Online retail in India- Still a long way to the top

11.11.2014 was an exciting day for online retail and shopping enthusiasts. After an impressive opening at the NYSE, Alibaba and Jack Ma have been in the headlines for all the right reasons. The Singles Day sale on 11^th November was like a show of its might and abilities to deliver and grow year on year. The numbers are simply mind boggling- $9.3 billion in sales with 278 million orders shipped in 24 hours. The figure is a significant rise from 150 million orders shipped last year, which again was a massive improvement from a year ago. It has shown exponential growth in sales and traffic over the past six years. Surely enough, the Chinese dragon is making its presence felt around the globe.

While all this was happening in China, on the very same day, Snapdeal and Amazon were looking at causing a few ripples in the Indian market. Snapdeal Savings Day was being heavily advertised for four days preceding the sale. To keep the shoppers interested, they put up a listing of all the range of products which would be up for grabs on the day and complete with hourly and limited time sale across categories. It seemed to be a well charted approach with special discounts or cashbacks on use of certain cards or modes of payment.

Parallel to them was the Amazon Appiness Sale- an exclusive sale for its mobile app customers and targeted towards increasing the number of mobile based internet users shopping via its app. But this also had a lot of attractive offerings like the chance to win 11 months of free shopping worth Rs 11,000 each month if one buys through the application.

Both the retailers seemed to have their marketing hats on and trying to ride in the mass wave of consumerism that has set in India. But coming hot on the heels of Flipkart Big Billion Day debacle, as an enthusiast and online buyer, I was really interested in how these two giants fared in comparison. With not much to buy available under the ‘Sale’ tag, I was happy to just a spectator and gather information and understanding. Sadly, the reports were not really encouraging.

Snapdeal Savings Day went on much the same way as Flipkart. The social media channels were buzzing about problems right from site not opening to payment gateways unable to check out orders. Comparisons came up rapidly to the extent where people commented that even the while Flipkart managed to get consumers up to some basic levels, the Snapdeal site was unable to meet this. As for Amazon, the social media pages were filled with more of customer complaints rather than anyone talking of the joy of shopping. While the reports in newspapers focussed on another online disaster caused by Snapdeal, the Amazon offer was possibly lost even for the media. The bottom line was clear in both cases: Snapdeal possibly lost more than gained and Amazon failed to build on the buzz.

In my opinion, the online shopping scenario in India is heavily dispersed across retailers who sell in specific categories and then the big ones who have everything under one roof. In the current boom, customers are actually spoilt for choice and thereby there are even retailers like Junglee (used to be the Indian brand by Amazon) which have got into the mode of a search engine for retail to give you the best deals. Sadly, it is too early for people to have formed loyalties and majority of the population sways to the retailer where the prices are lowest for the day. It is hardly surprising that in case of a flash sale, the number of users multiply exponentially and the support structures are collapsing. Also, it is not viable to maintain a backend in terms of inventory, servers and payment gateways for the flash sale volumes for all other days of the year.

Not to mention, physical retailers have been crying foul towards flash sales riding on predatory pricing strategies. Since the online retailers have no direct arrangements with the manufacturers of durables; LG, Samsung, Videocon, Sony and Panasonic forbid their trade partners to sell their products with deep discounts during flash sales on e-retailers, while to buyers of the products are termed not eligible for after-sales service or warranty. I have had one experience where my product was not even handled by an authorised service as it was an exclusive online product.

I guess on an overall, online retailers have to introspect into what they are offering and what they need to make this wave sustain in the long term rather than more of flash sales and heavier discounts.

a)      Market Size: Online retail is on a boom and is looking at exponential growth. But all put together, it accounts for a fraction of total of physical retail sales in India. The number of categories is today limited and growing, but it has many miles to travel before replacing the traditional formats to a significant degree anytime soon.

b)      Deliveries: Last year I was proud to awe my brother with the record 2 days for a standard book delivery by Flipkart. This year the same has been extended to 5 days. My friend over two weeks has been fighting over apologies and no responses after a wrong book was delivered to him. Another one reported of a delivery boy who fainted on the road due to fatigue and overload of pending deliveries over Diwali. All these are just signs of the lack of robustness in the delivery mechanism which needs an urgent shot in the arm.  

c)       Revenues: Every sale so far has had huge spends on media, investment in inventory and delivery and heavy discounts. This is driving the top line of the sales chart- but what about the bottom line? How far can it be ignored? It is known that everyone in this business run in debt, but is this how things will run for ever?

In every business, there has to be a consolidation phase before the next big step. I believe its time it was attended to as well if we do dream to see someone to be India’s answer to Alibaba. 

Mobi-Wars: The attack of the clones

The cycle of who gains supremacy in the mobile phone handset market has taken a fantastic turn and this time Samsung; the world leader in terms of market share, is on the receiving end this time. On terms of sheer numbers, China and India are the largest markets for mobile handsets and local companies from both countries: Xiaomi and Micromax, have taken control as market leaders respectively. While both markets are fast upgrading to smart phones, the erstwhile leaders: Samsung and Apple are headed towards choppy waters.

Xiaomi; the new king of the market in China is just 4 years old and direct entrant with Android based smart phones. Its MIUI firmware was dubbed to be an aping of Samsung and Apple, but its flagship Mi series has definitely caught the frenzy of people. With over 10Mn Mi-2 models sold in 11 months leading up to September ’13, Xiaomi has captured the Chinese and East Asian markets in a serious and rapid. The company is unknown in Europe or the Americas- but its sales from Chinese mainland and parts of East Asia are good enough to make it the 5^th largest smart phone vendor in the world.

Xiaomi is a case study in itself of how a goal oriented approach of a company which began with no manufacturing or sourcing avenues has risen to take up a gigantic shape. To gauge why this is something worth knowing, just put in perspective the following; Made in China: Cheap and unreliable. Though 90% of electronics vendors are from China but have contracts with bigger players who invest in their facilities and so the manufacturing is closed door and customised to their needs. As many as 85% vendors rejected the offer to associate with Xiaomi. So how do you win against such odds?

Founder Lei Jun, who was an already established entrepreneur and billionaire from his previous ventures in the 1990’s, hired a set of executives from Google, Motorola and Microsoft. Their efforts in developing the MIUI Android platform ensured newer capabilities every week. A strong feedback loop from beta users and other customers helped them evolve faster and at lower cost. A tie up for touchscreens with Sharp Japan in 2011 was a boost at a time when business with post Fukushima Japan was at its lowest. The faith by Qualcomm in the MIUI platform and the assembler of Apple; Foxconn agreed to set up assembly for Xiaomi.

Someone might argue that you can capture a market if you have a product at an affordable price; in Xiaomi’s case- roughly half of what an Apple or Samsung sells. But unless there is a decent level of quality offered, no one can succeed in a mature market where consumers are informed. From the launch of its first phone in August 2011, Xiaomi surged past Apple by end of 2013 and had Samsung under its heel by August 2014- yes, just 3 years.

The story in neighbouring India with Micromax is equally enthralling though. It started off as a software company in 2000 and got into mobile phones only by 2010, much the same as Xiaomi. While the urban Indian was spoilt for choice with Samsung, Nokia, LG and Blackberry, Micromax went after the bottom of the pyramid. Its co-founder, Rahul Sharma was inspired to counteract the power outages in rural India. Micromax X1 was the first phone launched with a battery capacity of 30 days.

This was a time when some 26 mobile phone brands came into India in a span of 12 months with a similar model of manufacturing hubs in China and aim to capture the low spending-high volume end of Indian market. But Micromax made a distinction for itself by offering Indians not a low end Nokia or Samsung look alike sporting a T9 keypad but the experience of a QWERTY and dual SIM options. While rural was a focus, Bling- a swivel QWERTY phone with Swarovski crystals and a mirror became an instant hit with urban women. Bling was one of Micromax's highest selling models. It was also high on experimenting with the Android platform and came up with the Canvas phablet range in 2011.

Micromax did everything right when it came to marketing itself and can be a great example of the bottom-to-top approach. Hiring Akshay Kumar as its brand ambassador, sponsoring cricket tournaments etc. built awareness for the brand across consumer bands, while a slow and steady build-up of ground network of retailers and service centres built market visibility. The carrot they offered; better margins than anyone else. If the Apple and Samsung’s of the world were out of the pocket range and the Nokia and Blackberry empires was crumbling under the Android wave, Micromax was one of the better known so called low end look- alike and do-alike in the market which enjoyed the retailer push and cost a third of a Samsung of the same specifications.  

When Canvas was launched, the advertising was one with an international look which was boasted then by Samsung and LG. This was a stage when the brand built an image suggesting that it could offer the functionality of a bigger brand at a smaller price tag. But the use of international star like Huge Jackman in its ads gave a sign that Micromax meant business and washed away its me-too perception in the market. With the launch of their assembly unit at Uttarakhand in 2013, the ‘Made in China’ tag is also soon to be cleared off its phones.

The two Asian giants are likely to encounter each other head on very soon. Micromax has gone global with Russia and SAARC, while Xiaomi after East Asia has entered India. Xiaomi’s launch on Flipkart saw its sticks wiped off the shelf in under a minute- which kind of talks of its level of awareness in India already. But one thing is for sure; even if Samsung might refute the survey figures and claims to have not lost its market share, the brands once termed the clones have attacked and the ground is set for them to assume clear leadership soon.