Supplement, Not Supplant
Venkatesha Babu August 4, 2017
Hong Kong Bazaar in the heart of old Bangalore is a warren of small shops - some as small as 50 to 100 square feet. Started in an era when electronic goods were scarce, it earlier used to mainly have goods which were not easily available like audio cassette players, VCRs and film roll cameras. Now, of course, in an age where you could sit in the comfort of your home and order anything online, the Bazaar has reinvented itself in tune with the times.
On a recent Sunday, 16-year-old Rashmi Hegde - a recent entrant to a college - was in the Bazaar, giddy with excitement as her parents had consented to purchase a cell phone for her. Hong Kong Bazaar today is mainly filled with cellphones, related accessories, drones, game consoles, digital cameras and other electronic toys.
Rashmi could not only see well recognised brands like Samsung, Sony, Apple but also some of the lesser known ones like Coolpad, Lava, Celkon, Swipe, Obi, Reach, AdCom and others. There seemed to be an endless dizzying array of brands. Inspite of the numerous brands, Rashmi did not find her choice of phone, a Huawei, which she eventually ended up ordering online.
The incident exposes a chink in the retail distribution chain. While choice as a customer was welcome, reaching each small retailer is a terribly expensive and inefficient proposition for the brands. The old model of regional distributors supplying the retailers is broken. On the flip side, for a small retailer with little negotiating power, the distributor would push those brands which gave him the highest margins.
Anish Basu Roy and Anterpreet Singh, who had worked together in Nokia when the Finnish telecom company had ruled the roost, had observed the terrible inefficiencies in the retail distribution chain. Singh was part of the sales and marketing team while Roy had worked in enterprise sales. So, they decided to come together and setup a company to address this challenge. The traditional distribution channel is not just underserved but plagued with multiple systemic problems, according to Roy, who setup Shotang along with Singh to address these issues. "Most of the processes in this massive retail distribution market, estimated at $630 billion touching 15 million retailers across sectors, are manually intensive. There is strong information asymmetry between the manufacturers and retailers leading to cost of sales & distribution being very high," says Roy.
While manufacturers grapple with poor market access and high cost of sales and distribution besides inadequate access to sales and inventory data, retailers had their own cup of owes like poor margins, complex ordering processes, payment management and little to no access to formal lending, says Singh.
So, Shotang aimed at tech transforming the order fulfillment, market access and payment processes in the traditional cellphone retail distribution channels. They put together an app which retailers could download from the playstore and then procure all their inventory on the same margins as earlier. For brands and distributors the attraction was that they could sell to thousands of retailers at maximum capital efficiency.
Since all this data was digital and easily available, retailers in turn could get access to formal credit through digital lenders. They could also make payments using digital payment applications. Since there were no collection agents who had to go from retailer to retailer, there were savings to be had.
Complement not compete
Roy, CEO of Shotang, takes pains to emphasise that his company's role is to complement and not compete or substitute. "Shotang was never meant to dispense with the distributor. We actually work with them to make the entire chain more efficient." It has helped the company aggregate 10,000 retailers and over 120 suppliers on its platform across the country's top seven cities.
The company points out that it is not a mere inventory-ordering platform. "Our data analytics provides insights to brands. Because we are an aggregator, our ability to service individual retailers is high," adds Singh.
Brands say they have benefitted by using the Shotang platform. Vipin Raina, Head-Offline Sales, Mi, says "We have made significant movements in our offline distribution plans for India, especially in 2016. We have been taking gradual steps in this direction and believe our association with Shotang will take us a step further in our plan." Umang Bhatoria, Proprietor of MPC Wholesale, a distributor to several brands in South India, points out that with the partnership with Shotang they are reaching thousands of retailers across the city. "Sales have multiplied month-on-month."
Several retailers also say they have benefitted from purchasing their inventory through Shotang, getting better prices and faster delivery. Shotang has its own fleet of delivery vehicles.
The company claims its Gross Merchandise Value for 2016/17 was `440 crore. Shotang, operational since November 2015, has multiple revenue streams, according to its founders. It charges suppliers a transaction fee on every order. It also provides retailers credit by working with digital lending platforms like Capital Float, taking a small cut.
There are other aggregators in the large retail space but Roy is sanguine about Shotang's prospects. "Our technology sets us apart. Shotang's goal is to help manufacturers and distributors with rapid market access to new retailers. Retailers benefit from higher access to more suppliers, larger product assortment, better margins and formal lending. Also the market is very large."
Shotang has cumulatively raised $5.3 million from Exfinity Ventures, Unitus Impact and Bitchemy Ventures. It has big ambitions and plans to increase its presence to 85 major cities in the country dealing in products across 30 major categories such as telecom, consumer durables, apparel, FMCG and pharma. "Our goal is to emerge as the retail distribution platform of choice across categories," says Singh.