The e-tailing market has witnessed a meteoric rise in the last few years. There can be no two opinions on the fact that e-tailing
is going through an unprecedented phase of growth, with e-tailers dominating news headlines on a nearly daily basis. The emergence of this sector has opened doors to new opportunities across the value chain, comprising ofvendors,
brands and providers of services like logistics, payment gateways, content & web development, packaging etc. But there always have been very strong and different opinions from some experts and people from business community in
favour of brick and mortar stores that theincreasing growth of e-tailing has created havoc for thebrick and mortar stores.
THE E-TAILING BOOM
First let's go into the definition of E-tailing.The sale of goods and
services through the Internet. Electronic retailing, or e-tailing, can include business-to-business and business-to-consumer sales. E-tailing revenue can come from the sale of products and services, through subscriptions to website
content, or through advertising. Though e-commerce in India is still at infancy when compared to China and US, there is only one way ahead - Up. Today, India's e-commerce industry is where US was in 2003 and China in 2007.
Currently, India's internet penetration is approximately 1/3th of China and the size of the industry is approx 1/60th of China indicating that future growth is going to come both from increased internet penetration and increased
adoption.For a start, consider that as mobile technology expands across India, the number of internet users is projected to hit 300 million by the end of this year – year-over-year growth of 35%.And as more players jump online,
India's "internet economy" is growing faster than any other nation.In 2009, for example, India's e-commerce market was worth roughly $2.5 billion. In 2011, that number jumped to $6.3 billion. And in 2012, it more than doubled to
$14 billion.Aside from the jump in web usage, there are other key drivers behind India's e-commerce growth:
* Rising living standards and a flourishing middle class with larger disposable incomes.
* The evolution of the online marketplace, led by sites like Amazon, eBayFlipkart and Snapdeal. These outlets also offer lower prices compared to brick-and-mortar retail stores.
* Busier lifestyles and a growing
population, which has resulted in more traffic congestion and driving consumers to do more shopping online.
* Increased broadband connectivity and 3G penetration.
* More usage of online second-hand selling sites.
Breaking it down further, about 75% of India's e-commerce revenue is travel related – airline and train tickets, hotel bookings, car rentals, etc.
The rest is online retail – an area growing at an estimated compound
annual growth rate (CAGR) of 30%. That smashes the average global growth rate of between 8% and 10%.No wonder, then, that India's e-commerce market is projected to be worth $24 billion by 2015.
Indian online retailers have
been raising funds to expand and compete with bigger rival Amazon.com Inc as more Indians shop on the internet.
Flipkart has raised $1 billion (over Rs. 6,000 crores) and the day after Flipkart announced this
funding, Amazon announced a $2 billion (over Rs. 12,000 crores) investment in India. Japanese firm Softbank has just announced plans to invest approximately $627 million (over Rs. 3,850 crores) in Snapdeal - and
Softbank is reportedly planning to invest $10 billion (over 60,000 crores) in the online sector, in the next 10 years. Although the retail market in India is huge, it is largely not organized retail, and you would be hard pressed
to find retailers that can compete with online retailers.
Millions of consumers across India are often lured by the biggest e-tailers with the biggest deals, delicious bargains, competitive prices and the most convenient of
all shopping—from home.
The autumn-winter festive period has seen major ecommerce industry players come forward and fire on all cylinders. Flipkart, Snapdeal, Jabong and more have saturated every media vehicle announcing
too-good-to-be-true offers. Flipkart's 'Big Billion Day' on October 6 was pitted against Snapdeal's enthusiastic 'Bachate Raho' campaign and Amazon's 'Online Shopping Dhamaka'.As Arvind Singhal, chairman of retail consulting firm
Technopak Advisors, puts it, October will be the tipping point for online retail in India. "With the collective impact of promotion and advertising by all major players, the Indian e-tailing space will see a whole new wave of
first-time shoppers coming online during the festive months."
THREATS FACED BY BRICK AND MORTAR STORES
Already the unorganized retailsector was facing the heat from the organized sector andnow these digital retailers
have posed more threats makingtheir recovery and growth more difficult.
The biggest competitive strategy adopted by the e-tailersis low pricing which has remarkably increased theirsales and reduced the sale of brick and
mortar stores. The following factors which are advantageous to e-tailers are threatening and disrupting the potential of the retailers to run the business profitably.
* Consumers' online pricing research.
* Convenience of door step delivery.
* Benefits of largest variety.
* Cash on delivery (COD).
* Product positioning online wherein some brands are only launched online due to reasons which may be either
they don't have capacity to be launched offline or they don't have bandwidth.
* E-tailers make bulk purchases from the manufacturers and can manage to make cash payments.
* They can afford to offer huge discounts.
* Returning facility if not satisfied with the items sent.
* The growing interest of investors in this sector ensures the growth of online retailing.
* Increasing access in non accessible areas. This is definitely going to
have more adverse impact on brick and mortar stores in near future.
HOW TO COMPETE WITH E-TAILERS
With all these challenges for the brick & mortar retailers, and in the backdrop of the various fundamental
changes in Indian consumer's behavior, "e" is likely to emerge as the most attractive retail channel for meeting the shopping needs of a large segment of the urban Indian consumer and offer the maximum competition to
corporatized physical-format retailer especially those who operate in major high streets and shopping malls in major Indian cities.Hence, the earlier the mall owners / retail landlords (and then some brand owners too) accept
the reality of "e-tail" and take steps to adapt to these fundamental shifts, the better it would be for them. Indeed, there are many possibilities for such mall owners and landlords to rejig their spaces and business
models to co-opt e-tailers as their partners rather than see them as adversaries.
Many have chosen to ignore, downplay, or even cover-up the impact of e-commerce. Thinking in-store shopper experience or more television
advertising will solve the problem will only hasten the decline and not stop the trend. Secondly, the attention needs to turn to a consumer-centric business model rather than a real estate-centric model. Retailers will need to
focus on understanding their greatest asset (their customers) and that means a new marketing model built on consumer insights. "Location, location, location" will become "Customer, customer, customer". Retailers need to recognize
that the customer is now in control. Customers are not owned by retailers. They now shop around, even if they have a store credit card or frequent shopper card. Unless you know how much they are spending with the competition, both
online and in-store, you may be surprised with unpleasant news too late to react. Identifying the markets which are most vulnerable to online competition will be a good starting point.
There are several
important lessons to be learnt in the transition from bricks and mortar retail to the digital e-tailworld. While skills like speed, differentiation, and branding are equally if not more important in the digitalworld, it is the
ability to transform core operations and practices to this new medium which might make thedifference between success and failure. Retailers need to examine the viability of such a transition, and lookinto the synergies of using the
new channel of e-tail.
Three conclusions are drawn. First, the largest retailers are now pursuing Internet-enabled advantages and cost reductions inoperations, which could translate to an enhanced competitive position in
process, structure and relationship terms. Secondly,consumer reactions to the new real and virtual offers will be fundamental to their success and failure, but as yet consumer reactionsare not fully understood. Thirdly, existing
retail floor space will need enhancement in quality and presentation if it is to continue toprovide retail functions. Retailers should explore more opportunities and incorporate technological developments to grow with the volatile
scenario and compete with the juggernaut called e-tailing.
"He who lacks foresight and underestimates his enemy will surely be captured by him."
* FORBES INDIA MAGAZINE