E-Tailing is emerging as an attractive alternative to the traditional brick-and-mortar retaining. Chances are that they will co-exist profitably
By Prashant Mahesh
TO retail or to e-tail? That sounds like a Shakespearean dilemma. You ask any retailer, chances are that he will say both.
It all began a couple of years ago. Retailing as an attractive business was slowly emerging out of the shadows. Quite a few corporate houses began looking at retailing as one way to corporate salvation. Notable among them are: the R P Goenka group, the Tatas, the S Kumars, the Rajan Raheja group and the Ajay Piramal group. And many more are still in the process of finalising their forays into retailing.
Even as loose ends of retailing plans are being tied up, e-tailing has begun catching the attention of many entrepreneurs. Suddenly, you started hearing e-tailing names such as Rediff.com, Jaldi.com, Fabmart.com, Tsnshop.com and Satyamonline.com. This could well be the beginning of an e-tail revolution.
As the new sensation unfolds, it should be understood that retailing is serious business. Thanks to the popularity of the Internet, e-tailing is assuming greater significance. A number of products and services are on e-tail offer and novel plans are being worked out by many e-tailers. Consider Skumars.com for instance.
Skumars who had earlier wanted to offer its franchise only to those having 2,000 square feet space has now improved its offer. It is now offering its franchise in Skumars.com to those possessing just 50 square feet space. So, the dilemma continues: to retail or to e-tail?
How large is the retailing industry? Is e-tailing large enough to take on so many players? True, both retailing and e-tailing are still nascent and growing. One estimate by consultants KSA Technopak is that the organised retailing sector should be as large as Rs 5,000 crore and e-tailing in India should be just about Rs 12 crore. Says K Vaitheeswaran, vice president (marketing) of the Bangalore-based Fabmart: "But then the growth potential for both retailing and e-tailing is tremendous."
What is the rationale behind such an assertion? Basically anything which involves a direct sale to a consumer at any point of time could be termed as retailing, be it selling of books, apparels, footwears, music or even grocery among other things. Such a retail trade could take place in a shopping mall, in a department store or in a basic mom-and-pop store or in a friendly neighborhood grocer's shop. Most of such retail trades that can be done through the brick-and-mortar retailing route can be successfully replicated on the Internet as well.
True. However, if one bothered to get down to the nitty gritties of retailing and e-tailing, the differences in the way business is conducted in both the segments should become clear.
A retailer is restricted to a particular location, retailing is location-driven. But, an e-tailer can go global. Being local in nature, a brick-and-mortar retailer has to identify a good location for his operations and wait for customers. On the other hand, an e-tailer has to virtually attract a customer to his site and offer him exemplary services. In fact, location is no longer the key to success if e-tailing is what we are talking about. Thus, while the target customer remains the same both in retailing and e-tailing, the mode of conducting business is changing dramatically.
There is another distinct feature of e-tailing that is challenging. In retailing, as much as 50 per cent of the initial investment could go towards acquiring real estate. Post-acquisition of real estate, a retailer has to spend considerable time, effort and money in setting up his shop, stocking inventory and creating display patterns. Thanks to web-driven retailing, an e-tailer has no such hassles. But, there is a challenge before him: retaining a customer who has shopped through his site.
Retaining an e-tail customer
That is more than just a challenge. The primary aim of every e-tailer is to attract a prospective customer to his e-tail site. That calls for a large adspend. Naturally, there has been a surge in dot.com advertising in countries such as the United States. Dot.com adspends are so large that as much as two-thirds of the capital raised by dot.com companies are spent towards advertising. Adspends by dot.com companies are so huge that whatever savings achieved in the areas of real estate and inventory is more than offset.
The question still remains: after all that ad-spend, will the customer remain loyal to the e-tailing site? Says Kumud Goel, managing director of KLG Systel which owns the site Jaldi.com: "The Internet customer is very hard to predict and is different from the normal customer. Retaining him is not so simple. While a retailer expects strong loyalty, such a loyalty on the Net is difficult to obtain. A customer may shift from the Internet if someone else offers him a better deal."
That is why Jaldi.com will be using a mix of marketing tools such as public relations, advertising, promotions, direct marketing and Internet advertising to spread awareness among its target audience. Jaldi.com went a step ahead. Its offline promotions started with a successful consumer launch held at Priya PVR I theatre in New Delhi where 3,600 free Phir Bhi Dil Hai Hindustani tickets were given to every customer who logged on and registered at the site Jaldi.com.
What all these tell you is one simple thing: customer retention is the toughest thing on the web. Says K Ramesh, vice president of i2inext.com: "First of all, it is difficult to get a consumer come to your site. After he comes in, the task is to retain him and get him frequently. Once he is confident about you, he will use his credit card to make his purchases at your site."
On balance, retaining an e-tail customer is certainly a costly affair. For, in the world of the web there is nothing such as loyalty. Says Goel: "If you offer some freebies, a customer may keep on coming to your site, with the expectation everytime that there would be some freebies out there. The moment you stop freebies, you could simply lose the customer." So, managing e-tailing promotion through freebies could be a tricky affair.
That is one aspect of the e-tailing promotion. In fact, it has been observed in countries such as the USA, traditional retailers, despite the strength of their brand equity and their existing relationships with suppliers and customers find it extremely hard to compete online. Reason: the vast difference between the retailing and the e-tailing segments.
Though this is true, the web offers a host of advantages which may tilt the economics in its favour. The Internet world could transform much of the traditional economics of retailing. While a physical store caters only to a particular locality, the Internet reaches out to the world. The fallout: in e-tailing, the e-tailer goes for a bigger and wider audience and still be in touch with individual preferences.
Another approach that is emerging in e-tailing is to re-examine the normal retailing value chain. The web makes it possible to dispense with much of the traditional value chain altogether, thanks to direct sales by manufacturers to consumers. There is another side to this approach. According to some e-tailing specialists, web retailing also creates new points in the value chain. Example: Internet portals that act as shopping malls or intermediary aggregators such as Vasool.com that offer a new way of amassing buying power.
Certainly, the economics of the Internet offers a powerful first mover advantage. An e-commerce operation on the web can be scaled up at a low cost in such a way that its physical equivalent cannot. And even among e-tailers there is the first mover advantage. If the first mover gets everything right - its website, its order fulfillment and distribution - a newcomer might find it much harder to beat an established person at the game. Says Biren Ghose, chief executive officer (new media) of United Television which owns the site Tsnshop.com: "The first time a person shops on the Net is always a special occasion."
Shopping on the Net
Fine. But, the question is why should anyone shop on the Net? What is the incentive to try a new medium of shopping?
If anyone has to try this new medium of shopping, there should be overwhelming reasons for doing so. The benefits must go beyond mere convenience. For one, the consumer will certainly be interested if he gets things cheaper on the net. Says Ghose: "The Net being a new medium, we have to convince people to use this new medium to buy." Adds Vaitheeswaran: "For convincing a customer to use this new medium, one has to offer an incentive to buy on the Net. Otherwise, it would be very difficult to get a customer to shop with you." According to consultants KSA, easier and faster shopping are the reasons for shopping on the Net.
How? You can go to a brick-and-mortar retailer who could offer you 10,000 items in his store. Chances are that he might be 10 per cent out of stock. On the other hand, the Internet offers millions of products with no chances of an out of stock situation.
Easy and comfortably-obtained info is another advantage that shopping on the Net offers. On the Internet, product information is just a few clicks away, all accessed in the comfort of a home. Traditional retailing stands out in stark contrast: the consumer searches frantically, runs up and down, grills a poorly trained store assistant who is unable to help him out. In the bargain, valuable time is lost. Simply put, shopping on the Internet for, say 15 minutes, could save a two hour trip to the mall. Consumers prefer to save this time so that they can devote more time for their professional and domestic priorties.
Is shopping on the Net really catching on in India? The Indian scenario is quite different from that of the West. For good reasons. Indians have always been great shoppers and enjoy shopping anywhere in the world. With malls and departmental stores springing up in India now, Indians are just beginning to get a taste of things to come. Internet shopping is one such taste which the Indians have begun to savour.
There are hurdles here, however. One, need for a critical mass. This is vital for any successful e-commerce project. Consider: growth in e-commerce will come not from well-designed websites or web-marketing but from deeper penetration of the Internet. That is why a case has been made out for increasing broadband Internet connections which are faster than the dial-up connections.
One estimate is that India has a mere 20 lakh Internet users, mostly concentrated in the metros. Web analysts feel that in many areas of retailing and commerce, Internet is unlikely to garner a sizable slice of the market. And that could be for several years to come. This is true, especially in businesses where margins are thin. Consider fast moving consumer goods, the FMCG sector. Says Devangshu Dutta, general manager of KSA Technopak: "In the Indian FMCG business, margins are as low as 10 per cent. Hence, e-tailing in such areas might not catch on."
Two, despite a higher Internet penetration, cities like Mumbai or New Delhi might not be a haven for an e-tailer. Reason: for things like grocery, there is a shop out there at every nook and corner. All that an individual has to do is just make a phone call and the goods are delivered at his doorstep. Thrown in along with free home delivery is a month's credit. In case of perishables such as fruits and vegetables, the Indian buyer prefers them farm-fresh. What does he do? While returning from work, they drop in at the vegetable market and complete their purchases.
Three, cheap labour. Thanks to easy availability of domestics at an affordable wage bill, quite a few of the rich customers hire them for doing domestic chores which include shopping. Four, the usual Indian aversion to use credit cards. Thanks to low penetration of credit cards and the lack of popularity of debit cards, e-tailing might find it an uphill task to catch on.
It is not just the aversion to credit cards. Says Viraj Savant, director, DBS Internet Services: "Elder citizens are averse to using even the computer." However, they are at ease while using the remote control of a television set. That throws up an interesting solution. Accessing the Internet through a television in the near future might be something that an individual should be offered if e-tailing is to grow faster. The last and the most important hurdle to the growth of the e-tailing industry is the efficient management of logistics. Here the role of a courier company is extremely important. Most portals offering e-commerce have tied up with courier companies. For instance, Jaldi.com has tied up with Gati for taking care of their delivery logistics.
There are other examples too. Blue Dart plans to enter the household shipment business in a big way to serve the needs of the online community in India. Looking at the coming e-commerce boom, Blue Dart is targeting a 80 per cent annual jump in its business, mostly from the shipment requirements of its online customers. For this purpose, Blue Dart has already invested Rs 40 crore to tune up its existing infrastructure and interface it with e-commerce potential.
On the technological front, Blue Dart is upgrading its intranet facility, linking 1,300 terminals with over 2,000 people at 70 locations to meet the e-commerce requirements. This means that e-shoppers in these locations can log on to Bluedart.com and ask for the shipment of ordered goods from these e-shops. Also, Blue Dart has aligned with leading portals and e-shops like Rediff.com and Fabmart.com to meet their distribution needs.
What will work
The most important question now is this: what kind of retailing model is going to deliver the goods in the Indian scenario?
For an answer, consider the following. The most important cost advantage of e-tailing comes from whittled down shopfront costs and elimination of intermediaries and economical distribution. For example, book e-tailing means dispensing with big shops replete with slow-moving stock. Consider the case of Amazon.Com, where the orders go straight to the wholesaler. That means the working capital costs are cut down drastically. Not just that, an e-tailer is paid before he pays his distributor. The implication: need for lower working capital.
However, one has to compare these gains against certain web-related costs that have to be provided for. Running a website and servicing it to ensure that it is cent per cent reliable is not easy. Logistics and distribution are of utmost importance and that is where many e-tailers are known to have gone wrong. While it is true that many e-tailers have been able to cut costs, they have lost large sums of money in the process of offering goods at low prices. A few of them who have made profits have ploughed them back for financing customer acquisition or retention.
All these do not mean an end to traditional retailing. E-tailing will have to co-exist with traditional retailing. Says Vaitheeswaran: "For things such as music and books, a whole new market will be created. This will increase the market manifold." E-tailers will have to work in combination with traditional retailers. Even the biggies in the business such as Amazon.com have realised this and are setting up distribution warehouses for the same.
As the combination of retailing and e-tailing set to deliver the goods, the trend of using the Internet as another service medium will gradually catch up. E-tailers like Jaldi.com have already set up kiosks in various cities which have been successful. Tsnshop.com makes use of its teleshopping network franchisees in various cities for selling its products. Says Ghose: "It helps in gaining customers fast as individuals have the option of returning the goods purchased if they do not like it. They can just go across to the shop. This gives them a certain level of comfort and confidence." Such a comfort and confidence-level is a must for a successful e-tailing venture.
Forecasts about e-tailing abound. Sample one of them here. Says Goel: "My forecast is that a 10-crore population shopping for a minimum of Rs 100 per year in the next one year. This should translate into a business of Rs 1,000 crore."
On balance, what we are witnessing at the moment is certainly a tip of the iceberg. Such is the growth potential in the e-tailing industry that it is not possible to put a figure against the industry's size or growth. So, there are pluses and minuses in the case of retailing and e-tailing. With so many hurdles around for e-tailing, it would be long time before e-tailing really catches up. But, the trend has begun. The model which will work in such an Indian context is this: a peaceful and complementary co-existence of retailing and e-tailing. 1