online to omnichannel

Internship Project Report

JUNE 30, 2016VAS Data services

Gurgaon

Submitted by:Anas Ahmad

Suprateek Gulia

Acknowledgement

The completion of this project could not have been possible without the participation and assistance of so many people whose names may not all be enumerated. Their contributions are sincerely appreciated and gratefully acknowledged. However, I would like to express my deep appreciation and indebtedness particularly to the following:

The faculty of IIM Lucknow, all the knowledge gained in the lectures was applied in the internship.

Our parents for their immense love and support throughout our lives.

Mr. Manish Srivastava, for his constant guidance and support throughout our internships and in writing this report as well.

Mr. Joy Patra, for his guidance and his valuable suggestions in the report.

To all relative, friends and others who in one way or another shared their support, thank you.

And above all, to the Great Almighty, the author of knowledge and wisdom, for his countless love.

We thank you.

Table of Contents

Executive Summary...................................................................................................11. About the Organization........................................................................................22. Background of the Project....................................................................................33. Methodology........................................................................................................6

1. Yepme Watches Retail Distribution...................................................................62. Yepme Franchise Model....................................................................................7

4. Achievements......................................................................................................85. References...........................................................................................................9Annexure.................................................................................................................. 10

Figure 1 Retail Sales data...........................................................................................2Figure 2 Profit Curve...................................................................................................3Figure 3 Socio-economic-classification.......................................................................4

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Executive Summary

The following report details out the study done at VAS Data Services during the internship period. The company had decided to expand its presence by going offline with its distribution and retail channels.

Watches were decided to be sold through the distribution channel considering that it was the third highest selling category online. A study on the existing supply chain of the competitors and also the various marketing schemes and promotions which they run was conducted. Various watch stores in Delhi NCR were visited and data was collected. This data was later used by the company when launching Yepme watches in the market.

In the second stage of the project, the retail end of the expansion was undergone. In order to identify prospects physical visits were planned to stores. The model was explained and leads were generated. Further the company came out with advertisements and more leads were generated. We were assigned those leads and follow up was done.

The project report explains out in details the parameters on which the distribution outlets surveyed. It also lists the insights gained from the market research. The Franchise model of the company is also detailed out further in the project.

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1. About the Organization

Yepme is an online shopping company headquartered in Gurgaon, Haryana, India. It was established in April 2011. The company specializes in the online retailing of men’s and women's garments and accessories. In August 2011, the company positioned itself as a fully-fledged private label fashion brand. In May 2016, the company celebrated the inauguration of its first offline store at Gurgaon.

Yepme.com, was launched in April 2011 by three alumni of Indian Institutes of Technology and Indian Institutes of Management: Vivek Gaur, Sandeep Sharma and Anand Jadhav. Mr. Vivek Gaur (CEO) has experience building successful online companies like Bagittoday.com and has also held senior positions in marketing and sales with HT Media Ltd, Living Media Pvt Ltd and Hindustan Unilever Ltd. Mr. Sharma, the founder/COO and CTO, is an e-commerce, technology and operations specialist having held senior positions with Accenture, Sapient, SBI Capital Markets and HCL Technologies. Mr. Jadhav (President) is a merchandising and supply chain expert and has worked with leading apparel retailers including Shoppers’ Stop, Globus, Pantaloons and Reliance Trends.

In 2016, Yepme decided to enter the into the brick and mortar retail channel. It started with a store in a mall called DT City Centre in Gurgaon. By mid-2016 it had opened 4 retail stores in Gurgaon and 1 franchise store in Hyderabad. According to an interview with ET, the CEO Vivek Gaur has a vision of opening 400 Yepme stores by the end of this year.

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2. Background of the Project

This project pertains to Yepme, an online ecommerce player entering into a brick and mortar retail format. The company decided to go offline in order to scale up its revenues. Yepme is an investor backed company, higher revenues would make the investors keener in the company. A physical presence pan India would mean greater revenues and more brand awareness. Since Yepme is not a listed company it has to rely on these investments to grow. Another reason for going offline is that this industry has high margins. These margins can be shared with the retailers and the distributors and the business would still be profitable for the company.

99%

1%

Retail Sales in Billion Dollars($818billion)

Total Retail Sales Ecommerce sales

Figure 1 Retail Sales data

The above chart represents the total retail sales in India. According to a report from eMarketer, the retails sales in India was $818 billion and the share of retail ecommerce sales was merely $8 billion. Furthermore the rate at which the ecommerce industry is growing at present (45%) which has dropped from 55% last year is expected to further drop to 27% in the year 2017. This data explains why Yepme as a retail brand decided to capture the offline share of the market.

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Furthermore the company can share the margins which it currently has with the retailers. We computed a graph which shows how the profits of the company will increase with increase in the sales.

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1000Profits of yepme

Fixed Cost Profit(online) Pofit(Omnichannel)

Figure 2 Profit Curve

The company decided to go offline with mainly two formats: Retail stores and Distribution. The company initially started with company owned stores in COCO (company owned and company operated) model. Later it decided to give out franchisee with a FOFO (franchise owned and franchise operated) model. It also started to roll out in the distribution model. Our scope of study involved the distribution model and the FOFO model.

The USP of the company is its price point. It offers fresh fashion at an unbelievably affordable prices. The brand is quite popular among the youth section of the society. The target customers of the company are mainly the Sec B and Sec C consumers. The company identified a gap between its target customer and internet penetration in that segment. Market research showed that there are significant consumers in these sections who do not have access to internet. A figure below represents the same.

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Figure 3 Socio-economic-classification

Another reason for the company to go offline was to give the customers an additional value. According a report by eMarketer, 12% of the total population has shopped online. This opportunity to target the remaining 88% of the customers through its offline stores is being grabbed by the company.

When a customer’s visits Yepme’s website he can only have a look at the product and will eventually touch and feel it ones he buys it. In the case of a store the customer can touch, feel and try the product before purchasing it. Another advantage of having a store is that the customer can have visual capture in the store. When scrolling several screens he may feel he missed out some products but in case of store that does not happen.

Our core focus in the project was to initially study the existing supply chain of watches in the industry. We gave special attention to chronograph and analog digital watches. The reason was that these watches were the highest selling watches online. We visited more than 50 stores in Delhi NCR to understand distribution structure of watches.

The next stage of the project was to study the franchise model of the company and brief this model to prospective leads which were generated from various different sources. Initially we scouted Delhi NCR for existing stores who are not doing well and are willing to convert. Later we talked with these people and explained our model before finalizing the leads. We also got a chance to visit a master franchise show organized by Franchise India. This was an opportunity for us to learn the franchisee models offered by other companies and compare it to Yepme’s.

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3. Methodology

1. Yepme Watches Retail Distribution

We began our internship with a project on the Retail Distribution of Yepme watches. Yepme is foraying into brick and mortar retail. Watches are their third largest category. The project aimed at market research and information gathering about the watch industry and our prime competitors. The reason Yepme went for distribution of watches is that it was the 3rd highest selling category online (10% approximately) and it accounted for 0.7-1% sales in retail stores. This led to the idea of selling the watches through a traditional watch store and a distribution channel in place.

The following were the parameters on which the information was sought:

ASP (Average Selling Price) Brands (competitors) Service Retail margins Online sale Schemes

Yepme is focusing on analog digital and chronograph watches in the low price range segment.

We mapped major portions of the Delhi retail market ranging from the rural regions of Najafgarh to the upmarket Karol Bagh. Lead generation was done with the help of local distributors.

The key insights we got were:

Average Selling Price (ASP): Ranged from 1000 to 1500INR for analog digital and 3000 onwards for chronograph.

The major competitors in that range are Sonata and Maxima Service is done mainly at the retail end with Titan offering their service

centers too at certain locations. Margins for retailers ranged from 15-20% Most shop owners were not selling online Company end schemes were target based with incentives and foreign trips. The promotional material was by the company like branded counters,

posters, banners and rotating containers for watches.

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2. Yepme Franchise Model

Yepme decided to expand pan India with its retail outlets. We were part of this visionary project. The franchise model which Yepme offered, was a no frills attached model. Existing franchise models of different brands were studied and it was found out that there were terms and conditions in their model which made prospective franchises hesitant in going ahead. Some of them are listed below:

1. Franchisee fee2. Renewal fee3. Inventory risk4. Logistics 5. No flexibility in deciding stock

Yepme decided to work on these issues and offered a unique model. The model is as follows.

1. No franchise fee2. No renewal fee3. The purchase stock would be on SOR (Sell of Return)4. The logistics will be taken care of by the company5. The franchise is flexible to decide which category he wants in his store6. It would also provide the customer data regarding the customer tastes and

preferences in that particular area. This would help the franchise in decided on what stock to keep.

7. It would also make sure that the prices in stores are same as online.

The franchisee needs to get his infrastructure done and that’s it. The only risk he carries is investment in his own store. Even the infrastructure could be done by his own contractors. This would further reduce the capex of the franchise. The company would provide the layout of the store and rest can be taken care of. A detailed franchise model is attached in the annexure.

Deciding this model the next step was to convey this to the prospective leads. Our job started from here. We initially went FOS in the Delhi NCR region and targeted the brands which were not doing well. We explained our model to all the prospects. In the next step the company rolled out its print ads in various cities and followed the leads generated from these sources. The major sources for lead generation were:

Advertisement

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Website Leads High Purchase customers Feet on street

4. Achievements

Performances is gauged by the results we achieve. The work done at YEPME was a factor in achieving the following:

WATCHES DISTRIBUTION

The market research we did gave us key insights into the promotional and retail end strategy of competitors in the market. The implementation of which helped the company in successfully launching YEPME watches in the retail market in NCR, Bangalore and Hyderabad.

No of watch retail stores with YEPME watches: 1500 aprox

FRANCHISE OWNED FRANCHISE OPERATED

The Achievements of the FOFO operations team are:

There were a total of 1000+ leads generated from various sources.

Out these 1000 leads 32 leads were considered to be HOT leads. This meant that these leads are in the final stages of conversion. These leads are being followed currently.

Another 9 cheques have been received and are in the process of opening the franchise.

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5. References

The following have been the sources from which information or data has been gathered.

http://dazeinfo.com/2015/01/07/retail-ecommerce-sales-in-india-growth-2014- 2018-report/ accessed on 27th June 2016, Article titled ‘Retail Ecommerce Sales In India 2014 – 2018: Disappointing 1% Of Total Retail Sales’

http://yourstory.com/2016/04/online-offline-game-indian-retail-landscape/ accessed on 27th June 2016, Article titled ‘Online or offline, which will win the game in the Indian retail landscape?’

http://www.emarketer.com/Article/India-Ecommerce-Takes-Tiny-Share-of- Retail-Sales/1011794 accessed on 27th June 2016, Article titled ‘In India, Ecommerce Takes Tiny Share of Retail Sales’

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Annexure

Franchise Model

Area of the store A 500

Investment in the interior of the store B 1800*A 900000Investment in stock C 625*A 312500

Total Investment D B+C121250

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Expected Sales Revenue E 800/sq.ft. 400000

Interest on deposit/month F 0.10*C/122604.1

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Rent G Approx. 25000

Other expenses HStaff salary+Store maintance 30000

Expenses I G+H 55000

Gross Profit J 0.30*Expected Sales 120000

Net profit K J-I+F67604.

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Payback period L17.935

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The asumptions in the model are:

Area of the store is 500sq.ft.There is no interior done in the storeAverage rent in a tier 2 city is takenOther expenses includes:staff salary, electricity bill, maintance charges

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