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Teji Mandi Explains: Will DMart’s real estate retail therapy beat the e-commerce race?

04:34 PM Nov 26, 2021 | Teji Mandi

The evolution of shopping from physical stores to online apps took a few decades. Although online shopping is a trend right now, it still can’t fully replace physical stores. Maybe that’s the reason why DMart is still hooked on owning physical stores, but that can’t be all. Reliance and Tatas are swiftly moving to e-commerce platforms. DMart’s continued interest in real estate sparks curiosity in this age of online shopping. What’s the reason? Let’s read up!

What’s Happening?

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Recently, DMart bought a 67,404 sq ft retail space in Bengaluru. This is not surprising! The hypermarket chain has always been the biggest fan of physical stores. It owns all its stores which are its assets. It has about 250 stores across the country and is still on a buying spree because it is thinking bigger!

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DMart already has an e-commerce platform, but it hardly contributes 2-3% to the parent company’s revenues. That’s why it’s focused on its business that’s churning all the revenues - physical stores. However, there’s a peg here. Not many know that DMart’s CEO Neville Noronha is a big fan of furniture giant Ikea. Chances are that DMart is thinking of remodelling its business like Ikea. Similar to the furniture giant, DMart can turn some of its stores into fulfilment centres in the future for its e-commerce platform.

Where Does The Profit Lie?

According to an Axis Securities report, rising e-commerce adoption poses a threat to DMart. Indeed, the global pandemic did heavily impact the supermarket chain supply last year. However, the situation eased out gradually. Noronha said that the inventory is moving towards normal levels. This indicates customers' brand loyalty and high dependence on physical store sales.

But how long will this continue? E-commerce is the future, and nobody can deny it. During the lockdown, e-commerce startups like Big Basket gained a substantial market share. Acquired by the Tata Group, Big Basket saw gross sales of Rs 8,000 crore in FY21. Meanwhile, Reliance’s grocery segment saw a double-digit growth quarter in FY21. RIL’s JioMart Kirana partnership also grew three times over the last quarter. This shows the promising future of the e-commerce business.

Why Should It Bother You?

DMart is one of the trusted businesses in the market. Over the years, it has only performed exceptionally, so if anything goes haywire, investors and the stakeholders would become dicey about the market. And that nobody wants.

What DMart is doing now is taking advantage of the depressing realty market. DMart is scouting for great deals on large properties. The grocery business is doing good, but it still needs a high margin. And that's why the company is buying out large retail space to also beef up its apparel and merchandise segments. Looking at the company's plans, it seems that it knows what it's doing. DMart's business model is simple and solid, which is why it garners massive investors' confidence.

What Lies Ahead?

Like its competitors, DMart will have to pull up its sleeves at the e-commerce platform sooner. The company has soft-launched its online grocery service where customers can order from the DMart app or website and then self pick up from the nearby store. This service is available in seven cities currently and will expand gradually. So far, DMart is doing what it does best. The e-commerce space will get more interesting once DMart makes a stronger entry.

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