Fate of Ecommerce

6 people are having a discussion on the topic (Amita, Matt, Rahul, Divya, Saket, Tejesvi)

Group Discussion Starts

Matt: Good Morning friends, topic for group discussion for us today is fate of e-commerce industry. E-commerce, with its new wing, m-commerce, in last few years, has seen a dramatic growth. I believe there are many reasons for this development.

Amita: Absolutely, major instruments that have led to this growth are- internet penetration in India, growth of IT and availability of cheaper smart phones.

Rahul: Yeah, adding to the point, India is one of the top retailing markets in the world and among the fastest growing. Coupled with that is its online penetration, which is nearly 60% now.

Amita: Also, the major factor is the change in mentality of young generation, who leave their hefty jobs for their startups, this is coupled with their risk taking abilities.

Divya: I agree with these facts, however, one of the top market in e-comm industry is of India. Internet base here is growing a whopping rate of 40% per year, and ranks third after China and United States only. Still, despite of this huge potential of this platform, this sector continues to perform below expectations. All the major companies are under losses. This is a big question, which needs to be answered.

Tejesvi: That is so true. More so, break-even for most of e-comm startup players in India is at least five years away. Even the market leaders like, Flipkart, Myntra, Jabong, Snapdeal etc. have not made any mark.

Saket: Problem starts with the demand of online customers today. They look for sweet deals that include freebies, such as no shipping costs, COD options, and newer and newer inventory. This turns out to be a vicious cycle, and so companies report very high rate of rejection along with the enormous logistic costs.

Rahul: Still, companies like Flipkart, which is sought to become India’s Amazon, has received a huge funding, which nets up to $160 million. This is a big deal for the company.

Matt: Yeah, the eye is on the people living in second and third tier cities. They will start shopping online, again thanks to the penetration of internet in such cities. Facilities like cash on delivery, 30 days return policies have led to a big revolution in this industry.

Amita: Coming out of conventional business, e-comm players are constantly trying for innovations. Flipkart has switched towards a marketplace model. It is now allowing third parties to use its platform to sell products directly, getting some cut in the profits. They have made some efforts in launching their digital wallet, PayZippy as well.

Saket: Given all that, online retailers, still makes money only when transaction actually happen. Currently, people only browse these websites, these web apps, gets the information related to prices, styles etc., read reviews. As a result transaction sizes are very low.

Tejesvi: Exactly, consumers in India have no loyalty, they play only on price.

Divya: Given everything being available on just one screen, in e commerce, it is easy to shift store to store and see prices on all stores simultaneously. It takes just a few clicks of your mouse or a few taps on your smart phone screens.

Saket: And hence, e-commerce players can never have good margins and earn profits, otherwise another player will undercut them and take all the business.

Matt: You are actually right, a recent report that I read a few days back suggested that there is space for only one player in multi variety online retail in India

Tejesvi: Given this point, there may be other niche players, but other end to end players will be forced out. So, the fate of either flipkart or Amazon looks dim for the future.

Amita: I understand whatever we talked so far, however, to say that future of these major players look dim is a bit harsh, and a bit early to comment upon.

Rahul: Yeah, a lot of funding is going into these firms, a lot of innovation is coming up like, COD, app offers, etc. They all are eyeing a huge profit in near future.

Divya: However, we are missing out on the fact that there are organized and unorganized players in the retail sector who have physical stores in very many places. They have customer loyalty with them. And so, in the retail sector worth of $500 billion, the contribution of online segment is mere 0.5%.