MUMBAI (Reuters) - India's biggest conglomerate Tata Group launched an e-commerce venture on Friday, as it seeks to cash in on rising purchasing power in a market dominated by deep-pocketed international retailers and startups backed by global tech investors.
The group said it developed its Tata Cliq website over a year-and-a-half at a cost of "several hundred million dollars" to be a marketplace for in-house and partner companies to sell apparel and electronics.
The move is in line with a second phase in Indian e-commerce development, with the some of the country's oldest and largest corporations entering an industry established in the last five years by startups Snapdeal and Flipkart Online Services Pvt Ltd [IPO-FLPK.N].
The market also welcomed global e-commerce firm Amazon.com Inc in 2013, which has invested over $2 billion for growth.
Local conglomerates only lately entered the fray. Reliance Industries Ltd started an online apparel shop last month, while Aditya Birla Group and Mahindra and Mahindra Ltd recently launched online retail platforms.
For big business houses, e-commerce is an opportunity to capitalize on middle class growth and rapid internet adoption. By 2025, online merchandise sales will hit $220 billion in India from $11 billion last year, Bank of America Merrill Lynch estimated.
But the market has fostered cut-price competition, with the top three players incurring millions of dollars in losses due to heavy discounts.
Tata said its focus was profit margins and unit economics, and not just growing sales via discounts.
"We don't want to get into the discount wars, we want to serve customers with great products and build a sustainable business," said Chief Executive Ashutosh Pandey of Tata Unistore, parent of the operator of Tata Cliq.
To keep costs in check, Pandey said Tata would use its money establishing a large number of warehouses like other e-commerce players have done, and would instead build inventory networks around existing store locations owned by group partners.
The group, whose businesses include steel production, tea packaging, information technology services and automobiles, has bet on new businesses in recent years with mixed success.
Its retail businesses including sellers of gold ornaments, sunglasses, apparel and electronics have successfully expanded, but its mobile phone venture Tata Docomo is a marginal player.
(Reporting by Himank Sharma; Editing by Christopher Cushing)