The Retailer vs Etailer – the battle continues..
Brick and Mortar : "Mere paas 4000 sq. ft. ki dukaan hain, 50 men on-the-shopfloor workforce hain, quick checkout hain, free parking aur prime location hain – tumhare paas kya hain?"
eRetailer : "Mere paas … Mere paas VC ka funding hain!"
When it comes to the Ecommerce industry in India, not everything is in Black and White – nor is it green. The only colour is red – that of bleeding losses. In this article we explore how this leads to a conflict with the traditional retailers.
Indian retailers are up in arms – they find themselves unable to compete in the face of consumers finding everything online at ridiculously discounted prices and have them delivered for free. They save money, fuel, time, get more done in same time frame.
Little wonder that several small brick-and-mortar retailers have come together and sought protection from e-commerce companies - according to a report in The Economic Times, "The retailers, mostly from Bangalore – home base for Flipkart, India's largest e-tailer – have written to the Competition Commission of India, complaining that their online counterparts are selling goods below cost and skirting Indian laws on foreign direct investment in retail." A protest movement has begun with the setting up of a website called "wewillact.com", which details more than a score retailers in Bangalore, and claims support of "1,000+" retailers who are seeking to protect their "right to survive and grow".
Their main grievance against online retail is that millions of physical retailers suffer and close their store because they can't afford to operate on a loss making business model like most online retailers who get massive VC funding.
At present, the government permits 51 percent FDI only in multi-brand retail and not in e-commerce. The size of India's e-commerce market is estimated to be Rs 50,000 crore and companies such as Flipkart follow a dual-company route to work around the restrictions.
The retailers have alleged that even though VC funding is not allowed in e-commerce, some online retailers are floating parent companies in Singapore and routing the money to India. For instance, Flipkart has incorporated a new parent company in Singapore which owns the back-end and wholesale B2B operations while it has sold its front-end WS Retail to a group of investors led by former OnMobile Chief Operating Officer Rajiv Kuchhal, says in a NextBigWhat report.
In September, camera-maker Nikon warned its customers that e-commerce players Flipkart and Snapdeal are not the company's authorised dealers in India, a move prompted by several physical electronic product retailers protesting against the undercutting of prices that e-tailers are often accused of doing, reported the Hindu.
However, this needs a deeper analysis into the levels of profitability –
Challenges for e-tailers:
1. Capital Intensive: (Inventory based models) An e-commerce store is expected to have a larger range and as well as cheaper prices. Plus delivery times are always an issue so stocking inventory becomes a must in most cases.
2. Low profit margin:
a. Unit economics: Contributions like payment gateway cost, packaging cost, shipping and handling cost and effective cataloguing cost of articles to the overall margin.
b. Cash on delivery: It has now become almost necessary to offer a cash on delivery service in India. All logistic companies actually charge to collect cash on the etailer's behalf. They actually charge a huge fixed amount (could vary from as Rs. 30 to Rs. 150 or sometimes even more per package depending on the provider, total volumes offered and also package value) to use their cash!
Secondly, a lot of your cashflow is stuck with the logistic company because they will take a certain amount of time to remit the money they've collected.
Thirdly, almost always the logistic service provider will actually owe more money than the etailer owes them for delivery.
Fourthly, customers are much more likely to return packages in cash on delivery cases. Post which the business has to incur double the shipping cost, lose out on precious inventory for a long time and still maybe end up with something that cannot be sold again, and a customer who will never buy again.
c. Lost, damaged articles: Business owners forget to take into account lost and damaged articles, especially on items with low margins with huge volumes.
d. Competition: Consumers expect the etailer to be the cheapest. Moreover, pricing on the internet is very transparent.
And yet, they persist – to sell more and lose more money.
So What can Retailers do to balance the scales?
The "omnichannel" advantage: Turn your stores into experience hubs, offering multiple ways to pay and pickup, as well as top-notch customer service and mobile apps.
Target, Best Buy, and Walmart have introduced a host of innovative, omnichannel initiatives to bring customers back into stores. From 'match any online price' offers and same-day in-store pickup, to tablet-equipped sales clerks and location-aware mobile coupons, retailers have turned their stores into assets.
Retailers are winning on flexibility, convenience, and service.
Take Walmart – it offers three different types of in-store fulfilment at special pickup counters; reserve online and pay in-store with cash; ship-to-store; and same-day store pickup.
Walmart is also experimenting with fun store experiences, from lockers where customers can pick up their purchased goods, to tablet-toting employees who can look up products online and checkout customers anywhere on the store floor. Walmart is also offering lots of great mobile shopping opportunities, from scannable product barcodes that bring up product info and reviews, to instant mobile coupons and product locator apps that let customers find what they're looking for in their own local stores.
Etailers still receive higher marks than retailers in 'account' and 'information' categories, showing that customers appreciate that online-only stores make it easy to get product information and manage account details such as credit cards, purchase history, and shipping addresses.
Where are you making your next buy from?
References:
http://www.nextbigwhat.com/why-stay-away-from-e-commerce-in-india-297/
http://forbesindia.com/printcontent/34439 (Will E-commerce Companies Finally Start Making Profits in 2013)
- Lohit Gupta
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