E is now mc2: The changing face of Indian ecommerce

Mar 10, 2015

- By Vivek Kaul

Vivek Kaul
This is a slightly different column from the ones that I usually write, given that it has no hard core economics in it for a change.

In February earlier this year I was in Bangalore at a literature festival, moderating a discussion titled old retail versus new retail. And this discussion along with some recent family experiences and reading leads me to believe that some interesting things are happening in the Indian ecommerce space.

I first discovered ecommerce when I started ordering books on Rediff.com (of all the places) sometime in 2007 or 2008 (I don't remember when). I found the process very convenient and ended up finding a large number of books which weren't available in book stores. During those days the discount phenomenon hadn't really caught on.

While ordering yet another book on Rediff I discovered a small advertisement (if my memory serves me right) of a website which offered discounts on books. I had never heard of the website before and was sceptical ordering from it.

But the discount finally did the trick and I placed a order. The book was delivered a few days later. And that's how I discovered Flipkart.com. In the days to come I discovered other book websites like Infibeam.com, Uread.com and so on.

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All my book shopping moved online and I stopped going to bookstores like Oxford (at Churchgate in Mumbai), Landmark (at Phoenix Mill in Mumbai) and Crossword (at Kemps Corner in Mumbai). This is how things stayed in the years to come.

My tryst with Indian ecommerce was limited to buying books. Nevertheless, the Indian ecommerce scene has changed dramatically over the last six years. The kind of goods that are now available (and are being bought) online, was absolutely unthinkable six years back. I came to realize this after I saw my mother buying everything from towels to cup-plates-spoons from e-commerce sites, using the cash on delivery option. This gave me the confidence to buy a water filter online, which was delivered within 24 hours. I even ordered a pair of spectacles online recently. The process was extremely convenient.

Everything from furniture to electronics to shoes to clothes, is now available online. The feeling prevailing in 2008 was that people needed to touch and feel a lot of things before buying them. Hence, ecommerce would never move beyond selling books and a few other goods. But that is not how it has turned out.

So, the question is why are people now comfortable buying those goods online which nobody thought they would six years back? I feel there are two major reasons for the same. The first is of course price. Professor Rajiv Lal of Harvard Business School who has studied the retail business all over the world explained this to me in an interview when he said: "Basically the margins that are build up because some of our retail chain are inefficient. Think about the amount of inventory that is being held in the Indian apparel business. It is humongous. Stores are full of inventory and most of them don't even know how much inventory they are holding. All that stuff is being reflected in the prices that we pay."

The e-commerce companies don't have to maintain huge inventories. If they manage to build up an efficient supply chain network, they can keep ordering goods as they go along. Hence, they do not to have maintain a large inventory like the offline players. This helps keeps costs down.

Also, like offline players they do not need to maintain a huge physical infrastructure like showrooms, godowns etc., to sell their goods. They can also buy goods directly from companies producing them and get a better deal in the process. These goods can be then directly sold to prospective consumers without having to go through an elaborate distribution channel.

As Lal told me: "even situations that we think that it doesn't make sense for people to buy things on the internet because of the inefficiencies in the Indian retail system, the price is so appealing that people are willing to compromise on other things."

Further, the second reason for the success of ecommerce companies in India is that they follow a very flexible return policy. This allows consumers to touch and feel the product that they want to order. Let's say a consumer wants to order a pair of shoes. Instead of ordering just one pair, he can order four pairs, see which one fits and looks the best, keep that, and return the other three.

While this is a logistical nightmare for ecommerce companies it has become an important part of the business model that has evolved, allowing the consumers to touch and feel the product.

Ecommerce companies can reach all parts of India even where old retail does not. A friend of mine narrated an interesting story about ordering diapers online for his newly born child. The ones that he wanted were not available in the small town that he lives in.

In Bangalore while moderating the discussion, the CEO of an ecommerce company which specializes in women's inner wear told me that they deliver to all pincodes in India. It wouldn't be possible for an old retail company to have that kind of reach through physical stores.

Also, as people get used to ordering stuff online, the ticket sizes of what they order are going up. "The biggest solitaire we have sold was priced at Rs 20 lakh," the CEO of an ecommerce company which sells jewellery online told me in Bangalore.

Interestingly, Indian ecommerce now needs to be rechristened as mcommerce. Akhilesh Tilotia of Kotak Institutional Equities makes this point in a recent research note titled e is now mc2: "India's new internet users [are] coming primarily via mobiles...Flipkart said that ~70% of its transactions take place on mobiles across all categories (from electronics to fashion) and freecharge indicated that this number was ~90%."

And in case you wondered why every ecommerce (oops I should be saying mcommerce) company keeps advertising their mobile apps, you now know the reason.

In fact, ecommerce companies now even want to set up physical stores. I came to know about this at Bangalore. Tilotia suggests the same in his note: "Online channel players (especially in high-value or experiential verticals such as furniture, jewelry, and beauty products) pointed out the challenges that they face in bringing the correct and complete experience to the customer. Issues such as the need to touch and feel a product, trust, dispute resolution, and handholding and demonstration need a physical outlet. Companies that started as online-only portals are now developing an omni-channel strategy." Such stores should take care of the need of a consumer to touch and feel a product to some extent.

But that's the good part. What nobody seems to be talking about is whether the ecommerce companies are actually making any money? Or when will they start making money? Right now, with money available at low interest rates in the developed world, private equity and venture capital firms are falling over one another to invest in Indian ecommerce. The question is for how long will that continue?

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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5 Responses to "E is now mc2: The changing face of Indian ecommerce"

Raghuveer Singh Rathore

Mar 11, 2015

Its nothing but a ridicule in itself when all deodorant ads commodify women and diamond ads don't. Such ads irritate, because those are senseless.

Like 

Raghuveer Singh Rathore

Mar 11, 2015

During Feb'15 end I had placed the order with online payment on COD basis for a shoe pair on snapdeal, but the very next day the price was revised downwards nearly to 40% & I then actively cancelled the order, but the reimbursement was made after deduction of process charges.Is this a practice of all eCommerce Companies? I am afraid, I know nothing about such practice of process charges by such eCommerce companies. Please reveal about the procedure, if you know about it.

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Shankar Jog

Mar 10, 2015

These online companies depend on Courier service. But, the courier service people are not reliable. They are out for a fast-buck. They accept parcels for delivery, but do not deliver outside of cities and then report anything as 'not available, address not existing, door-locked, person outside our service area, etc.
If they accept parcel for delivery they should deliver faithfully or they should not accept for delivery Accepting and then not delivering is unscrupulous.
But, these online companies have faith in them and do not realize that more people are staying in villages and outside cities than those in cities. All banks are also guilty of depending on couriers than postal services which reaches every nook and corner of India.

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Srinivasan.G

Mar 10, 2015

Thinking aloud and asking others for answers. Consider a person in small rural town who is not skilled for an office job or not educated. He can set up small shop and provide good customer service. Over years, he would grow to take care of himself and family independently. With e-commerce, the same person cannot setup shop as he would not be able to math prices offered in e-commerce. Hence he choose to become a delivery boy of another e-delivery agency to delivery products from e-commerce companies. Every one orders and are satisfied. Over years will he become independent? His job of delivery boy can always be replaced by youngster.

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A DSouza

Mar 10, 2015

Ecommerce companies do not stock. It's a platform. The merchants are given space and links that allow their products to show when a query is made. The merchant is responsible for the delivery. Amazon/flipcart/pepperfry gives a list of do and don't to the merchant and in Amazon's case some merchant will allow their products to be held by Amazon to take advantage of their supply chain. (eg. Amazon Fullfilled tab that appears). Amazon takes a % of the sale price + a % for storage.

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