Ajio Set to Become Rel Retail’s First Profitable Online Venture

Reliance Retail’s online fashion platform Ajio poised to post maiden profits in December 2022 on premiumisation and lower costs.

Analysis for a Layman

Ajio, an e-commerce fashion platform owned by Reliance Retail, is set to achieve profitability in December 2022, marking a significant milestone. Ajio, which offers its own private labels as well as international fashion brands online in India, is expected to report earnings before interest, tax, and other expenses (EBITDA) of ₹6-8 crore this month.

Ajio Set to Become Rel Retail’s First Profitable Online Venture

Impact on Retail Investors

For retail investors, Ajio’s journey to profitability is positive news for Reliance Industries Limited (RIL), the parent company of Reliance Retail. This achievement follows Reliance Retail’s strong 22% year-on-year growth in the last quarter. As Mukesh Ambani, the chairman of RIL, aims for Reliance Retail to surpass the contribution of its oil and gas segment, Ajio’s robust performance further solidifies RIL’s position as a retail powerhouse.

Ajio’s profitability validates RIL’s strategy to build the largest omni-channel retail entity in India. Retail investors can anticipate continued growth for RIL, considering its diversified holdings across digital, retail, and green energy sectors.

Impact on Industries

Ajio’s imminent profitability signifies that homegrown e-commerce players can compete effectively with foreign giants like Amazon and Flipkart. The Indian online fashion segment, driven by the youth, is likely to witness increased competition as financially backed players seek to gain market share in this large and growing segment.

Reliance’s approach of leveraging its existing offline fashion retail ecosystem for Ajio’s warehousing, logistics, and last-mile delivery serves as a blueprint for omni-channel retail. More retailers may adopt hybrid online-offline models to stay competitive. Reliance Retail’s size, financial strength, and control of India’s largest telecom network, Jio, finally yield fruitful synergies in the online space. Additionally, with Deepika Padukone as a brand ambassador, Ajio is challenging conventional norms regarding celebrity endorsements in the fashion e-commerce sector.

Long Term Benefits & Negatives

Achieving profitability positions Ajio favorably to benefit from the long-term trend of increasing retail consumption driven by rising incomes and mobile internet growth. Ajio can further accelerate its growth by focusing on private labels, curated international brands, and personalized shopping experiences through videos and augmented reality. Over time, Ajio can leverage the Jio digital ecosystem more effectively for live commerce.

However, the competitive landscape may remain intense, particularly in categories where Amazon and Flipkart hold leadership positions, such as electronics. The pressure to offer ultra-fast delivery and discounts may impact margins. Reliance will need to make substantial investments to stay on the cutting edge of technological innovation. Nevertheless, Ajio’s profitability milestone represents a crucial step toward Reliance Retail’s ambition to become one of the world’s top retailers. Achieving market leadership will depend on a balance between delivering exceptional customer experiences and generating shareholder returns.

Short Term Benefits & Negatives

Ajio’s profitability in December provides a boost as it enters 2023, potentially putting pressure on other niche fashion e-tailers like Myntra. However, Ajio must remain vigilant to prevent any slowdown in its growth trajectory. Its premium positioning may limit its addressable market, and competitive pressures may intensify once funding becomes more available.

For investors in Reliance Industries, Ajio’s path to profitability marks a standout year for Reliance Retail, which achieved revenues exceeding ₹2 lakh crore amid macroeconomic uncertainty. The focus will now shift to Jio’s potential profitability. In the short term, the clarity that capital-intensive retail operations can be financially viable provides confidence to investors. While Ajio’s current contribution may appear modest, its journey to profitability holds strategic significance, positioning Reliance as the only Indian conglomerate capable of building global titans in both technology and retail.

Companies Impacted by Ajio’s Potential Profitability:

Indian Companies that Gain:

  • Reliance Retail (RELIANCE): The direct beneficiary, Reliance Retail, might see positive market sentiment from Ajio’s profitability milestone. This first profitable online venture within the group strengthens Reliance’s overall e-commerce strategy and showcases their ability to achieve sustainability in the space. Increased investor confidence could lead to a rise in RELIANCE stock price.
  • Other Fashion E-commerce Platforms: Ajio’s success might encourage other Indian fashion e-commerce platforms like Myntra (owned by Flipkart) and Nykaa to focus on profitability and operational efficiency. This could lead to improved financial performance and potentially benefit the entire sector.
  • Logistics and Warehousing Companies: As Ajio reduces reliance on traditional logistics by fulfilling orders from physical stores, nearby warehouses might see increased demand for storage and fulfilment services. Companies like Delhivery, Ecom Express, and Shadowfax could benefit from this trend.

Indian Companies that Lose (Limited Impact):

  • Pure-play Online Fashion Retailers: While Ajio’s profitability highlights the potential of the Indian fashion e-commerce market, pure-play online retailers who struggle with profitability might face increased pressure to improve their financial performance.

Global Companies that Gain:

  • Global Fashion Brands: Ajio’s premiumisation strategy and success with international brands might incentivize more global fashion brands to partner with Indian e-commerce platforms, potentially benefiting companies like Nike, Adidas, and H&M.
  • Technology Providers for E-commerce: Companies offering e-commerce platform solutions, logistics management software, and data analytics tools might see increased demand from Indian retailers seeking to replicate Ajio’s success. This could benefit companies like Shopify, Salesforce Commerce Cloud, and Blue Yonder.

Global Companies that Lose (Limited Impact):

  • Global E-commerce Giants: While Ajio’s growth is significant, it hasn’t reached the scale of global giants like Amazon. The news is unlikely to directly impact their market positions.

Market Sentiment:

Overall, Ajio’s potential profitability is likely to have a positive impact on market sentiment towards Reliance Retail and the Indian e-commerce sector in general. Other companies involved in fashion e-commerce, logistics, and technology solutions might also benefit indirectly. The impact on global companies is expected to be minimal.

Remember, this is an analysis based on the provided information and current market conditions. Future developments could impact the outcomes mentioned above.

Source: ET Bureau (2023, December 22). Ajio Set to Become Rel Retail’s First Profitable Online Venture.

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