Keeping up with the horizontals

Take the competitive landscape at the time—there was Babyoye, Hushbabies, Hoopos and Mahindra Group-owned retail chain Mom n Me. But space’s unique challenges ensured all of these were casualties. Unlike horizontal platforms, like a Flipkart or an Amazon, customers in the childcare space quickly outgrow these platforms. So, while horizontal players can aggressively discount and hope to make up for this as a customer transacts on their platforms for years to come, the same cannot be said for vertical players in the baby and childcare space.

“I feel a purely digital business has very little potential in this space. We tried doing it and we were losing money on every order on a net basis. Also, the ability of horizontal platforms to keep discounting to attract customers is huge. In the race to outspend them, how do you make money,” says the founder of one of the baby care e-tailers at the time.

Consequently, Hushbabies went out of business, while Hoops merged with Babyoye. Babyoye itself was later acquired by Mahindra, with Mahindra’s baby retail vertical—including Babyoye—finally being acquired by FirstCry.

As the last platform standing from that cohort, FirstCry now has the unenviable task of squaring off against e-commerce giants Amazon and Flipkart.

FirstCry’s physical play

A source at one of the parenting companies says that Amazon’s baby and kids vertical has done decently well, growing at more than 100% year-on-year. Globally, Amazon Family is an important vertical for the e-tailer. Back in 2010, Amazon spent $545 million to acquire US-based Quidsi, the parent company of baby care e-tailer Diapers.com (It has since shut Quidsi down). With the Indian baby care market showing great potential, there is no reason why Amazon would not focus more aggressively on its baby and kids vertical in India since it allows the company to cater to a mother’s entire purchase cycle.

Flipkart did not comment on its plans for this vertical, but a senior executive at Flipkart-owned Myntra said that the company is looking at kids apparel as one of the biggest areas of growth. Incidentally, on day 1 of this year’s Flipkart Big Billion Days sale, the company reported that it’s baby care vertical saw double-digit sales growth as compared to the previous year.

Sudhir Sethi, founder, and chairman of Chiratae ventures, one of FirstCry’s early backers, however, plays down the challenge from horizontals. Sethi believes that both Amazon and Flipkart have struggled to build this category. “It’s not easy to build this segment. The depth and expertise that mothers look for while shopping can only be built by a specialized platform like FirstCry,” he says. A cursory glance makes it clear that FirstCry’s range far outstrips that of either Flipkart or Amazon.

Diaper in a day

To tackle the problem of on-time delivery of baby products, Firstcry started its own logistics venture—Xpressbees. Experts say that focus on and control of deliveries has worked well for the company

Sethi cites the example of fashion, which Amazon has struggled to crack. After failing to build the category internally, Amazon eventually turned its attention to acquiring fashion e-tailer Myntra, where Chiratae was an early investor. Eventually, both Myntra and fellow fashion platform Jabong were acquired by Flipkart.

But while online is undoubtedly a massive opportunity, a large part of the baby and childcare market is still offline. FirstCry’s founders realized this early on, convincing skeptical investors that they needed to open physical outlets. With investors worried about the time and resources this would entail, FirstCry decided on a strategy that assuaged their apprehensions —franchising. “ Its first franchisee came up in Bharuch, Gujarat in 2011. Today, 400 such stores dot the country.

A former FirstCry franchisee told The Ken that the model is absolutely asset-light, without the need for FirstCry to spend on anything. The cost of real estate, interior decor, etc. is all borne by the franchisee. FirstCry simply supplies the inventory, allowing the company to scale rapidly. These stores help the company sell its inventory faster, giving the company liquidity. This franchisee spent Rs 55 lakh to start a franchise but surrendered it a year later as it was not financially beneficial for him.

 

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