Thursday, 29 May 2014

Where is the Indian e-commerce industry heading?

E-commerce in Indian retail is expected to grow multi-fold from less than $ 1 billion annually in 2011 to $80 billion by 2020.  50,000 new jobs are expected to be created over the next 3 years in India. Now that is an awesome shot in the arm not only for the Indian e-commerce industry, but also for the new government at the helm.

The Indian e-commerce industry currently survives mostly on discounted pricing and is aiming to replicate the ‘Amazon.com story’ that has worked in the US. The race is to become the biggest player in terms of scale and therefore be the de-facto way of shopping online eventually. And the ‘market place’ model followed wherein the e-commerce companies do not own inventories makes life so much simpler for them! All they have to focus on is investments in vendor acquisition, customer acquisition and brand building.

But, of course, there are perils of this business model too. Several leading manufacturers have categorically dissociated themselves from all e-commerce companies. There was a fantastic deal offered on a leading e-commerce website where the same Toshiba TV was a full Rs. 7000 cheaper than anywhere else. I decided to check with Toshiba if I would still be assured of the quality and warranty. Of course not they said; below is the reply that I got!












It is a fact that heavy discounting by e-commerce players has spoilt the pricing discipline. And it is a no-brainer that the ones who have suffered the most are the brick-and-mortar retailers and distributors. All it has done is generate price wars among this community. And it goes without saying that arbitrage through discounting is certainly not sustainable in the long run in any industry. It defies the basic principles of economics!

What is the Indian e-commerce industry really aiming for? Will what worked well in the US really work well in India too? Are the incumbents trying to solve the right problem for the Indian consumer? I am not sure about that; none of the large incumbents are even close to breaking even. And the battle is getting tougher by the day with Amazon’s aggressive entry into the Indian market. It would be wise to recollect that after the IT boom of late 1990s in the US, Amazon is the only player that has survived and grown in the ‘only online’ format. Others have had to shut shop while the brick-and-mortar retailers have done well with a parallel online sales channel.

But in India, has anyone given a thought to the brick-and-mortar retailers and distributors? Many of them offer a rich product selection that does not reach the end consumer easily. And many of them are not even online!

There is enormous scope for merchants like these to go online, invest in promoting their brand and products through their independent online store and thereby retain the entire margin for themselves.

It is a myth that Indians are price obsessed. The truth is that Indians are value focussed and go great lengths to buy the right product from the right brand that they trust. Do you know if women really get the best jewellery design or the best ‘kurtis’ or the best ‘sarees’ online? Or how about that ideal sofa set that you were searching for your living room? The answer is a big no. Because the best Indian products are simply not online as yet!

And given that organized retail in India is only 20%, what is stopping the remaining 80% to go online? The fact is that a lot of these merchants are not tech savvy and need enough hand holding to take that leap which they have been yearning for. And that in all probability is the answer to connect the right merchants to the right end consumers and make the best products available online.

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