Facing intense competition in the Indian e-commerce sector from Amazon and Flipkart, Aditya Birla Group’s ecommerce site Abof.com will pull down the shutters by year-end. It’s not merely clicks vs bricks in India, there’s also cut-throat rivalry within the e-commerce space itself, leading to many players either shutting down operations or getting acquired by bigger players.
Notably, this is the second e-commerce venture closure for Aditya Birla that wound up Trendin.com last year for the same reasons. Aditya Birla Group HR director Santrupt Misra told PTI that selling products at deep discount did not make business sense. “There are various reasons for the closure. First, the sector is not maturing to the level it was expected, and secondly, the return on investment is long drawn affair and to continue putting money into the resources is not a very intelligent idea,” PTI reported Santrupt Misra as saying.
Just last week, the iconic big-box toy retailer Toys ‘R’ Us filed for bankruptcy, due to its burgeoning debt pile and also competition from players such as Amazon.com. Vetri Subramaniam of UTI AMC says that the continued preference for online channel as opposed to retail in the United States has caused a dip in market capitalization for the retail segment which was built over the last 60-70 years. In conversation with ET Now, the market expert said, “In the US, you saw the peak in terms of maybe formalisation of organised retail, maybe a decade or more ago and then thanks to the rise and continued rise of online and particularly Amazon, in very specifically, you are now seeing a decimation of the market cap that got created in organised retail over maybe six or seven decades.”
The Indian e-commerce industry has seen a lot of consolidation of late. “In an industry where customer loyalty has been largely non-existent and the costs of acquiring and servicing customers have been consistently high, consolidation was inevitable,” Sreedhar Prasad, partner, KPMG India said in June this year. Flipkart-owned Myntra pipped Snapdeal and the Future Group to acquire rival Jabong in a $70-million this year in an all-cash deal to create India’s largest online fashion destination. The much talked about deal between Snapdeal and Flipkart fell through in August as Snapdeal wanted to pursue an ‘independent path’,according to its founders. The proposed deal would have resulted in the largest buyout in the Indian startup space. The demise of the iconic Toys ‘R’ Us and Abof.com have brought back the intense competition of the e-commerce sector into limelight.
Asked whether India may see a similar kind of disruption as in the United States, Vetri Subramaniam said, “When you look at the Indian context, keep in mind that the total value of the organised retail segment is still a fraction of the total value of retailing which happens in the country and therefore, there is scope. One could arguably make the case that the share of organised retail in this economy will continue to grow and the share of e-commerce will continue to grow as well.”