Non-travel buying on Net is booming
Online travel retail is 80% of the market:
A month ago, 66-year-old Swati Sinha, a middle-class housewife and retired school teacher based in Aurangabad, discovered a new enticement the internet dangles before her. Even though she’s surfed before to chat, mail and get on social networking sites, shopping online was a first. She bought her daughter a salwar suit for her birthday on the Net. “I was naturally apprehensive about buying something online, but it worked. I think I’ll try it again,” she says.
After a decade of unmet promises, it does seem that buying and selling products on the internet is ready for that big takeoff. In the next couple of years, experts say that the skew between travel and non-travel transactions will equalise (currently 80 per cent of e-commerce transactions are in the travel and tourism segment). So, non-travel e-commerce is predicted to more than double in the next two years. Growth rates are estimated at anywhere between 60 per cent (a conservative estimate) to 300 per cent (the optimistic one) annually.
“For the first time geography is history, for people can buy what they aspire to anywhere in India, sitting at home,” says Harish Bijoor, marketing consultant. Lifestyle-related transactions are expected to lead the growth as more young people choose to buy on the internet instead of going to crowded malls.
Online retail sites like Flipkart, Snapdeal, Myntra, Yebhi, Indiaplaza, Fashionandyou, Jabong and Zovi, to name a few, are out there with big media budgets. The proposition—great rates (often selling at lower than cost), discounting, convenience, cash on delivery (a system only in India and China), and easy return policies. “Real estate is so expensive, infrastructure is poor; consumers have lack of time; and there’s low extent of online reach—all these make room for very rapid growth,” says Darshan Mehta, head of Reliance Brands. “This time around the number of users on the internet is far higher, and climbing,” says K. Vaitheeswaran of Indiaplaza, a pioneer of e-commerce in India.
While this is all great news for the consumer, concerns have been raised on how long this will last. Some scepticism is warranted, given that memories of the 2000 dotcom bust continue to linger. In fact, many say the online retail space will see more churn than growth in the next five years, as it faces challenges in execution, business models and cost overruns. The viability of many of the businesses involved is in serious question. Most are unlikely to break even; consolidation and phase-outs are expected; and in the end, as it has happened in the travel segment, there will be three-four big players to contend with.
But for the moment, there’s a lot of money flowing in. In the last three years, estimates are that over $350 million has come into the online lifestyle segment. Many of these digital retail sites are funded by venture capitalists and private equity funds. Interestingly, even though most of the money flowing in is foreign money, FDI itself isn’t allowed in e-tailing. So, players get investments from these funds in a model where the money actually flows in for the setting up of the back end and logistics of the business rather than the front end.
Industry sources say it’s easy to spot which of the online retail players have recently received funding—they’re the ones spending money on advertising. “Currently the businesses are not structurally designed to make money because the customers are still looking for value,” says Mahendra Swarup, president at the Indian Private Equity & Venture Capital Association. So, in terms of valuation criteria, the traditional parameters of profitability don’t really come into play—actually, Swarup feels, the number of unique customers matter.
Industry observers say the focus on customer acquisition through massive media spending is wasteful. It increases costs but helps in valuations. Sinha disagrees, and says it helps build the market and awareness of the brand.
There are several other pitfalls. “I think, most of these players have started on the wrong foot with cash-on-delivery, the discounting and the return policy. Instead, there should be more effort in trying to get customers to shift to card or other electronic modes of payment and things like a return-policy that works if the customer buys something of equal value. That will be the next transition,” says Prasanth Mohanachandran, co-founder at online consultancy AgencyDigi.
In general, experts say that there are no fixed models and formulas for the Indian context and it is too soon to tell. A large portion of the business model discussion centres around whether players should follow a warehousing/inventory-based model. For instance, Vaitheeswaran believes that keeping costs low is crucial, which is why a zero inventory model is the only way to make the business viable. Sinha believes a mixed model is the way to go. “You have to be able to control the quality and customer experience and clearly you can only do that if you have some ownership in the process,” he argues.
Will online retail prove to be a significant development for Indian retail? Probably. That’s because it will reach out to people in smaller cities more effectively than organised, traditional retail. “We are seeing greater traction in smaller cities, so clearly online retail does fill a gap,” says Rahul Narvekar of Fashionandyou. Will it replace traditional retail in some categories, like in developed markets? That’s a tougher one to answer.
The market is likely to evolve where traditional players increasingly look at online as a more dominant way to reach out to consumers, but traditional retail will still be crucial for the touch-and-feel and social aspect of retail. “The businesses will make sense once volumes are built and issues like selling at cost or below cost will no longer be the norm,” adds Amitabh Mall, partner & director at Boston Consulting Group. Either way, in these days of clogged traffic and crush on the shopping floor, it’s clear that many consumers are going to think digital while shopping this Diwali.
Do not buy online ever (Doing a Cartwheel, Nov 19). I bought a pen from indiatimes.com which was malfunctioning. I sent it back for a replacement but the vendor sent me back the same piece saying it was working alright. When I complained again, I was told that replacements can only be done once.
Thank you to all those who have taken the trouble to read the article and share their thoughts. Out of the arguments made here, there are two that perhaps need answering. So here they go.
1. The first part of the article compares outcomes (relative percentages of population of the religions concerned) irrespective of the process that led to those outcomes - whether immigration, relatively faster population growth or conversions. This was for two reasons. One, to put the figure of 2.3 per cent in "numerical perspective", as the article itself explained. The second reason was that outcomes are ultimately what the crux of debate is about. The rest of the article in any case dealt with process - or conversions in this case, from both a contemporary and historical perspective.
2. Some commenters have tried to cast doubts on the reliability of Census 2001. Those who do this should bear in mind that Census 2001 was conducted by a BJP government. Considering the extreme importance that BJP gives to this issue, it would be reasonable to expect that IF it had perceived a problem with the methodology that was distorting the numbers, it would have fixed it. As the article mentioned, BJP or BJP-supported governments have been in power for 10 of the last 40 years, or about a quarter of the time, and the only reasonable conclusion one can arrive at is that any misreporting of numbers, real or perceived, would be marginal and hence, not of importance.
To all other arguments made, my answer is the following: Please read the article again, with particular focus on the quotations of Vivekananda and Monier Williams, and the history of the missionary efforts in Bengal and their outcome.
I thought India is a country where in the online shoping will never boom because, shopping has a different meaning in our country, shopping involves meeting friends n spending time with them and going to various shops just fot the sake of it. But to see that the online shopping industry is booming is certainly suprising, is shows a start of a changing trend in the people. Business to business surely has a future in the way the market has been moving but the business to comsumer may still take some time to catch up at a very large scale compared to the other develped countries.
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