The jury is still out on whether homegrown online retail giant Flipkart's grand 'Big Billion Day' was a success or not.
Launched as a mega online flash sale where the website was giving away products at discounts of up to 90 percent, the website hit a slew of bad news as its servers crashed , orders got cancelled and in many cases products went out of stock within minutes. (Even though this did not stop the website from reporting a stupendous single-day sale of about USD 100 million, or slightly less than a tenth of its total yearly sales tally.)
Flipkart rivals such as Snapdeal and Amazon also tried to steal a march over it by launching their own flash sales, with the former claiming to have notched up sales of about an equal value.
The news got worse with several offline retailers complaining to the commerce minister asking for the ecommerce business to be regulated, in a communication that apparently conveys that the government may be asked to look into predatory pricing practices by online retailers.
Then there are questions on whether such as a strategy can be sustainable – reports suggest a bulk of the bill for discounts offered by Flipkart will be footed by itself rather than its vendor partners. This could further stress the cash position of the retailer that is reportedly burning cash through and not reporting any profits even as sales have been going through the roof.
The negative aspects notwithstanding, there are several reasons why the flash sale was good for Flipkart and for the ecommerce industry as a whole.
One, a sale of such magnitude helps deepen the ecommerce market by getting in converts to the online fold. So even as online sales have increased at a phenomenal pace (figures suggest it has increased from USD 2.5 billion in 2009 to about USD 13 billion in 2013), it is still a fraction of the USD 500 billion plus offline retail market .
Also, a bulk of the online sales figure comes from travel-booking websites, which cater to a very niche market, meaning the actual online retail market in India is much too small. This means that much of the rise-of-the-ecommerce story is, while being impressive, overstated.
The reasons are clear: India's Internet penetration is low (about 15 percent compared to about 50 percent for China). While Flipkart reportedly notched up sales of over USD 1 billion last year, it hardly compares to Chinese online giant Alibaba, which ratcheted up sales of USD 248 billion .
As a result, every push by companies such as Flipkart or its rivals will help broaden the retail base and create a sort of cult around such events. In the US, the luster of the practice of the years-old Black Friday sales for offline retailers (on the Friday following Thanksgiving) has already been dimmed by the rivaling Cyber Monday launched by online firms (and which takes place on the Monday immediate following Black Friday).
Two, the criticism about whether Flipkart spread itself too thin by launching a sale of a magnitude it could not handle technologically is well-founded but having learnt its lesson, the website would do well next year around to prepare for such exigencies as server crashes, etc.
The offline flash by Future Group's Big Bazaar, which started its annual Maha Bachat sale a few years back on the occasion of Independence Day also saw glitches such as unending customer queues but over the years, the company has learnt to manage the event more smoothly without harming its reputation.
Three, Flipkart's mega flash sale also fits well within its strategy of coming out ahead in terms of sales even at the cost of profits.
For, the ecommerce market has worldwide exhibited signs of a winner-take-all dynamics where the industry leaders corner a bulk of the market after achieving scale and muscle out the smaller players.
Thus, in the wake of increasing competition in the online selling space, it becomes imperative for the leader to continue to try to proactively protect and increase its market share, till such time the market evolves and starts to consolidate.
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