Way out for the great Indian e-tailers !!

The Indian e-tail space is one of the most exciting space to watch for the last 2 years. Be it from a customer standpoint or from a tech-savy person watching start-ups in India, there is so much to get excited and proud about. These brands made global name for themselves, making global giants to stop and think and making Indian buyers to buy, when there is almost no need to buy :). Be it Flipkart, Myntra, Jabong or Snapdeal, they seems to be taking the lions share of on-line retail sales in last two years and pushing the GMB numbers, up and further up. They created great buying experience on the web and followed it by making even better mobile buying experiences through great apps. From the state of almost no Indian product or consumer Internet company between 1998 to 2008, each of us should take immense pride in what the above players were able to do for themselves, for the Indian pride and lastly for the Indian consumers. 

As we take a closer look at the balance sheets of these companies, you will see some surprising and unpleasant facts about their ease in burning PE money at a very fast rate in the last 4 to 5 quarters. Again at the outset, this seems not unusual from the way the Amazon's of the world build, expanded, got customers and turned around to start making profits. I am sure, they had a long-haul plan for themselves and slowly and alarmingly slowly, to get ashore. (Courtesy Techcircle for the Pic above)

However, I see a few factors to be very different from Amazon's play in US/EU markets Vs the Indian markets. They are :

1. Market Uniformity in developed countries and vast diversity in India
2. Value for better service in West Vs large scale value-for-money consumer base in India (customer loyalty)
3. Evolved payments Vs Cost of CoD, CoD induced returns
4. Cost of logistics when Indian e-tail needs to reach 3rd and 4th tier town

Having said that, not all of the above are unsolvable. Logistics and making CoD cheaper is something that e-tailers can start building as common platform for everybody and compete on numerous different grounds. For example, a Special purpose vehicle is spun-off by Flipkart, Snapdeal and Govt to build CoD solution by India posts. This should use the on-ground advantage and make money movement faster and cheaper and every e-tailer can on-board to that platform at a cost, solving this for all players. Also, It is time CoD is not a free for all. Either charge for CoD or eliminate that option, based on history.

One more huge opportunity is to build brand outlets (or Franchise) in the small and medium towns, enabling e-tailers to reach buyers from these towns and small cities super easy and reaching the next 20 millions new customers. Helping semi-urban users with payment and delivering to these outlets would really help the e-tailers reach the next 20 millions customers with lower shipping costs (Pick from outlet in a town should be very easy),  Beat the local competition in those towns who have more expensive logistics and lastly break the Internet access barrier in those towns.

Harder problems are really around building loyalty and moving buyer decisions away from price comparison to quality and service. Unless that is solved, e-tailers will continue to fight and play that cut-throat game of deeper discounts and stay under the water.

The current approach of deep discounts, deals and Price wars seems to beat the basic logic of business. From the approach of taking smaller profits (Saravana stores Chennai approach) to readiness to take bleeding losses seems like a point-of-hard-to-return. I remember a good analogy of newspapers in early 2000's where TOI used to enter a city with 1/3 rd the price and make a huge entry. The story is rosy up until here. Their logic was that readers get used to reading one newspaper and they will stick to TOI, even when they eventually increase the prices, later. They were proven completely wrong, city after city where the price sensitivity beat addiction to a paper, hands-down. I have strong sense that, this may not be any different for these e-tailers. Hence, dreaming of winning by elimination may not necessarily work.  

To compete and win over the deep pockets of MNCs and other established players, each of the e-tailers need a USP and some magic that they need to create. However, playing the Valuation game with steep discounts/heavy losses is what is unsettling, to me.

To conclude, there is absolutely no free lunch and if you are getting one, it is grabbed from someone else who labored for that lunch. Over simplifying the whole chain, when goods are not produced for lower price, transportation costs exist (even higher), wholesalers needing their own profits, the consumer can't get the goods at such lower prices. Who is funding the discounts ?  If someone is funding, why are they funding and how do they plan to recover that money. Who is to lose in this game of valuation and are the small investors slated to pay for in this game where the ball will be controlled by the hidden switches/croupier ??