The confidence with which private equity players are betting on e-tailers?on Thursday Snapdeal picked up close to $134 million from an eBay-led investment?reflects how much potential they see in the online retailing space which has grown at an amazing pace in the last few years with CRISIL estimating revenues to have risen to nearly Rs 14,000 crore in FY13 from just Rs 1,500 crore in FY08. However, the scorching pace notwithstanding, online retail currently accounts for less than 0.5% of India?s total retail industry of roughly $500 billion. Which is why manufacturers of large brands?Lenovo, Canon, Nike et al?will need to do something to address the concerns of brick and mortar retailers who feel they?re fast becoming nothing more than ?trial rooms?. They have reason to feel threatened given how easily e-tailers are able to drive down prices for a host of products especially laptops, mobile phones and apparel; where physical retailers typically drop prices twice a year to clear stocks, e-tailers are able to sustain the discounts through the year thanks in part to the financial backing they?re getting from investors.
Manufacturers are in a bind because while incremental sales through e-tailers are boosting their bottom lines, the physical retailers are threatening to boycott their products unless e-discounting stops. To ensure that online retailers don?t run away with the clientele, they could, for instance, refrain from offering them the latest models or collections for the first few months after a launch, giving physical stores the first shot at customers. However, these can at best be temporary measures?given how lifestyles and attitudes are changing and how convenient it is to shop online, e-tailing can only become more popular over time. Moreover, online players will come up with ways to source the products from elsewhere since they need to keep the cash coming in. CRISIL believes the space will grow at a 50-55% compounded rate, in the next couple of years, crossing R50,000 crore by FY16, and accounting for just 2% of the total retail industry but a far more meaningful 16% of the organised retail space. Indeed, for some categories, the share of online sales could be even higher. Which is why those retailers depending primarily on a brick and mortar model need to tweak it to have fewer stores and more of an online presence; in a country like India where rentals are high, there?s no other way out.
