As the Indian ecommerce juggernaut rolls on, an eerie pall of gloom is said to be descending on many of the country's offline retail stores, ahead of the Diwali festive season, which usually is the best period for sales.
The script is now becoming familiar: a number of media reports, most recently in the Times of India today , are chronicling cases of customers walking in into a consumer-goods store, checking out a product and walking out after finding a cheaper price online while looking it up on their smartphones.
While only being a fraction of the USD 500-billion traditional retail industry, ecommerce has grown fivefold (from about USD 2.5 billion in 2009 to USD 13 billion in 2013) in four years.
This growth has largely been driven by the pricing strategy followed by websites. Compared to physical stores, online websites do not have costs related to real estate, sales staff and, in case of the marketplace model followed by most e-tailers in India, inventory.
As a result, they can afford to offer distinctly lower prices, which could be a significant saving for consumers on purchase of white goods and electronic items.
But of late, it is becoming increasingly clear that the widening price gap between the two sales medium for the same products is not merely a case of lower overhead costs for e-tailers.
The truth is: e-tailers do not want to make profits right now, and so many are selling below costs in the case of several products.
Several reports have pointed to the fact that in many of the recent flash sales, such as Flipkart's controversial Big Billion Day sale on Monday -- which brought the issue of the website's pricing strategy under scrutiny – e-tailers are willing to absorb losses arising from selling goods at steep discounts to buyers.
Such a practice, also termed predatory pricing (where the intention is to hurt the competition), can likely be judged anti-competitive, and so illegal. Commerce minister Nirmala Sitharaman yesterday conceded that the government had received complaints from traders about Flipkart's flash sale and would look into whether action is required.
But till as long as the government makes up its mind whether action needs to be taken, there is a larger game at play here.
Charmed by the stupendous revenue growth of ecommerce companies, investors have been pouring billions of dollars into these companies, even as most of them haven't reportedly turned out profits for years and are unlikely to in the foreseeable future.
This in turn also puts pressure on the ecommerce firm to justify the huge valuations by expanding its customer base, even if it means burning money to do that
A Citi report points out that out of the USD 6 billion invested in the ecommerce industry in the past three years, half has come in the past three months alone.
This capital rush is about entirely equity-driven, meaning companies have to only part with stakes in their firms to get access to money, instead of taking on debt and assuming interest costs.
"Key requirements for funding include acquiring customers either through discounts or marketing campaigns, warehousing and building a logistics network, scaling up the business (read headcount) as the business expands, acquisitions," says the Citi report, adding "the current focus of the companies is to gain market share, which is leading to increased marketing activity (including promotions)."
The reason the 'boring' offline firms, growing at the traditional growth rates cannot undercut their online peers or sell below cost is: minus the equity rush, the only way to do it will be via debt, which will be suicidal. Also, many are mature businesses, focused on making profits – especially in cases of listed companies such as Future Retail or Shoppers' Stop.
As Kishore Biyani, chief of Future Group, which runs the Big Bazaar chain, put it in an interview with CNBC-TV18 : "If you get thousands of dollars every year, you can keep on doing losses," he said, referring to the series of under-cutting discounts sales launched by online firms recently.
Biyani pointed to the legal aspect of such practices, saying such firms should not be allowed to sell below cost. But till as long as the capital rush, or legal clarity comes in, this will likely continue.
Anda sedang membaca artikel tentang
Why e-tailers will beat retailers hollow this Diwali
Dengan url
https://olahragakecantikan.blogspot.com/2014/10/why-e-tailers-will-beat-retailers.html
Anda boleh menyebar luaskannya atau mengcopy paste-nya
Why e-tailers will beat retailers hollow this Diwali
namun jangan lupa untuk meletakkan link
Why e-tailers will beat retailers hollow this Diwali
sebagai sumbernya
0 komentar:
Posting Komentar