Author : Ricky Gupta,MBA Capital Markets,NMIMS
Harshita Mathur,MBA
The recent expansion of E-commerce in almost each and every
nook and corner of the product and service space is just an example of the bullishness
of the businessmen who see E-commerce as the future. With the overall
E-commerce industry valued in billions of dollars today, more and more
customers are buying online. Unlike the trend 2-3 years ago when an Indian
consumer won’t buy anything more than a travel ticket or a mobile top up from
online stores today the same customer is buying a wide range of products like
apparels, home and living products, fitness products, consumer durables, etc.
There has been a huge increase in the number of online fashion stores in just a
few years and today stores like fashionandyou, yebhi, snapdeal, myntra,
flipkart, etc. boast of being the market leaders in the E-commerce industry.
But, is this tremendous growth in the number of online
retailers sustainable. Sustainable in the sense is there enough demand from the
consumers such that each of these stores is able to get their share of the
bread? Of course not. But then what is driving the Indian E-commerce industry
and till when will this driving force have the momentum to sustain this
industry. This hard question can be answered by having a look at the E-Commerce
market and analyzing if there actually has been a bubble in the forming or not.
About the industry
Opening an online store today is not a hell of a job. It’s
cheap and easy. Why? Thanks to the increased role of VC funding in the
E-commerce markets. The VCs have been particularly very bullish in this sector
and have infused money liberally. Every person who wants to open an online
store need not worry about the money; it is present in the market at free
hands.
A thirst to add more and more customers to their portfolio
has exposed somewhat ugly side of the E-commerce industry. Retailers today are
fighting for customers and selling products at very low prices so much so that
it doesn’t even cover their costs. And what is the result of this. The precious
investor money is going down the drain. It is estimated that some of the
leading online retailers (names not mentioned here to maintain anonymity) are losing
around 5-6 crores of rupees every month due to aggressive price wars and this
has certainly started taking its toll on the weak players. One example is of
“taggle.com” which recently shut its operations in the country owing to
aggressive price wars which were not sustainable for the company.
Delivery costs in India are huge due to poor supply chain
management and infrastructural problems. Added to this is the unique cash on
delivery and free shipping that is provided by most of the retailers. Cash on
delivery orders are not always executed due to increased risk of customers not
accepting the delivery once the order reaches them and this means lost sales
and waste of money.
The motive of low pricing by the online retailers is
something which has worked in the west. There, main aim is to generate initial
demand by giving discounts and in the long run stabilize the prices to match
the normal market and start earning profits. But taking the case of a typical
Indian consumer his behavior pattern is very different from that of the
consumer in west. For example, if you buy an apparel from an online store at
50% discount, will you buy the same type of apparel next time online at no discount?
The answer is a big no and this is the Indian customer mindset we are talking
about. The trade strategies being adopted by the online retailers are not
sustainable in the Indian scene.
All of the above factors are an indicator that things are
not really fine in the online space. The business practices which are being
followed are not really sustainable due to excess supply, wrong pricing
mechanism, inefficient payment systems and lastly the mindset of Indian
customer. A bubble is definitely going to burst in case the present policies of
the Indian online retailers are not checked.
The way to go
There is no doubt in the fact that the power of E-commerce
is immense and if used in a subtle way it can be a huge market, thus the need
of the hour is some consolidation in the market. It can also be termed as the
survival of the fittest in the market. Weak players need to realize that now
it’s high time and time has come to give market some space to breathe.
E-commerce has no doubt served customers well and Indian customer is happy with
it but with so many choices available it is becoming difficult for the
retailers to survive in the market.
Consolidation – A Lifeline
The steps towards this consolidation have started sprouting
in the market. The recent acquisition of “letsbuy.com”, India’s 2nd largest
online retailer by “flipkart.com”, the biggest online retailer in India at a
whooping price of around $ 25 million is a signal by the India’s biggest online
giant that the market needs to consolidate to fight and tackle competition. The
volumes in the market are not low but increased distribution between a large
numbers of retailers is making the share of each retailer low. Flipkart for
example sells 20 products every minute and with the acquisition this number
will rise further. The interest of Amazon in the Indian E-commerce industry is
also an indicator of the bullishness of world’s largest online retailer for the
industry in India.
Another step taken by the retailers is that they are now
trying to diversify. A classic example of snapdeal can be sited here. The site
which started off by providing deals on restaurant, gym, hotel, travel, etc.
deals at low prices is more than just a deal seller now. It has integrated
other services and is now a multi-commodity online store offering apparels,
jewellery, lifestyle products, etc. This is a step towards greater expansion
and new revenue sources. Flipkart’s prior acquisitions of chakpak, mime360 are
also examples of the hunger for diversification of the online retailers.
Conclusion
E-commerce
has definitely a long way to go in India, it’s up to the retailers when they
would be able to catch the real pulse of the market. Big retailers have started to realize what is
needed at the moment to beat the bubble but hundreds of startups and small retailers
are still shooting in the dark just in hope to hit the target.
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