{"id":1417,"date":"2014-07-18T12:29:00","date_gmt":"2014-07-18T12:29:00","guid":{"rendered":"https:\/\/www.thirdeyesight.in\/?p=1417"},"modified":"2022-08-31T12:35:16","modified_gmt":"2022-08-31T12:35:16","slug":"package-deal","status":"publish","type":"post","link":"https:\/\/myechoproject.com\/TES\/package-deal\/","title":{"rendered":"Package Deal"},"content":{"rendered":"\n

Rashmi Pratap, The Hindu Businessline
\n Mumbai, 18 July 2014<\/i><\/p>\n

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<\/p><\/div>\n

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Amit \n Sarda is just beginning to discover India. After selling organic \n handmade bath salts, essential oils and soaps in the cities for \n over 13 years, he has suddenly realised that a whole other world \n exists beyond them. Orders for his company Soulflower’s products \n have started coming in from Tinsukia, Dibiyapur, Bidar, Sundargarh, \n Mansa and many more small towns, throwing open markets Sarda hitherto \n had no inkling of. And his ally in conquering the many nooks and \n corners of the country is the $75-billion American giant Amazon, \n which entered India last year.<\/p><\/div><\/div>\n

In Mumbai, Beta Dave, marketing and e-business development manager \n at Sia Jewels, is elated by her company’s partnership with \n Amazon, which has tripled its online sales within a year. The \n jewellery is sent to Amazon, which takes care of warehousing, \n packaging, delivery and after-sales service, freeing up Sia to \n focus on new designs. Moreover, the big-town brand now finds additional \n customers in Tier II and III cities.<\/p>\n

“The kind of brand recall Amazon has in rural India is amazing. \n People know it delivers the world over, and that helps,” \n says Sarda, who co-founded Soulflower with Natasha Tuli in 2001.<\/p>\n

What has allowed Amazon to deliver anywhere from Dibiyapur in \n Uttar Pradesh to Mansa in Punjab is its tie-up with India Post. \n This masterstroke has given the e-commerce major access to nearly \n 20,000 pin codes across India. This is the core of Amazon’s \n India strategy — retrofitting to suit local conditions, rather \n than replicating its hugely successful global model in the $2.3 \n billion Indian e-commerce space, which is expected to grow to \n $32 billion by 2020 (Technopak Advisors). “Our global mission \n is to build the earth’s most customer-centric company. While \n Amazon’s vision and mission are global, we have localised \n our execution,” says Amazon’s country chief, Amit Agarwal<\/p>\n

Globally, the giant is currently caught in catfights. For the \n past month, Amazon has been in a much-watched wrangle with publishing \n major Hachette. As the online retailer is the largest seller of \n books, Amazon asked Hachette to cough up more money on e-book \n sales. Hachette refused and, so far, the book industry has been \n split down the middle. Some big authors have sided with their \n publishers but a large number of authors who have found success \n through Amazon — it is now also a publisher — have aligned \n themselves to it. Amazon, by discounting books heavily, bled the \n brick-and-mortar bookstores, eventually leading to major chains \n like Barnes & Nobles shutting down outlets and Borders winding \n up business altogether. In order to protect its bookstores, in \n January this year, the French government passed a bill which banned \n online bookstores from offering free delivery. In the Gallic world, \n which does not believe in mincing words, this ban is called the \n Amazon tax. On the tails of these troubles — minor and major \n — India is a market that is now primed for the company. And \n Agarwal is here to make sure that as more Indians begin to shop \n online, their first site of call is Amazon.<\/p>\n

Tailing Bezos<\/b><\/p>\n

Agarwal learned from the best. For two years, 2007-09, he was \n the shadow to Amazon founder Jeff Bezos — a role that involved \n travelling with the top boss, attending all his meetings and taking \n the minutes, and conferring with him at the end of each day.<\/p>\n

Fifteen months before Amazon India went live, Agarwal set up \n junglee.com, a website that allows buyers to compare offerings \n and choose before directing them to the seller’s website. \n This non-profit venture has given Amazon truckloads of analytics \n — handy ammunition for its India battle.<\/p>\n

In e-commerce, analytics is as crucial as R&D is for a product \n company. It identifies what buyers are searching for, what they \n choose from, where they buy, at what price and why. That helps \n companies not only customise offerings for potential buyers but \n also ensures that their preferred products pop up every time they \n log on to the internet.<\/p>\n

Junglee has also familiarised the company with sellers, facilitating \n a rapid expansion of product categories at Amazon. “Amazon \n had customers in India even before it launched here. It has built \n an analytical understanding of the Indian customer base through \n many years. Junglee, again, is a rich source of data and learning,” \n says Devangshu Dutta, chief executive at consulting firm Third \n Eyesight.<\/b><\/p>\n

From the way Amazon sources products from sellers to how it reaches \n out to buyers, the company has retrofitted multiple processes. \n It has the mechanisms to offer over 17 million products across \n 28 categories in a country as diverse as India — all within \n a year of starting operations.<\/p>\n

While tailing Bezos, Agarwal learned that customers care about \n three things — a large selection to choose from, value pricing \n and convenient delivery options. And over the past few years in \n India, he has focused on creating a differentiating factor in \n all three. And that, in turn, led to local innovation.<\/p>\n

Ideas for India<\/b><\/p>\n

In India, Amazon offered the cash-on-delivery option, something \n it doesn’t do elsewhere. (The company is now considering \n extending the concept to China and Japan.)<\/p>\n

Its Easy Ship facility was created exclusively for India and \n benefits smaller sellers who don’t want to send products \n to the fulfilment centres. Amazon picks up the packages from the \n seller and delivers to customers. “We inject in the last-mile \n delivery,” says Agarwal. This concept, too, is likely to \n be exported to other countries.<\/p>\n

In the second, and more successful, part of Amazon’s strategy, \n the ‘Fulfilment by Amazon’ offering allows sellers to \n stock their inventory at its warehouses in Mumbai and Bangalore. \n Amazon ships the products for them and charges on a per unit basis, \n irrespective of the numbers sold.<\/p>\n

“They have taken the stress of packaging and shipping off \n my head. I just focus on creating the best products,” says \n Tuli of Soulflower. Apart from stress, sellers are also spared \n the costs of warehousing, maintenance, packaging, delivery and \n even after-sales service. Such expenses vanish from the seller’s \n profit-and-loss account, to be replaced by a simple variable cost \n per unit, says Agarwal, terming it as ‘cloud computing’ \n for sellers.<\/p>\n

“The warehousing cost for five items is different from that \n for five million, and the prediction for that capital investment \n is often wrong. Amazon essentially absolves sellers of all that \n risk,” he adds. This offering is a hit with small and medium \n enterprises that are hungry to go national but lack working capital. \n It’s also a service that no other e-commerce player has been \n able to replicate so far.<\/p>\n

Analysts estimate that sellers save 30-40 per cent of their cost. \n And this, says Agarwal, allows Amazon to offer discounts to end-users. \n “We look at the cost structure of every seller, reduce the \n costs and allow them to keep a larger share for themselves. So \n they can pass it on to customers at low prices,” he says.<\/p>\n

Home run<\/b><\/p>\n

While it costs Amazon to offer such services, Agarwal says it \n is compensated by the growth in volume. “The cost per unit \n goes down… Good customer experience drives traffic, which \n attracts sellers and helps us bring in more selection. This, in \n turn, improves customer experience. This flywheel is spinning \n fast for Amazon,” he explains.<\/p>\n

And the results are showing. Munendra Singh, working with a private \n bank in Mumbai, says he can pick up his parcels, ordered through \n Amazon, from a nearby store. “That’s a big convenience, \n as my wife and I both work and nobody is at home to take deliveries \n during the day,” he says. Amazon has tied up with Bharat \n Petroleum Corporation Limited to use its In & Out stores in \n Mumbai, Delhi, Bangalore, Ahmedabad and Manipal to make deliveries \n to customers.<\/p>\n

Its same-day delivery is a huge hit too. Shreya Krishnan ordered \n three kurtas from Myntra on June 14 and was disappointed to learn \n about the cancellation of the order on June 25. “I got a \n mail from Myntra about the cancellation, without any reason for \n it. Since I had to leave for a holiday at the month-end, I ordered \n from Amazon. And got the delivery the same day,” she says.<\/p>\n

Competition kill<\/b><\/p>\n

“Amazon has certainly forced its competitors to re-think \n their strategy. Flipkart, the home-grown e-commerce company founded \n by former Amazon employees, is hard at work to outdo the US giant. \n Within days of Amazon launching same-day delivery, Flipkart replicated \n it; however, it’s unlikely to match Amazon’s reach in \n the hinterland anytime soon.<\/p>\n

More importantly, Amazon India is backed by a strong parent, \n which reported revenues of nearly $75 billion in 2013 and is expected \n to touch $100 billion by the end of this year.<\/p>\n

“Amazon has been an outlier in every country. It is the \n first pure-play e-tailer to emerge the world over. It is focused \n on execution and will be a competition to the existing players. \n More so because it doesn’t have capital issues,” says \n Ankur Bisen, senior vice-president of retail and consumer products \n at Technopak.<\/p>\n

In contrast, Flipkart is backed by private equity funds, which \n invest only to look for an exit through an IPO or sale to another \n player. Flipkart is said to be in talks again for raising $500 \n million from a clutch of investors in a deal that could value \n the company at $5 billion, or ?30,000 crore. But valuation on \n its own doesn’t mean much.<\/p>\n

A classic case is that of Indian telecom operators and tower \n companies, which commanded billion-dollar valuations around 2006-07. \n Foreign investors entered with cash. Today, however, only a handful \n of them are profitable. A majority are making losses and looking \n to sell. Similarly, continuing losses and limited finances will \n only make the going tough for Flipkart.<\/p>\n

Until now, the bigger e-commerce firms have entered India through \n acquisition — ebay bought Baazee.com, while Monster.com acquired \n Jobsahead.com. Amazon was expected to do the same with Flipkart, \n but that did not happen. It wasn’t for lack of trying though. \n Flipkart was expensive and with the kind of capital and analytics \n at its disposal, it made better sense for Amazon to invest in \n own operations than pay big bucks for it.<\/p>\n

This has unsurprisingly created a flutter in the Indian e-commerce \n space. In an industry where most businesses were built to sell, \n Indian companies have missed the biggest opportunity to exit. \n “Now they have to do something to stay in the business, and \n stay relevant,” says Dutta.<\/b><\/p>\n

Repackaging business<\/b><\/p>\n

Already, some large e-commerce businesses have shut down due \n to a cash crunch or were acquired by bigger players. Flipkart \n bought Myntra in May while Allschoolstuff.com and Indiaplaza.com \n closed after failing to raise another round of funding, as did \n Chhotu.in, Hushbabies.com, Miraistore.com and Koolkart.com, among \n others.<\/p>\n

“Investors can’t run companies for long if they \n don’t have enough cash for operations. Amazon has stayed \n ahead of the cash-raising curve. Unless Indian businesses do that, \n they will run out of cash,” says Dutta.<\/b><\/p>\n

This has forced Indian companies to relook their business model. \n Flipkart discontinued sale of consumer electronics like TVs, audio \n systems and white goods (air-conditioners, washing machines, refrigerators) \n within days of Amazon launching in India. It also cut down on \n the massive discounts it once offered on mobiles, tablets and \n their accessories. Its focus now is on high-margin and high-volume \n segments like apparel, as borne out by its Myntra acquisition.<\/p>\n

Bisen points to two kinds of players in the e-commerce space \n — companies such as Flipkart, Jabong and Snapdeal, which \n have built brand equity, achieved some scale and demonstrated \n a viable future growth model; and the second-rung companies, which \n are pursuing differentiation but are struggling to progress beyond \n the initial round of funding. As long as the economy is growing, \n both of these will exist, along with the millions of brick-and-mortar \n retailers. Eventually, something will have to give. If its history \n in other countries is an indicator, Amazon is likely to be the \n one taking us into this post-apocalyptic world.<\/p>\n

The fine print
\n <\/i><\/b>———————<\/b><\/i><\/p>\n

Hottest sellers: Books, consumer electronics, baby products, \n shoes and watches<\/b><\/i><\/p>\n

Shop on the go: 35 per cent of traffic comes from mobile \n devices<\/b><\/i><\/p>\n

Pincode search: It delivers to the pin code 790002, which \n is for a remote village called Balemu in the West Kameng District \n of Arunachal Pradesh<\/b><\/i><\/p>\n

Instant gratification: 3,00,000-plus products are available \n for next-day delivery<\/b><\/i><\/p>\n

(Published in The \n Hindu Businessline<\/a>.)<\/i> <\/p>\n","protected":false},"excerpt":{"rendered":"

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