Why Home Shop 18 works

I recently met Sundeep Malhotra, CEO of Home Shop 18 at an online retailers’ conference in New Delhi. Brilliant speaker and had the audience under a spell throughout his talk. Home Shop 18 has scaled from Rs.35Cr gross sales in year 1 to Rs.200Cr in year 2 and Rs.360Cr in year 3. This puts them at an average of Rs.1Cr of sales per day. Home Shop 18 created the first 24 hour shopping channel in India. In their first year, they tried to replicate the formula that worked in the American living rooms, viz. selling sauna belts, astrological gems and other whacky products that appeal to miserable couch-potatoes and gossiping housewives. Of course, there was the Indian touch of offering ek-mukhi rudraksh malas and yoga paraphernalia, but a good part of the programming consisted of white women speaking studio-translated Hindi matching note by note on the superlatives.

This weekend, I took the time to watch Home Shop 18 for an entire hour on a Saturday evening and took a sneak peak at their 6 hours of original studio programming per day. The first 30-minute segment was fake gold and stone jewelery appealing to the sensibilities of housewives organizing kitty parties positioned as Satyanarayan pooja. The next 30-minute segment was a fake iPhone appealing to the sensibilities of the small town businessmen who travel extensively, use 4 SIM cards at a time and care about the status projected by a multi-touch phone with a fluorescent fish as the background. In both cases, it was not too hard to believe that they fulfill 6,000 transactions a day across 1,000+ towns of India. Mobile phones and jewelery also seem to be a departure from the purely niche and otherwise inaccessible categories.

Similar to the US, television reaches majority Indian households and the mobile phone reaches majority spending consumers. However, the Internet reaches less than 20% of spending consumers in India, compared to over 80% in the US. At the same time, consumer spending in India has increased widely and the penetration of retail malls and distribution network is lagging behind the aspiration to spend in smaller towns. Television creates a desire to buy certain products, yet the distribution network makes those products inaccessible. Along comes Home Shop 18 and fills this gap. Although a moving target, it is a large market considering the consumer base of 350MM+ representing 110M+ households. The phone is obviously an integral part of the eco-system since it gives consumers a way to connect with the business and makes the transaction possible, while the distribution network is integral because it completes the loop where brands and retailers have failed.

Home Shop 18 has now learned that they have unlocked a market for products that fall in the delta of media reach minus distribution reach, and even genuine brands are eligible within their model, if not more so. They are aggressively extending their catalog to include originals instead of fakes. Of course, the challenge is to reach targeted consumers for high value products, instead of mass consumers for high volume products. It is unlikely that a buyer of genuine products would watch the same channel, since she has been cognitively trained to switch the channel as fast as a mother stumbling upon a porn channel in the presence of children. However, it is possible to reach targeted consumers via the large network of private channels that are looking for a revenue stream beyond pay-per-second advertising. There is no dearth of genuine brands looking for reach through the barrage of private channels, if only their ROI risk was better managed. If Home Shop 18 can successfully bridge these two made-for-each-other needs in search for a business model, rest is clockwork and a short runway to the bank.

While entrepreneurs in small towns have figured out Home Shop 18 as a an alternative distribution channel that gives them opportunity to mark up and locally sell products to those who do not watch television, it re-iterates the value Home Shop 18 is creating as a distribution channel.

India spends Rs.10,000Cr a year on television, another Rs.10,000Cr a year is spent on print, and Rs.5,000Cr a year on other media (outdoor, BTL, online, mobile, etc.). The phone is penetrated across all consumers of this media and all consumers who are spending. Are there more “new retail” companies in the making who can address the same delta of media reach minus distribution reach? I would like to believe so.