E-Commerce— Yesterday, Today and Beyond Tomorrow

With e-Commerce taking of with a boom in India, let’s take a quick peek at the latest trends in the e-Commerce space and its impact on offline retail stores across India

The last couple of years have seen a remarkable transformation in India’s retail landscape. The e-Commerce wave has taken the Indian retail sector by storm. Successful Indian e-Commerce ventures, their business and commercial models have captivated the imagination of the new, progressive India. According to PWC, if this robust growth continues over the next few years, the size of the e-retail industry is poised to be $10-20 bn by 2017-2020. Let’s look at some of the trends in the e-Commerce space and its impact on offline retail stores across India and the sweet spot for India’s retail industry.

#1 Omni-channel Retail

An increasing number of online retailers are beginning to see the benefits of physical stores. With an increased presence of companies operating in both channels, the shopping experience will be better aligned to the customers’ specific needs. Physical and digital channels will be woven together so that the customer does not have to distinguish between channels. Certain estimates suggest that cross channel commerce is set to grow 5 times the size of e-Commerce by 2015.

#2 Recreating the Experience of a Physical Store

In order to facilitate the customer’s decision, it will become important to replicate a customer’s journey in an offline store. The knowledge and services that are currently available in physical stores need to be re-created online by e-Commerce companies. This means a greater focus on product related information. This will result in more interactive solutions where consumers can ask questions directly to store staff online.

#3 Personalization

Websites, online stores, e-mailers and other forms of digital marketing are becoming more targeted. The presentation and the offering will increasingly be designed to reflect the preferences, behaviors and purchasing power of individual customers. This will increasingly drive sales, profitability, customer satisfaction, and loyalty. According to a Forrester Survey of marketing executives, more than 70% of the executives believed that personalization was of strategic importance to their business.

#4 A Saturated Price Race

For commodities with easy distribution, which can be easily compared with each other and without the need for physical connection, the transparency will create a ‘winner takes it all’ situation. If you are not Amazon you should start thinking about what you can do with points 1, 2 and 3 above.

#5 M-commerce Boom

2015 will be the year when most online retailers also offer the customers a mobile site. The reason is that more and more consumers prefer shopping here and now using their smartphones. Instant shopping is the mantra. And it wouldn’t be social media that drives mobile sales but targeted marketing by the m-commerce players themselves. According to Forrester, mobile transaction value grew almost 5 times to `36,000 crore between FY13 and FY14.

#6 Big Data Set to Grow

In 2015 online retailers will intensify their efforts to analyze customers and their behaviour in order to understand their motivations and intentions. The objective is to provide the right offer to the right customer at the right time. The Shoppers Stop example of an incremental 10 crore worth of sales by customized targeting is a well quoted success story.

#7 The Consumer Goes Global

Next year, local consumers all over the world will discover global, or foreign, web sites in a major way, and spend a larger portion of their online budgets on non-local e-retailers. This will pose serious challenges to local merchants but will also create new opportunities for them to sell abroad. Additionally, the trend of large international e-tailers setting up country specific sites and operations outside of home will not just continue, but also gather pace.

Removing bottlenecks in online retail

At estimated sales of $3 bn, e-tailing continues to be much smaller than offline retail, valued at about $25 bn in India. Customer surveys bring out the following challenges:

  • Most shoppers don’t want to wait before they can get their hands around the merchandise of their choice. Shipping online orders can take a long time.
  • Many want to check out the product physically before they make a purchase decision, not possible online
    Customers often find it difficult to trust online channels to actually ship the products to them in good shape. The risk of financial fraud also deters people from sharing credit card and bank account details.
  • Low Internet penetration and literacy levels prevent a majority of the population from accessing products online.

However, the e-Commerce sector has been quick to address the challenges customers face and break down barriers, some of the key measures include:

  • Same day/ priority deliveries for certain merchandise as well as quicker delivery on payment of a premium. With third party e-Commerce logistics as well as couriers booming, there exists an existing channel to reduce shipping times.
  • Many online retailers offer to take merchandise back or replace it if the customer does not like it on delivery. Flipkart offers a 30 day replacement warranty on electronics. Myntra and Jabong are willing to take back apparel and shoes at no extra cost, if they do not meet customer liking.
  • Cash on delivery options, ‘no questions asked’ returns and replacements are all ways leading players have experimented with to help overcome the ‘trust’ barrier.
  • Setting up offline stores and tying up with resellers are just two ways in which e-Commerce companies are attempting to break the internet access and language barriers.

There are growing concerns on the reseller model in online retail, given that it involves putting your brand in the custody of an unknown local entity, which often fails to deliver. Analytics is one area that offers a way out for some of these aspects. Though more work needs to be done.

Impact on offline retail

  • Pricing Pressure: Online shopping in India, not unlike the US, with its focus on massive discounting has created a warped perception of the true value of a product in the minds of customers. With leading e-Commerce companies often offering merchandise at a price well below landing costs for offline retailers, in many categories, conventional retailers, especially in the larger cities find themselves priced out of
    the market.
  • Increased walk-ins, Reduced Sales: With massive advertising of products and their prices, online retail has actually led to an increase in the number of walk ins at conventional retail stores, however not just conversion rates, but even absolute sales have declined as customers check products out at physical stores before going on to make purchases online.
  • Unsustainability and Closure: In many categories, books and mobile phones for example, many small retailers are winding down businesses since they’re unable to match prices being offered by online retailers for the same models.
  • Innovation: Conventional retailers haven’t given up, yet. Woodland shoes for example, has come up with a new line of footwear to be sold exclusively through online stores, including Amazon.
  • Partnerships: While on the one hand small retailers are feeling the heat from online discounting, many are also benefitting by partnering with online marketplaces as logistics and distribution partners and resellers, thereby benefitting from the massive investments the large online players make in marketing and sales.
    (The article was first published in PcQuest)