Why Reliance Mukesh Ambani e-commerce move is nothing like Birla, Tata, Godrej past experiments

How Reliance serves every single customer with timely doorstep delivery, instant returns, refunds, fight fake products etc., to take pole position in the $38.5-billion e-commerce market has to be looked at.

reliance retail gets position in top 100 retail companies of the world Deloitte’s list 
भारतीय कंपनियों के मामले में, मार्च 2018 को समाप्त वित्त वर्ष को आधार माना गया है. (Reuters)

For over a decade, India’s young e-commerce ecosystem has seen one complete cycle of boom and bust where digital ventures were born out of one room apartments, then peaked to never-seen-before valuations to only either get acquired or struggle to stay afloat with mounting losses.

Off the mark move

This cycle, however, doesn’t define startups alone. India’s multinational conglomerates, right from Aditya Birla Group, Godrej to Reliance, and Tata, have also been a party to it. The desire to have a share into India’s burgeoning e-commerce market have already burnt their fingers.

Aditya Birla’s fashion portal and omni-channel player, Godrej’s e-grocery shop EkStop, Tata Group’s TataCliq and Reliance’s and have either failed to reach the size of existing large e-commerce companies in respective sectors or have shut down.

“It is pretty shameful to see how large conglomerates behaved like school kids without even thinking about what’s exactly they have done and spending few crore rupees,” said Harminder Sahni, founder and managing director at consulting firm Wazir Advisors.

Emails sent to Tata and Godrej didn’t elicit responses while Reliance and Aditya Birla Group spokespersons denied commenting on the story.

One argument around the failure has been the heavy-investments from abroad that continues to drive e-commerce. “Large corporates failed because somebody came with a huge amount of foreign money, doing multi-brand retail even if it is online business and putting other into a mess,” Kumar Rajagopalan, CEO at Retailers Association of India.

Another point has been that domestic large retailers like Reliance cannot show loses for a long period unlike Amazon or Flipkart. “Indian law will not even allow our local retailers to be listed in case of such losses,” said Kumar.

Nonetheless, as we see the next phase of growth of the e-commerce market post-Flipkart deal, it’s Reliance Industries’ chief Mukesh Ambani who wants to become an option, for customers, beyond Jeff Bezos’ Amazon and Walmart-owned Flipkart. But, after all, would Asia’s richest man and Indian business magnate Ambani’s latest e-commerce bet pay off?

“Whether Reliance succeeds or not is like gazing in a crystal ball,” said Kumar. The question still is around government’s ability to support Indian businesses. “often rules are created in a manner that doesn’t give importance to Indian businesses. Alibaba in China and Walmart or Amazon in the US have gone big because of government support,” he said.

However, for market experts, the answer to the question of Reliance going big in its e-commerce play is yes but with cautious optimism.

The new third front

Of course, Reliance has the groundwork in place in the form of near 300 million customers using its Jio service along with 10,000 outlets of its retail arm in over 6,500 cities in India. In fact, it has an entire ecosystem, much like Amazon.

“Reliance has an ecosystem of entertainment, financial services, payment gateway, etc. Once it has customers hooked on to these services, then it is a question of time before it can start offering merchandise as well,” said Arvind Singhal, chairman and managing director at retail consultancy firm Technopak.

Moreover, unlike Amazon or Walmart, home grown Reliance doesn’t have constraints around restrictions on FDI in e-commerce. This might give it a regulatory edge over existing e-commerce biggies.

There is another contentious factor that plagues startups across sizes – profitability, that Ambani, hands down, doesn’t have to bother. Reliance Industries reported a consolidated net profit of Rs 9,459 crore in the quarter ended June last year.

“Retail sector operates between 3-5% of profit and Reliance has been able to maintain that profit. Nobody would have thought that they would pull off something like Jio,” said Naresh T Raisinghani, CEO and Executive Director at India division of global consulting firm BMGI.

However, beyond capital and infrastructure, would Reliance have to work on the mindset shift, towards cash burn and delayed profitability? Experts, however, disagree.

“If having a profit-mindset is a problem then why loss-making Flipkart was bought by Walmart which is profitable since last 40 years. Jio turned profits only in last three quarters after making losses since its launch. Reliance Retail started in 2005, didn’t report profit till 2015,” said Sahni.

But Reliance’s burn rate for new e-commerce venture is expected to be lower. With near 300 million Jio customers, it won’t have to spend on acquiring customers, said Singhal. Also, since the company has a strong EBITDA in the physical retail, it can certainly leverage its sourcing, distribution, supply chain, private label etc., he added.

Reliance Retail’s EBITDA increased 20% to 1,680 crore in December 2015 quarter from the preceding quarter.

Moment of truth

While Ambani announced the new e-commerce platform to “empower and enrich our 12 lakh small retailers and shopkeepers in Gujarat,” but he definitely could have built it over existing unless it has to be limited to Gujarat.

“Reliance does a lot of things as a pilot. and could have been pilots as we haven’t seen any mega promotions of these platforms. Reliance Retail was first run as a pilot in Gujarat’s Jamnagar facility of the company. Also, it had acquired a small local supermarket chain in Mumbai to test out Reliance supermarket chain,” claimed Singhal.

If all that falls into place, then Reliance might be able to work upon solving last mile delivery challenges even as it has a strong network of warehouses that caters to its retail outlets.

The question still would be how does it serve every single customer with timely doorstep delivery, proper returns, refunds, fight fake products etc., to take pole position in the $38.5-billion worth e-commerce market.

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First published on: 03-02-2019 at 15:38 IST