‘Conversational chats, geo fencing, and marketing automation are essential strides to drive conversion’
After failing her foundation art course at Sophiya’s, she decided to pursue two part time courses – one in textile and another in interior decoration, while balancing a salesgirl post on the side. The failure, instead of deterring her from her chosen path, ignited a spark within her and a determination to be successful. The job gave her clarity on her business vision, as well as customer insights.
She picked up the tools of the trade fast, and in 1985, started her own accessory brand, Baggit. Today, with 48 exclusive stores and retail through over 1,000 large format stores, multi-brand outlets and online retailers, Baggit is one of the fastest growing handbag brands in the country.
FY 21 has been a very challenging year with the onset of Covid Pandemic, the likes of which we have never witnessed in our life. What is unique about this pandemic is that unlike previous calamities, it affected everybody throughout the world at the same time in ferocity which is unequal from the past. There was a total lockdown between March to May and that affected the production, the sales, including online sales. So we had a couple of months where the revenue was at zero and the operating expenditures, in spite of some reduction in rent and salary expenses was straight away getting into the bottom line as losses. We had to quickly respond with measures to conserve cash to control variable operating expenditures and cope up with the reality of the revenue being zero under certain circumstances. One positive outcome was that, after things opened up by late May, the online sales started growing at a faster rate compared to the previous year, because of people were reluctant to visit offline retail channels such as malls & high street stores.The second shift we saw was, value for money products which are competitively priced had greater momentum compared to luxury products or premium products. The third thing we noticed was, that imports were restricted and given the fact that most of the competition was relying on Chinese goods, companies like Baggit were in an advantageous position, because 100% of what we design and produce is manufactured locally. Given the patriotism of Indians consequent to the border, squirmished with China. I think it was the tail wind which helped local manufacturing ably supported by the government incentives and the ‘Made In India’ campaign.
FY 21 started with zero sale in the month of April and with the lockdown easing from mid-May for the online market, the sales started picking up maybe at 10-20% in the month of May and finally by the time we entered the Jan- March quarter it had already reached 85 -90 % of the previous year levels. Overall, for the year FY 21, the sales across all channels was about 60% compared to the previous year FY 20, with online growing about 45 -50% and offline dropping more than 50% compared to the previous year.
Women’s handbags is an under penetrated category. Even with decrease in disbursable income, there was certain minimum level of buying. But the average selling price dropped driven by aggressive discounting by everyone because most of the brand owners wanted to convert their stock into cash. They knew pain could be introduced plus the consumer’s unwillingness to buy at full price. They were looking value for money and greater value either through reduction in price or through greater discounts. So while the sales didn't drop more than 40%, most of the brands ended up in negative, in terms of the bottom line because the operating expenditures, including the cost of goods manufactured could not be met through the revenue.
While comfort is important, safety is the need of the hour. One of the things that we observed was the fact that, consumers wanted their handbags to accommodate new items such as sanitizers, wet wipes, water bottles, masks in a way that they’re easily accessible. We had to create separate compartments for the new items while maintaining the balance between style & functionality. And while this added to the cost of manufacture, we had to also ensure that the products were priced competitively to induce significant trial and consumption.
In FY- 20, online sales contributed to about 17 to 18% of overall sales value which increased to over 40% in FY 21 because of the fact that online was open for business longer than the offline channels and also because there was a significant shift from offline to online since people were skeptical about visiting the Malls or the high street. They would rather shop from the comfort of their drawing room.
While online mediums provide fantastic reach and taps into consumers sitting in all nooks and corners of the country, the visibility of the products definitely gets affected because of the proliferation of undifferentiated ‘me too’ products. In every category, you’ll see thousands of products vying for your attention and confusing the end consumer. So the consumer is driven either by the best discounts or by the visibility of the products on the first 2-3 pages, which is majorly governed by advertising.
This exorbitant cost of visibility in terms of advertising expenditure and the discounting game affects the cost of delivering value for money products at justified prices.
While the offline retail is largely predictable based upon what each outlet had done in the previous year in the same season, online retail is growing rapidly and is far more dynamic. Also the competition is fierce and there is also a lot of clutter as the number of vendors getting on to the online bandwagon is high since there is no entry barrier. All of this makes the demand forecasting very difficult. You cannot simply project what happened in the previous month or previous year and adjust for whatever is the growth rate that we have seen. So many new products get added to the online world with different value propositions and there’s constant shift in the consumer preferences making it super dynamic and difficult to forecast. But whichever brand has been able to make sense out of demand forecasting, they have been able to make use of the opportunity to a large extent.
Other than offering basic reassurance in terms of safety for eg. Physical retail can really publicize the precautions and the SOP they are following to ensure their customer and employees are safe, including proclaiming the fact that all their sales people are vaccinated and they safe to interact with.But that is not going to be enough. The only area where offline retail scores over online retail is the fact that in many categories, like touch and feel category is where the consumers would really like to try on her or himself. Physical retail offers an edge.
In addition, If physical retail were to support with sales people, who are experts in the product and category, who can advise the customers to navigate through myriad of choices within the brand and across the brands that is something which is difficult to replicate in online .
Even though the online presentation can be as detailed and as granular as one would like it to be, but nothing can really replace a face to face interaction with human being, which is possible only offline.
I think the government is doing the right thing in terms of making investment in infrastructure projects which will provide employment and which in turn will put money in the hands of the consumers so that they can spend more. We believe that personal tax cuts are not the right approach to stimulate demand. In categories where GST is very high and which are not in the luxury space, there is scope for reducing the GST. Given the constraints that the government has in terms of resource mobilization, I think it is doing a great job.
I think the government has provided collateral free loans for MSMEs up to certain limits and that has really saved a lot of them from going bankrupt.
The government is anyway investing in the infrastructure, which will have a trickledown effect on improving the money circulation, employment generation and increase in disbursable income.
There is also some support for exports but not much. In terms of domestic business, I presume that every industry will have different requirements, but if the government can focus on what is common across all industries, which is basically access to competitive funding, where the domestic business does not suffer while competing with the international one. I think that would be a great start.
Growing sales online has multiple opportunities as online consumer engagement is one to one, interactive, measurable and allows for experimentation and learning. At one end, we are reaffirming our brand values through a new consumer participative conversation strategy. Baggit has some core brand benefits with a valuable consumer base if believers and we are now reaffirming those values and starting consumer conversations around them.
Customer service is a special area of focus and we are building a new UI / UX on our website Baggit.com with built-in personalized experiences, one to one customer service and unique views of the Baggit shopping experience.
Authentic micro influencers who truly believe in the brand is a powerful tool for us in building engagement.
As we move to the bottom of the conversion funnel we today are going to be an Omni channel partner with the largest e-commerce platforms. Conversational chats for closing transactions, geo fencing, and marketing automation are already part of the essential steps to drive conversion.
The company is utilizing digital transformation in all key areas of operations. Starting from the way design process is curated to make sure that we are updated continuously on whatever stock covers that we are keeping across various product categories and across various consumer segments. We are integrating our ERP system with all other sources of information and using a layer of business intelligence on top of the ERP to get critical support in terms of creating efficiency with respect to crunching the supply chain and making sure the inventory turns are better. We are making sure that our resource utilization becomes better as well.
The first three months of FY22, which is April to June has been lackluster because of not having access to markets due to the state wise lockdowns.
Having said that, we see improvement in the month of June with online probably topping the best ever in our history and going forward from July to March, we expect some normalcy to come even in offline retail. We really think that offline retail probably will find difficult to hit 100% of normalcy even by March 22. We hope the offline loss is offset by the increase in Online.
Online plus offline put together, FY 22 is going to be the best for our company. Leaving aside FY 21, which was basically the Covid Year.