Blog Submission 2

Dear Sir,

Please find below my blog submission #2

Why Profitability is a challenge in India's inventory led E-retail

 

An Indian E-retailer has, on an average, a gross profit margin of around 30%. The e-retailer has to incur following costs:

Marketing           -              12%

Operations         -              3%

Technology         -              1%

G&A                      -              1%

Shipping               -              6%

Gross Revenue	₹ 1000
-COGS @ 70%	-₹700
Gross Profit @ 30%	₹300
-Marketing @ 12%	-₹120
-Operations @ 3%	-₹30
-Technology @ 1%	-₹10
-G&A @ 1%	-₹10
-Shipping @ 6%	-₹60
Operating profit @ 7%	₹70

               

 

Now to achieve this operating profit of even 7%, the retailer has to have an inventory turnover ratio of 10-12 times. This coupled with losses incurred because of unsold inventory (which hasn't been accounted yet in calculation of the operating profit) makes running an inventory led e-retailing in India a daunting task.

Such a huge cost pressure is forcing Indian e-retailers to switch to either a marketplace model (recent example – Flipkart) or a hybrid (inventory + marketplace) model (example – Jabong). Myntra.com is among rarest of rare e-retailers who have been able to see the silver lining in an inventory-led business model. Part of the reason is that Myntra primarily operates in fashion and apparels category which has a gross profit margin of 40%!

Regards,

Sushant Aggarwal

12DM-148 -- E-Business Section B