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Abu Dhabi, UAETuesday 11 December 2018

Amazon unit's India stake purchase to boost Shoppers Stop sales

Alliance will help Shoppers Stop tap part of the 400 million monthly visitors to Amazon’s online stores

As part of the deal US firm will open Amazon fulfillment centres in Shoppers Stop outlets. Edgard Garrido/Reuters
As part of the deal US firm will open Amazon fulfillment centres in Shoppers Stop outlets. Edgard Garrido/Reuters

Amazon.com’s investment in retailer Shoppers Stop will help the Indian company boost revenue and add 25 per cent more stores, while the US firm expands its reach into smaller towns in the world’s second-most populated nation.

Shoppers Stop shares surged after saying it will raise US$28 million selling a 5 per cent stake to Amazon.Com NV Investment Holdings, the Mumbai-based company said late Saturday. As part of the deal, Amazon experience centres - which let customers test out the products available online - will be set up across Shoppers Stop’s network of 80 bricks-and-mortar stores in India. The company will add 20 stores in the next four years, said Govind Shrikhande, the managing director of Shoppers Stop.

The alliance will help Shoppers Stop tap part of the 400 million monthly visitors to Amazon’s online stores, Mr Shrikhande said. The Amazon chief executive Jeff Bezos has allocated $5 billion toward Amazon’s expansion in India as it seeks to secure an advantage over local rivals in the South Asian nation. The e-commerce juggernaut has a lot riding in the country after its washout in China, where the dominance of Alibaba and other domestic players made Amazon’s entry difficult.

“The partnership with Amazon will really accelerate our revenue from online sales and we expect it to double every year for the next three years,” Mr Shrikhande, said on Sunday. “Amazon will give us space in its fashion segment online where its users will have access to about 400 brands from our catalogue.”

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Shoppers Stop, which has stores in smaller cities including Durgapur, Aurangabad and Kolhapur, is targeting 10 per cent of revenue from online sales by 2020 from 1.2 per cent, Mr Shrikhande said. The company’s board approved the issuance of 4.4 million shares to a unit of Amazon for $6.28 apiece.

Shares of Shoppers Stop surged as much as 20 per cent, headed for their biggest gain in eight years as of 9:33am in Mumbai. They have climbed 65 per cent this year, compared with the 19 pe rcent jump in the benchmark S&P BSE Sensex.

Both the companies will gain from the deal, said Harminder Sahni, the founder and managing director of consulting firm Wazir Advisors.

“Only 5 per cent of sales are happening via online in the case of clothing, and Amazon can’t ignore the remaining 95 per cent in India as people still want to touch and feel clothes,” said Sahni. “For Shoppers Stop, this deal gives access to technology and new channel of distribution.”

Shoppers Stop, which sells cosmetics to clothing and home appliances at its outlets, will have an exclusive flagship store on Amazon’s Indian site where it will retail its entire portfolio, the company said.

The deal will be Amazon’s first investment in a publicly traded retailer in India. Shoppers Stop will issue 5 per cent of post-issue share capital to the Amazon unit.

“The investment is strategic and one really can’t read too much about whether the Amazon unit will raise its stake in the future,” said Mr Shrikhande.