With big money backing and favourable buyer patterns, e-tailers seem here to stay
For the fiscal ended 2014, India’s first organised retailer, Future Retail, had a market cap of Rs 2,100 crore, while e-tailer Flipkart was valued at around R12,000 crore. After a series of funding, the most recent one being a whopping $1 billion, Flipkart is today valued at around R43,000 crore ($7 billion), while Future Retail stands at R2,886 crore. If this does not tell the story of the success of online retail in India, what does?
More recently, when Japan’s SoftBank invested $627 million in Snapdeal, it was with the hope that India has the potential of producing another Alibaba.
Understandably, brick and mortar stores are feeling left out, and many are being vocal about it. In fact, the loudest among the brigade is none other than Kishore Biyani, the man behind Future Group. He raised a furore over the Big Billion Day sale, accusing Flipkart of predatory pricing.
However, the truth is that online retail is here to stay, and grow rapidly to being a $32 billion industry by 2020, up from $2.3 billion in 2014, as per Technopak.
And with a huge population having access to the
Internet, India’s e-commerce story can only get bigger. Fuelled by deeper discounts than offline stores, who can blame the customer if they choose to buy at the click of a mouse instead of going to a mall.
A random survey by FE of product prices across categories, during a time when no sales are on, reveals that online sites still offer discounts of up to 50%.
A Canon EOS 60D DSLR camera with a 18-135mm lens is available at Snapdeal
for R59,124, while it costs R62,000 at a Canon Image Square showroom.
While a Nikon D3200 DSLR camera with a 18-55mm lens is for R24,850 on Flipkart, it sells for around R26,600 at offline stores. A Canon Power Shoot IXUS 145 can be acquired for R4,675 on Flipkart, while it costs R5,815 at a Canon Image Square showroom. Where a Sony Cyber-shoot DSC-W830 on Flipkart is for R7,590, it costs R8,500 at a Sony Exclusive showroom.
Top brands in apparel, sunglasses, shoes and accessories are almost always available at a discount of at least 30% online, while discounts for these products offline exist only during sales.
An external hard drive, such as the Dell Backup Plus 1 TB external hard disk on Flipkart costs R4,943, while at a electronics shop the price is R8,000. Similarly a Seagate Expansion 2 TB external hard disk costs R6,950 on Flipkart, but is priced around R10,000 offline.
“Prices for products on Amazon are determined by the sellers. We work hard and continually innovate to offer services such as FBA (Fulfilment by Amazon) and Easyship to sellers on our platform, which enables them to significantly lower their cost of selling and reducing defects as they sell to a nationwide customer base. Sellers pass on these savings as lower prices on the platform. On occasions, to promote our platform, we run marketing promotions,” says an Amazon India spokesperson.
As per Rajat Satija a computer accessories distributor in NCR, “The margin in computer parts is huge, so you see many people selling them in places like Nehru Place in Delhi. But the online stores don’t pay attention to margins, for their profit base is in volumes.”
As a Snapdeal spokesperson explains: “At Snapdeal, which is a pure marketplace, merchants across the country compete amongst themselves in providing the best service and value to consumers. Pricing of products is managed by the sellers.”
Manufacturers might be facing a problem dealing with complaints from physical stores, but most of them agree that online retail also gives their products a big push, especially in remote areas.
As Manish Sharma, managing director, Panasonic India, says, “Our sales have not been adversely affected by online discounts. Rather, this festive season, we have witnessed an increase in demand for high end products such as 40 inch and above televisions and refrigerators. In India, online retailing has made it possible for companies to reach out to consumers in every nook and corner of the country. This revolution has also helped brands amplify their reach in the regions where they don’t have physical presence in form of retail outlets and stores. Considering the increasing trend of online shopping, Panasonic will soon launch the ‘Panasonic’s E-Store’, where the company will showcase and sell its wide range of products.”
Many other brands are also rolling out exclusive lines for online retailers. For instance, Numero Uno will soon roll out an exclusive line, Village Indigo, for fashion store Myntra. Woodland will roll out new footwear and apparel lines for online customers as early as December.
Maintaining a balance between the two channels of retail is the new challenge for companies. As a Nokia India spokesperson says, “We aim to leverage both in a way so that there is minimal conflict between the two, ensuring they complement each other rather than compete.”
“Given e-commerce is bound to grow, the best way out of the problem is to offer non-competing products,” adds Harkirat Singh, managing director, Woodland India.
Agrees Puma India MD Abhishek Ganguly. “Products sold at our exclusive stores will not be available online while products available online are not sold at our exclusive stores,” he says. Experts also believe the only way to keep the offline market running is product differentiation.
However, no one captures the sentiment better than HTC CFO Chia-Lin Chang.
“We want to make sure that there is a price parity between the retailers and e-tailers who sell our phones. But we will not ask e-tailers to cut down on discounts offered on HTC phones.”