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. 

The Cell Theory

I actually hate to start writing anything about consumer electronics, my opening lines sounds very much like some story going ‘In our times….’ It makes me feel like a Paleolithic specimen on his way to the museum of natural history.

But I guess the rate, at which electronic products and consumers for them are evolving; it does seem like too much has happened already. The telly had a belly like tube, which got flat, became a size zero with plasma and TFT and now works on LEDS. Radio forgot what Short Wave is. Letter Writing is now a literary art form as just about everything today is SMS Lingo (Save Money by Slang)

If there every is a Demand curve plotted for all consumer electronics, I am confident what will be the steepest category. Cell Phones!!! There will be no other product in India which has the level of desire, acceptability and affordability like a Cell Phone. As a vertical open to access for all, cell phones in India are only 15 years old. (Deregulated outside Government Agencies only in 1995) and till February 2010, there were 564 million cell phone connections in India- that’s almost half of our population.

If first impressions are anything to go with, it was a luxury item that cost Rs.17 even if I would have accepted an incoming call- today it has come down to 1 paise /second. But that is what we would say in management terms is the operational expense; what about the capital expenditure. I feel this is the place where the game has changed majorly.

Recently I came across an article in Business Standard which said the handset market is worth Rs 50,000 crore in India. Wow!!! 5 followed by eleven 0’s…. that’s sleek. What’s more, the number of handset providers has gone up from 5 in April 2008 to 30 till March 2010, one new manufacturer has come in to the market every single month. What’s more, The Union Budget 2010 has relaxed the burden on Indian manufacturers- so more could just be around the corner.

Now I can understand, there are going to be names we have not even seen or heard of much. Lava, Benq I have so far only seen on outdoor hoardings. Karboon, Maxx, INQ, Spice, Micromax have moved into the mind space only after their mega sponsorship stints. But that has been just the tip of the ice berg. I really am not sure if anyone has even heard of Oilve and Airfone.

We are seeing the entry of big shots like Videocon, Onida, Acer and Asus: all with strong backgrounds in other electronics come into cell phones. But how about Luminous - a power and energy storage company - into the mobile handset market; coz that’s what has happened as well. All these new home grown entrants are giving tough competition to well entrenched players - Nokia, Samsung, LG and Sony Ericsson - in terms of price, features, models and services.

In fact the biggest loser has been Motorola; no new model since 2008. I can’t even recall its last ad- MotoRocker was it???

As I said earlier, it is desire, acceptability and affordability that are driving demand today. We always say that innovators have the advantage of being first. But there is a flip side- others can learn from you and your mistakes take advantage of them and make hay in the market which the innovator has spent years to build.

Desires have changed over the years. It is not limited to communication any more. My Dad’s first cell was a Nokia 2210. It was like a bulky and robust brick. My first handset a Sony Ericsson T100 doesn’t even excite my 3 year old nephew as a toy thanks to its’ mono-colour screen and ringers which sound like- well a cell phone ring…To be completely honest, no buyer from any part of India will be happy today with just a phone to talk.

Desires are driven by your level in the pyramid. Not even a first time user will like a phone which does not have a coloured screen, FM Radio/MP3 playback and funky ring tones. If you are not a first time user, a camera, GPRS capability, Bluetooth and expandable memory become basic. Collegians are now driven by the widgets and applications, young professionals want a QWERTY keypad and Managers want to have cell phones that can become an option to a computer.

Manufacturers have recognized this trend; one reason why these new entrants always talk of the pain points of previous users. Just run a check on how many high end models Videocon has on the platter as a new entrant.

Cell phones have today been accepted as a need and no longer a luxury- of course, I still believe a VIRTU at Rs. 5.5 lacs is one. In many ways, it has replaced the concept of a landline at home. As for affordability, you can get a decently loaded cell phone for Rs 999.

So after all this fact findings, the usual question I love to ask- where next??? Cell phones have affected sales of wrist watches, alarm clocks, calculators, calendars, flash lights, cameras, and portable music players. They have killed the digital diary and business organizer.

Considering we still finding new uses for this small screen each day I feel the next victim is either amongst the TV or the Computer, That’s my Cell Theory….