageous. So, this strategy will benefit ABFR,” Lloyd Mathias, business strategist and angel investor, said.

After the deal, ABFL brands will receive most favoured status on Flipkart’s website.

As per the management, the share of e-commerce rose to 21 percent from around 6 percent pre-COVID. This was largely driven by e-commerce partners and traction on its own website.

Flipkart already has a strong presence in the fashion and lifestyle segment with its ownership of Myntra. This tie-up is likely to take it up a notch once strong brands such as Allen Solly, Pantaloons and Peter England are added into its portfolio, Mathias said.

Flipkart, he added, can leverage ABFRL's over 3,000 stores and more than 23,000 multi-brand outlets across India.

Industry experts feel that just as ABFRL will get the ‘most favoured status’ on Flipkart, the latter too may get exclusivity status for ABFRL's products.

“ABRFL will get to debut new ranges on Flipkart. So, a customer on Flipkart will get first access to Birla brands,” said Sandeep Goyal, Chief Mentor, Indian Institute of Human Brands, and Chairman, Mogae Media, a Mumbai-based marketing agency.

The online fashion market in India is pegged at $70-80 billion, with online constituting $10 billion. Hence, there is a huge scope to grow for the online fashion industry, according to Rajiv Kumar Aggarwal, CEO & co-founder, StoreHippo, an e-commerce platform.

Experts said online is definitely more lucrative as it strips off the cost of retail rentals and high cost store inventory. More significantly the recent pandemic has severely impacted physical retail stores with closure and a steep drop in footfalls.

Adding to this, designer Punit Balana said the ratio of retail versus online buying at his store was 90: 10, which in times of COVID-19 has changed to 60: 40.