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Meghna \n Maiti, Financial Chronicle<\/i><\/p>\n Meghna \n Maiti, Financial Chronicle<\/i><\/p>\n
Mumbai, \n January 17, 2014<\/i><\/p>\n
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Both \n are full of bombast. Both are bleeding. So what’s the difference \n between the virtual retail market and the real retail market? \n Not much really as far as making money is concerned.<\/p>\n
Oh yes, for you and me the difference is obvious: when you buy \n from an e-shop, you pay much less for an item that lands at your \n doorstep by post or courier and you suddenly decide you don’t \n like it after all. Try returning that – it’s a learning \n process you don’t want.<\/p>\n
Much better is the real world: you see, hold and buy what you \n want, but the price you pay for it covers the rent of the place, \n the salary of the staff, the electricity and air-conditioning \n cost, the huge margin, the works. In short, you pay through the \n nose. But the return policy works fine.<\/p>\n
If you are vicarious, you will be pleased to know that both your \n e-retailer and the flesh and blood retailer are losing loads of \n money every time he sells you anything.<\/p>\n
But e-retailers do come up with clever spot ads on TV. In contrast, \n r-retailers (real retailer) mostly use print media for full-page \n ads that are dull, prosaic, but factual. Unfortunately, neither \n cleverness nor dullness brings in profits.<\/p>\n
By way of bombast, there’s Flipkart: the e-retailer founded \n by Sachin Bansal and Binny Bansal claims it will sell goods worth \n Rs 6,200 crore by 2015. Ask how much they sell now, mum’s \n the word. What we do know is that in none of the seven years it \n has been around has it made a profit. Also chronicled is their \n takeover of a string of mom-and-pop-shop equivalents in the e-world. \n Mime360.com and Chakpak.com, for example.<\/p>\n
For the rest, one has to do a little snooping in the office of \n the registrar of companies (RoC) where filed data show up a firm \n called Flipkart Internet. This company’s last available financials \n are for October-March in 2012-13. And it had filed only the balance \n sheet, not the profit and loss account.<\/p>\n
But its director’s report gave a pointer: in the six months \n its income was Rs 15.46 crore and expenditure Rs 71.29 crore. \n Loss before depreciation and tax was Rs 55.76 crore and after \n depreciation the net loss was Rs 62.68 crore.<\/p>\n
But Flipkart Internet paid Rs 94.15 crore to Flipkart India for \n purchasing the e-commerce business and another Rs 19.70 crore \n as cost reimbursements. Flipkart India is a subsidiary of Flipkart \n Internet. The pyramid raises two more levels: Flipkart Marketplace \n of Singapore is the Indian firm’s holding company whose holding \n firm is Flipkart, also based in Singapore.<\/p>\n
This story is, of course, not about the holding structure but \n its e-business in India. Given that it was pitiful in the last \n RoC filing, isn’t the year 2015 plan but a pipe dream?<\/p>\n
eBayIndia.com story is not much different either. eBay India \n data with RoC indicates a net loss of Rs 72.15 crore in 2012-13. \n In 2011-12 its net loss was Rs 15.29 crore.<\/p>\n
Neither the Flipkart spokesperson nor eBay officials want to \n comment on the results. But eBay officials were most willing to \n share the hype associated with e-shops. Sample: the company sells \n 15 items every minute and has customers in 4,600 Indian cities. \n Or so claims Deepa Thomas of eBay India.<\/p>\n
Claims in the e-retailing business are always tall. A specialised \n e-retailer, Lenskart.com, for example, says it has doubled \n in one year. “We are selling 1,000 (pairs of) spectacles \n a day,” Peyush Bansal, founder and chief executive officer. \n His online business is growing but he has gone offline as well, \n clearly not willing to put all the eggs in one basket.<\/p>\n
Similarly, Jabong.com (in the business of fashion and lifestyle) \n too has sealed its lips on financials, but Arun Chandra Mohan, \n co-founder and MD, says online retail has a large potential and \n that they are trying hard.<\/p>\n
Myntra.com, according to RoC data filings, is legally called \n Vector E-Commerce. It too has filed only the balance sheet and \n not the profit and loss account. The file has two pieces of hazy \n data under the head ‘Profit Loss For Period’. One is \n Rs -3.50 crore and another is Rs -2.60 crore. They, quite certainly, \n are losses, but for which year is not clear.<\/p>\n
Like the others, Myntra.com is not forthcoming with any information. \n Mukesh Bansal, founder and CEO, had earlier told Financial Chronicle \n that they expected “a gross merchandise value” of Rs \n 800 crore in 2013-14. How much of it has been achieved is not \n known.<\/p>\n
Analysts think they know where the failure comes from. Most e-retailers \n lack the credentials, strong business models or experience, and \n their costs are very high. <\/p>\n
For now, at least publicly, e-retailers still take pride in their \n “phenomenal growth story” and point gleefully to the \n sad plight of r-retailers. True, footfalls at r-retailers have \n dropped and sales are not encouraging at all. Reliance Retail \n has discontinued its TimeOut range of specialty stores. Future \n Group has shut eZone and positioned it as a convergence platform \n for physical and online shoppers. Music World stores are disappearing. \n Other books, music and movies chains like Crossword, Planet M \n and Landmark have trimmed themselves.<\/p>\n
While offline retailers have slipped, it is true that e-retailers \n managed to have double-digit growth. But in the process their \n costs have soared and margins shrunk.<\/p>\n
In the r-retail business, ‘same store sales’ (SSS) \n is a good indicator of growth. Over the past year this growth \n has slipped to single digit in the case of Kishore Biyani’s \n Future Value Retail, which operates Big Bazaar (8 per cent), and \n Home Town and eZone (7.4 per cent), according to Q3 data.<\/p>\n
K Raheja’s HyperCity has seen 8.9 per cent growth at the \n end of September. Govind Shrikhande, managing director of Shoppers \n Stop, had claimed to FC “7 to 9 per cent” growth in \n December. Discount apparel chain ‘The Loot’ has actually \n seen a 10 per cent drop in SSS growth last month from the level \n a year ago, according to Jay Gupta, MD.<\/p>\n
If not profits, online shops have certainly seen volume growth, \n but, according to Gupta, this comes on a low base. Gupta attributes \n the growing online business to big price discounts customers get. \n “They save 15-20 per cent in their annual budget when they \n shop online. They realise there is great value in online retail.”<\/p>\n
This is perhaps reflected in the fact that 10 per cent of urban \n consumers in India now use the internet as the primary medium \n to make purchase decisions. “This will rise to 30 per cent \n in three years,” says Shweta of the Boston Consulting Group.<\/p>\n
According to a recent Technopak study, the Indian retail market \n is worth $490 billion now and will grow a 6 per cent annually \n to $865 billion by 2023. Within this market, e-retail, now just \n $1 billion, will grow 0.2 per cent annual to $56 billion by 2023, \n which will be still be only 6.5 per cent of the total market. \n By then, the share of organised r-retailers will grow from 7 per \n cent now to 17 per cent.<\/p>\n
In other words, mom-and-pop stores and the kirana shops will \n still rule the retail roost. Organised r-retailers see the vast \n cluster of e-retailers as a menace, though a few of them are trying \n their hand at online business too. The need for a different strategy \n to face the online challenge is felt.<\/p>\n
“We have to become more convenient to the consumer. We need \n to have a more cooperative kind of model to survive,” says \n Shrikhande of Shoppers Stop, which runs two online shops: Shoppersstop.com \n and Crossword.in.<\/p>\n
Rahul Mehta, MD of Creative Casuals and head of the clothing \n manufacturers associations of India, does not agree that online \n is a threat to offline. “Online retailers have only 8 or \n 9 per cent of the retail space. It is not a big threat, but offline \n players need to re-work their strategies to stay relevant.”<\/p>\n
Profit or no profit, online retailers are gung ho — in the \n manner that all small businessmen trying to go big are. They see \n holding the edge with clear access, convenience and low prices. \n “And, do not underestimate the great power of choice,” \n says Mohan of Jabong.<\/p>\n
Bansal of Lenskart points to other advantages to the customer: \n “It (buying) happens from home or office. You have everything \n under the sun, and the freedom to buy any time and get it delivered \n to any address.”<\/p>\n
True, says Preeti Vyas, chairperson of Vyas Gyanneti Creative, \n a design consultancy. “Even for categories like shoes, people \n in all age groups are placing orders online.”<\/p>\n
According to Amitabh Mall of the Boston Consulting Group, online \n retailers are able to influence the customer better. The influence \n is highest for categories such as travel, electronics and financial \n products like insurance.<\/p>\n
Still, there is resistance because of uncertainty of quality, \n safety of transaction and inability to navigate easily. “These \n will likely get solved as better portals with innovative service \n features emerge and allay these apprehensions,” adds Mall.<\/p>\n
Some others say just the opposite: that a large number of \n consumers transacting online are young and the internet is an \n integral part of their life. They browse, compare, review and \n use multiple online sources of information simultaneously to take \n decisions. “But product and service unpredictability remains \n a barrier even for them,” says Devangshu Dutta, CEO of the \n consultancy Third Eyesight.<\/b><\/p>\n
So, for now, online is mostly about information, attention, \n influence and social interaction related to a purchase, according \n to Dutta. He also believes that over time, physical retailers \n will improve their online presence to tap customers’ cross-channel \n behaviour.<\/b><\/p>\n
What this implies is that offline and online retail may have \n to be combined to create a new business model. Actually, it is \n already happening: some offline retailers are also offering their \n best rates on their own websites. “In the future, offline \n retail will seek more and more integration with online players \n to stay profitable,” thinks Mark Ashman, CEO of HyperCity \n India.<\/p>\n
This is why Kishore Biyani entered e-commerce in 2010 after a \n full decade of being around as a physical retailer. At the time \n he had hoped to derive 10 per cent of Future group’s sales \n from online portals.<\/p>\n
Last September the company was oozing confidence, and its website \n said: “The digital world is where the future lies… There \n is vast potential for the Future group to become front-runners \n of retailing in digital space.” It had then boasted that \n “our reach and relationship with customers provide us with \n the benefit of low customer acquisition cost for the digital space….”<\/p>\n
Although the Future group refused to comment on it now, clearly \n it has not quite worked as it had hoped.<\/p>\n
Croma of the Tata group has also copy-pasted the e-shop model \n of other physical retailers. It entered e-commerce in 2012. Ajit \n Joshi, MD and CEO of Croma, Infinity Retail, exudes confidence: \n “We hope to provide a one-stop destination for our patrons…, \n enabling them to personalise their online shopping experience.”<\/p>\n
Words heard before.<\/p>\n
Aditya Birla Retail, too, went online last year to sell Madura \n label apparel from trendin.com. Media reports suggest Reliance \n Retail also plans to get into it within six months. The company \n is already on record that it plans to adopt multi-retail channels. \n Reliance did not respond to an email query from FC.<\/p>\n
The lesson learnt? If you can’t beat them, join them. Holds \n true for both e-retail and r-retail. The best of both worlds for \n the customer.<\/p>\n
(Wih inputs from Rajesh Gajra)<\/i><\/p>\n