E-commerce’s fight against brick-and-mortar format is public enough. Especially with the rise in count of web-shoppers in India, dotcom outlets are fast becoming common nouns. But there is much left to overcome before they start making money By Bachan Thakur
The last two decades have seen a transformation in the Indian retail landscape. From mom-and-pop stores to supermarkets and malls to online buying; the change has been radical.
A busy lifestyle and the convenience that online space provides, is leading Indians to shop with their fingers. But, online shopping is still in its infancy in India. There are barriers that prevent it from becoming popular faster than it actually is. Questions regarding credibility of merchants, doubts over quality of goods, security regarding online payment gateways, and mostly the culture-based attitude of our cash-oriented society are only a few. But all this has not deterred a host of e-commerce players in India, like Flipkart, Jabong, Myntra, Indiatimes, Snapdeal, Homeshop18, Yebhi and others, from wooing the Indian customer with world-class services and products.
No surprise then that these players are investing heavily on product differentiation, technology, customer service and advertising. That these players want themselves to get heard and seen is good news.
In recent months, players like Jabong, Groupon, Snapdeal, Myntra and eBay have particularly become loud about who they are and what they have to offer. A recent market report by eMarketer shows that online advertisement spending in India has grown from $0.25 billion in 2010 to $0.48 billion in 2012. Online portals are thus working hard to build brand recall. Be it online marketing through social media sites like Facebook and Twitter or improving visibility on offline vehicles like TV, Print and Radio, these e-tailers are investing big bucks in promoting themselves.
So the fight is on – differentiate, impress buyers and get cash flow positive. But that is where the problem lies. E-tailers in India haven’t still learnt the trick of making money from this much-hyped virtual shop business. A 2012 Technopak Report confirms this. The frenzy to attain a critical mass of consumers through whom they can start to make money is leading to consumer acquisition through heavy discounting (even lower than costs) and mass media advertising, resulting in very high customer acquisition costs (about Rs.1,000 to Rs.1,400 per customer as per various industry executives). Thus, to differentiate and gain consumer loyalty, e-tailers are fighting it out on the pricing front.
As such, the e-commerce business in India is increasingly become a game where the last man standing may turn out to be the biggest loser! Little wonder that this space has already witnessed consolidations. According to data compiled by Microsoft’s India Accelerator Programme, of the 379 technology product start-ups launched until October 2012, 193 were e-commerce firms, and 87 of these – including Shopveg.in, Taggle.com and Letsbuy.com – have ceased to exist. Letsbuy.com was bought by Flipkart in February 2012, while Myntra acquired Exclusively.in. Online retailers like Lensstreet.com and Dealivore.com also saw closures in 2012.
In due course of time, strategic shifts will take place in the e-commerce space, and more smaller and non-serious players will get wiped out, leaving behind clear leaders. As per Rajesh Nahar, CEO and Founder, Cbazaar.com, “E-commerce businesses in India should have a very smart balance in planning organic and inorganic growth of customer acquisition and revenue. The moment a company tries to accelerate inorganic growth by acquiring customers at a high cost and offering products at discounted rates, it will get very hard for it to get into the profitable zone.”
The Indian e-tailing story has also appeared very promising to investors. These investments have enabled players to grow and scale up quickly. Investment in the online retail space exceeded $500 million in 2011. But failure rates of e-tailers is disheartening.
To stay alive in the business, e-tailers have already started tweaking their business models. One example is Flipkart. It started in 2007 as an online books retailer, but has today extended its portfolio to media (games, music and movies), mobile phones (and accessories), personal care products, home appliances, watches, belts, bags, luggage and toys. Unlike two years back when all you would have heard of in the name of Snapdeal was discount coupons for various services, today, 95% of its offering basket is filled with products!
Limited availability of brands in Tier-I and II locations is driving consumers to shop online. And e-tailers are paying attention. One of them is Jabong. The company has put in place 55,000 special packaging units (as on January 2013) to ensure the shortest possible time of delivery. At present, the company offers same-day delivery only across metros. In 2013, tier II cities would enjoy the facility. And by 2015, expect the company to replicate the same across tier III towns. Says Manu Jain, MD, Jabong.com, “In 2013, we will ensure that we follow the same day delivery concept in tier II cities as well.”
E-tailers are experimenting with new methods to engage end-consumers. Trends like cash-on-delivery (COD), replacement of goods if found unsuitable, delivery-post-trial et al are on a rise. States Sharat Dhall, President, Yatra.com, “We have invested aggressively in consumer-friendly processes...” This fight against brick-and-mortar has become loud already. But the traditional retail format is not going anywhere soon. Think of the challenges that online companies face. India has over 6500 e-commerce companies and most of them are struggling with problems relating to payment options, logistics, infrastructure and consumer service. An e-tailer can tempt a consumer once, but if the erosion of trust starts from the very delivery stage, that brand can expect little in the name of word-of-mouth marketing.
The last two decades have seen a transformation in the Indian retail landscape. From mom-and-pop stores to supermarkets and malls to online buying; the change has been radical.
A busy lifestyle and the convenience that online space provides, is leading Indians to shop with their fingers. But, online shopping is still in its infancy in India. There are barriers that prevent it from becoming popular faster than it actually is. Questions regarding credibility of merchants, doubts over quality of goods, security regarding online payment gateways, and mostly the culture-based attitude of our cash-oriented society are only a few. But all this has not deterred a host of e-commerce players in India, like Flipkart, Jabong, Myntra, Indiatimes, Snapdeal, Homeshop18, Yebhi and others, from wooing the Indian customer with world-class services and products.
No surprise then that these players are investing heavily on product differentiation, technology, customer service and advertising. That these players want themselves to get heard and seen is good news.
In recent months, players like Jabong, Groupon, Snapdeal, Myntra and eBay have particularly become loud about who they are and what they have to offer. A recent market report by eMarketer shows that online advertisement spending in India has grown from $0.25 billion in 2010 to $0.48 billion in 2012. Online portals are thus working hard to build brand recall. Be it online marketing through social media sites like Facebook and Twitter or improving visibility on offline vehicles like TV, Print and Radio, these e-tailers are investing big bucks in promoting themselves.
So the fight is on – differentiate, impress buyers and get cash flow positive. But that is where the problem lies. E-tailers in India haven’t still learnt the trick of making money from this much-hyped virtual shop business. A 2012 Technopak Report confirms this. The frenzy to attain a critical mass of consumers through whom they can start to make money is leading to consumer acquisition through heavy discounting (even lower than costs) and mass media advertising, resulting in very high customer acquisition costs (about Rs.1,000 to Rs.1,400 per customer as per various industry executives). Thus, to differentiate and gain consumer loyalty, e-tailers are fighting it out on the pricing front.
As such, the e-commerce business in India is increasingly become a game where the last man standing may turn out to be the biggest loser! Little wonder that this space has already witnessed consolidations. According to data compiled by Microsoft’s India Accelerator Programme, of the 379 technology product start-ups launched until October 2012, 193 were e-commerce firms, and 87 of these – including Shopveg.in, Taggle.com and Letsbuy.com – have ceased to exist. Letsbuy.com was bought by Flipkart in February 2012, while Myntra acquired Exclusively.in. Online retailers like Lensstreet.com and Dealivore.com also saw closures in 2012.
In due course of time, strategic shifts will take place in the e-commerce space, and more smaller and non-serious players will get wiped out, leaving behind clear leaders. As per Rajesh Nahar, CEO and Founder, Cbazaar.com, “E-commerce businesses in India should have a very smart balance in planning organic and inorganic growth of customer acquisition and revenue. The moment a company tries to accelerate inorganic growth by acquiring customers at a high cost and offering products at discounted rates, it will get very hard for it to get into the profitable zone.”
The Indian e-tailing story has also appeared very promising to investors. These investments have enabled players to grow and scale up quickly. Investment in the online retail space exceeded $500 million in 2011. But failure rates of e-tailers is disheartening.
To stay alive in the business, e-tailers have already started tweaking their business models. One example is Flipkart. It started in 2007 as an online books retailer, but has today extended its portfolio to media (games, music and movies), mobile phones (and accessories), personal care products, home appliances, watches, belts, bags, luggage and toys. Unlike two years back when all you would have heard of in the name of Snapdeal was discount coupons for various services, today, 95% of its offering basket is filled with products!
Limited availability of brands in Tier-I and II locations is driving consumers to shop online. And e-tailers are paying attention. One of them is Jabong. The company has put in place 55,000 special packaging units (as on January 2013) to ensure the shortest possible time of delivery. At present, the company offers same-day delivery only across metros. In 2013, tier II cities would enjoy the facility. And by 2015, expect the company to replicate the same across tier III towns. Says Manu Jain, MD, Jabong.com, “In 2013, we will ensure that we follow the same day delivery concept in tier II cities as well.”
E-tailers are experimenting with new methods to engage end-consumers. Trends like cash-on-delivery (COD), replacement of goods if found unsuitable, delivery-post-trial et al are on a rise. States Sharat Dhall, President, Yatra.com, “We have invested aggressively in consumer-friendly processes...” This fight against brick-and-mortar has become loud already. But the traditional retail format is not going anywhere soon. Think of the challenges that online companies face. India has over 6500 e-commerce companies and most of them are struggling with problems relating to payment options, logistics, infrastructure and consumer service. An e-tailer can tempt a consumer once, but if the erosion of trust starts from the very delivery stage, that brand can expect little in the name of word-of-mouth marketing.
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