Niche online retailers turn acquisition targets

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Titan Co. Ltd’s move to acquire a majority stake in jewellery start-up CaratLane Trading Pvt. Ltd shows that niche online retailers are becoming attractive acquisition targets for traditional stores that are struggling to adapt to the rise of online shopping.

Titan, the maker of Tanishq jewellery and Titan and Fastrack watches, on Friday said it will buy a majority stake in CaratLane. The investment comes after a string of disappointing quarterly results at Titan. The company is struggling with weak demand for jewellery, which accounts for more than 80% of its business. The deal will also mark the exit of Tiger Global Management, which has so far pumped in more than $50 million in Chennai-based CaratLane since its launch in 2008.

“The acquisition of a majority stake in online jeweller CaratLane gives Titan a strategic advantage of becoming the leader in online and offline sales,” Titan managing director Bhaskar Bhat said in an email. “The combination of the two provides the best platform for omni-channel play in jewellery. CaratLane adds to Titan’s jewellery customer base as it brings along a younger, modern and tech savvy segment. Moreover gifting of jewellery, which is also increasing, would be facilitated by the well-developed online presence of CaratLane.”

Bhat added that online sales of jewellery may account for 3-4% of Titan’s sales in five years from 0.5% now.

“Tanishq gives us the strategic back-end enabling us to scale at an affordable cost while we offer digital experience and capabilities that they currently were planning to build,” said Mithun Sancheti, co-founder and chief executive at CaratLane.

According to a report by consulting firm AT Kearny and lobby group Federation of Indian Chambers of Commerce and Industry, the domestic gems and jewellery market in India was pegged at Rs.2.51 trillion in 2013, poised to cross theRs.5 trillion mark by 2018.

Apart from CaratLane, there are a few other well-funded start-ups including BlueStone and Voylla.com. BlueStone, which counts Tata group chairman emeritus Ratan Tata as an investor, has so far raised at least $31 million from Accel Partners, Kalaari Capital and Saama Capital, among others. Voylla has raised $15 million from Peepul Capital. Bigger online retailers such as Flipkart-Myntra and Amazon India are also rapidly expanding their jewellery businesses.

“More than competition, Titan’s investment in CaratLane is an endorsement of online jewellery as a category. I believe the market is too big for anyone to eat into each other’s share. Though online jewellery is still mostly around new and sleek designs, I believe a lot of purchase of gold and diamond jewellery will happen online as the market matures,” said Arvind Singhal, chief operating officer at BlueStone.

Titan’s buyout of CaratLane is the latest acquisition of a niche online store by an offline rival. In April, Kishore Biyani-led Future Group said it will buy online furniture store FabFurnish from Germany’s Rocket Internet and Kinnevik. Godrej Nature’s Basket acquired ekstop.com, run by Buy Daily Retail Pvt. Ltd, in February last year for an estimated Rs.30-40 crore. The same month Mahindra Retail bought online baby products store BabyOye, owned by Nest Childcare Services Pvt. Ltd and backed by Tiger Global Management, Helion Venture Partners and Accel Partners.

Other large online stores focused on single product categories include lingerie retailers Zivame and PrettySecrets, furniture retailers Pepperfry and Urban Ladder, and eyewear retailer Lenskart.

Despite setting up teams and talking up the potential of so-called omni-channel retail, offline stores are struggling to adapt to e-commerce.

“If they could do it (strengthening online presence without acquiring), they would have done it by now,” said Pinakiranjan Mishra, national leader for retail and consumer products at consulting firm EY.

“One reason to acquire online assets will be to get the people and the team, as it will be difficult for offline businesses to do online with the existing set of people. (But) probably the biggest driver is the price. If you look at the valuations of online businesses, a lot of money has been poured into them and many are not doing well. Offline retailers are hence being able to pick up these companies at very good valuations,” he added.