SKUMARS.COM: Down, not Out

Fifty square feet is all you need to open India’s biggest supermarket,
screamed full-page advertisements in India’s top newspapers barely a year ago.
A multimedia blitz and roadshows by company top brass followed–ad spend alone
accounted for Rs 50 crore. The dream was to set up the world’s largest on-line
departmental chain, boasting 50,000 franchisees in 1,008 Indian cities,
piggybacking on the world’s largest network of 200,000 VSATs. Total investment

for Phase I was estimated at a whopping Rs 1,000 crore.

That was then, at the height of the dot-com and B2C boom. Today, the project
reflects only a small shadow of its former grandeur. Project costs have been
downscaled to Rs 47.60 crore, less than the original ad spend. The proposal to
set up the VSAT network has been put on hold, with the company deciding to make
do with terrestrial lines for the moment. The nine-month delay has also seen
franchisee tie-ups take a massive hit–that number has been scaled down to a
mere 1,000 in 200 Indian cities. As of now, 260 strategic business associates (SBAs)
have gone live since the first week of April in 200 towns, providing just the
sandesh mail service.

The SKumars project was to provide on-line purchasing to millions of
customers in smaller cities and rural areas, using thousands of kiosks for
getting the orders and franchisees across the country to service those orders. SKumars
was targeting the pinnacle slot for itself as the facilitator who would reap the
commissions on every single sale.

The company also did not factor in the crucial licenses and clearances that
were required to run this business model, and that struggle continues even
today.

Yes, we are talking about skumars.com, the e-commerce offshoot of the Rs
700-crore textile giant SKumars, aimed at redefining B2C dealings in the new
millennium. The dot-com’s plan, in the words of Manoj Chugh, erstwhile country
manager (satellite networks division) at Scientific Atlanta Inc, one of the
world’s largest VSAT vendors–‘‘Nothing like this was ever tried before
anywhere in the world. It was a unique business model based on the Indian
reality of our telecom infrastructure.’’

SKumars.com was initially conceived as an Intranet to wire up SKumars Synfabs’
150 textile dealers. ‘‘As the topology of the Intranet was explored, the
fact emerged that though Internet penetration was minimal, there was great
potential for city-based advertising and classifieds. We realized we could tap
into this segment if these dealer outlets were converted into community kiosks,
like STD and PCO booths,’’ explains SKumars.com Ltd chairman Vikas Kasliwal.

As the concept evolved, it was decided to set up as many centers around the
country as possible, all offering advertising, on-line education, gifting,
online shopping and a host of other services. But the primary issues plaguing
the concept were connectivity, lack of infrastructure in terms of low PC
penetration, fear of technology prevalent among the masses and absence of a
secure payment mechanism.

The network is projected to be doubled to 4,000 franchisees by the year-end,
when the connectivity goes aerial as well, skipping back to the VSAT strategy.

Tailored for India

Despite being inspired by America Online’s trade model, skumar.com’s
business plan is in perfect sync with desi needs. Perhaps that is why the
business model primarily targets those in smaller cities and rural areas,
catering to the masses that do not have access to PCs or to a particular range
of commodities.

Why a Customer Would Go to skumars.com

To buy products not found in the shop next door, or at good enough prices. For instance, leather items are cheaper in Delhi than Mumbai. The skumars.com outlet bridges this geographic gap. Especially good for sending gifts. If he’s a rural customer, he may not have access to many advertised products he aspires to: he can buy them through skumars.com. (He won’t need to travel to the nearest town to buy a Bata shoe.) The physical presence of the franchisee is reassuring. There’s no online purchase or credit card disclosure. The cusomer also gets a status report on the goods, and a refund if the delivery was not successful.

For instance, the company had planned to implement the network on a wide area
network through VSATs in order to eliminate the last-mile hurdle and the
unreliable uptime capabilities of DoT and MTNL land-lines. Also, by bringing in
franchisees as the company’s interface with consumers, the company attempted
to bridge the biggest gray area of the country’s e-commerce initiatives–that
of on-line payments or cash transfer. And by accepting cash from the customer at
the point of order–the skumars.com kiosks–the company was attempting to
remove the bottlenecks in electronic retailing, a prime reason for the B2C not
taking off in the country.

There’s hope

So what went wrong if the business model was sound and exhaustive research
went into the infrastructural aspect? Not much, except that Kasliwal & Co
committed the cardinal mistake of dreaming big without getting the basics right.
Another thorn in the side was the archaic Indian Telegraph Act of 1885.
SKumars.com launched the media blitzkrieg and began collecting Rs 2 lakh from
each franchisee even before applying for the crucial IP II license.

And, the target was stiff. The idea was to set up the world’s biggest
network of 50,000 VSATs at a time when India’s total VSAT population was below
the 10,000-mark. The project envisaged 200,000 VSATs by the end of fourth year
as part of Phase II.

Adding fuel to the bad run has been the company’s tightlipped response to
queries. Rumors have been flying, especially on misuse of funds raised through
an IPO, an allegation hotly denied by skumars.com. That Hughes Network Systems
picked up a stake of 10-15% in the company in return for the 10,000 VSAT order
placed with them has also been denied. The original promise, of providing VSAT
connections, still remains at best a promise. And despite the fact

that it has got an ‘in-principle nod’ for an IP II license, the company is
yet to furnish a bank guarantee of Rs 100 crore that is mandatory.

The beginning of April saw 96 batches of franchisees passing out from 64
Aptech centers. The training program, says Kasliwal, is aimed at improving
service levels and has been funded by skumars.com.

Kasliwal is smiling in the face of all these odds. "The decision to set
up a franchisee network across the country is based on a simple fact–shorn of
all the technological jargon, e-commerce is basically about marketing, branding,
distribution and making the sale." The company also expects to show a
profit in fiscal 2001-02 itself. For the sake of e-commerce in the country, as
also for a great business model, let’s hope so.

Shubhendu Parth in New Delhi & Bijesh Kamath in Mumbai

Dataquest