Still Good for Some

The verdict is that online retailing ore-tailing will take considerable time

to take off in India. So far, the record for Web-based retailing has been

dismal. The reasons are many, but here’s a glaring one–98% of the retail

segment in India is still "unorganized".

In the US, it took nearly 100 years for the retail segment to evolve,

approach e-tailing and reach the extent it has today. In India, though, not only

is the retail segment largely unorganized, but e-tailing is yet to catch on as a

concept, having touch only 0.3% of the market, despite climbing PC penetration

in urban areas.

Unlike in the West, buying patterns are markedly different in India, which is

attempting to leap directly from a ‘bazaar’ to an online mode. This big jump

is not a mass move and, therefore, online vendors don’t stand to gain much–they’ll

have to wait till a mass transition finally happens. Another aspect is that

online retailing is more in line with the patterns of cataloging. In Europe, as

also in the US, catalog buying has been popular for the last 40 years,

particularly in the apparel and furniture industries. However, this concept has

never really caught on in India, with the example of Burlington’s standing out

as evidence.

Take-off areas



With a growth of between 25% and 30% per annum for the retail segment, there

are some signs of gaining advantage here.

And given the current consumer spend patterns, certain areas where India

stands to gain now–and these are already picking up–are books, groceries,

music and travel. But all these product lines bring in wafer-thin gross margins

and still lower profits.

However, these will be the initial growth segments for online retailing,

which is expected to grow to over Rs 150 crore by 2004. According to a

CII-McKinsey & Co report on e-tailing in India, a significant share of the

existing phone-based ordering and home delivery system, which accounts for 10-15

% of total grocery purchases in major metros, is likely to shift to an

e-tail-like system.

Besides books and music, another category that could take- off online is

consumer durables–washing machines, computer peripherals and refrigerators. In

these cases, established brands and features of the item are often known before

buying, and selection is based on predetermined notions about the item. But on

the whole, the average amount spent online in India never exceeds beyond Rs

1,000.

Online ticketing is also gaining popularity merely because of the fact that

there’s neither a concern for quality nor color, and no apparent price

discriminations exist.

w success stories…



The few B2C sites that have managed to grab the mindshare of online shoppers

are rediff.com, firstandsecond.com, fabmart.com, bazee.com and india—times.com.

The three most prominent and characterizing qualities that define each of them

commonly are the adoption of multiple modes of payments, varied online items for

sale and a very strong focus on customer service and delivery.

Fabmart



Last year alone, Fabmart experienced a 270% jump in its revenue earnings to

touch Rs 9.5 crore. It has several payment strategies like direct back-account

debit cards and cash or cheque on delivery. Groceries posted the highest number

of sales, closely followed by books, and finally came computer peripherals. Not

only is proliferation of credit cards low, there’s the uncertainty of paying

online, because of which these sites developed alternative modes of payment,

which are now proving to be successful. Fabmart has three warehouses in

Bangalore, Chennai and Mumbai to cater to non-grocery orders across the country

and four separate warehouses for grocery. Items are stocked in these warehouses

and delivered within these cities using local delivery vans. Courier services

are utilized for the delivery of non-perishable items outside the ‘warehouse

cities’.

Indiatimes.com



Music sells the most on Indiatimes.com, which is closely followed by books.

But over the year, the highest growth has been in the purchase of airline

tickets–an increase of about 25%. Overall, the company saw a 250% growth in

revenues. It has a dual model–fixed prices and auctions. In the former, it has

multiple virtual shops for Nike, Reebok and Archies, among others. In its

auction model, it auctions off items like jewelry, books and music.

Indiatimes has set up multiple delivery models, considering the evolving

pattern in the on-line retailing space. For product procurement, Indiatimes has

an alliance with merchant warehouses from where required goods are collected, to

be delivered to the end consumer. Physical deliveries are made via a shipping

agency, with which Indiatimes has a tieup. The entire status of delivery is

uploaded on the Web, with customers being able to track their orders. For

products that need smaller inventories, Indiatimes ships them out from its own

warehouses. For flowers, what’s required is a national network of florists.

Double channel strategy



A proven strategy for e-tailing to be really successful in India–a double

channel strategy, where an online presence co-exists with a strong offline

support channel. So it is brick and click-based business models that are still

the best, as proven by the global trend in the apparel and grocery segments.

Hot Categories In order to ensure minimal losses in transactions, e-tailers need to look into a minimum order fulfillment mechanism, plus a healthy gross margin of at least 25-30% in the following categories:
	Books These are low-margin items that must be sold on a large scale. Because it is hardly possible to break even with such low margins there must be multiple category items available together with books
	Groceries Despite huge investments needed in the distribution infrastructure there is a lot of opportunity here still. Gross margins are comparatively better than books and music and there is a tendency of frequent repeat orders. One of the most crucial factors determining their success is logistics
	Music In this category, one must have just about every kind of music up for online sale. Much like books, gross margins are very less here too but volumes can be sold
	Ticketing This is one segment where margins are higher and is a new segment for opportunity among e-retailers. For instance, Indiatimes has tied up with Sahara airlines to auction their tickets online and has made a 25% increase in sales

The future of the market lies with the vendors and how successful they are in

making their services available and affordable to consumers. Predicting the

future of e-tailing, the CII-McKinsey study says "organized Indian retail

chains neither have a strong brick presence nor an established online

proposition. In such a situation, new players will have the option to start with

an integrated offline and online proposition". This is being observed among

pure Internet players like Indiatimes and Fabmart, both of which have gone

against the dynamics of pure-play by building themselves strong offline support

for delivery and customer retention.

Besides the few mentioned so far, other retailers like Crossword,

Food-worlds, Musicworld and Subhiksha have read the trend correctly and are in

the process of launching e-tail sites to complement their physical businesses.

Clearly, the advantage still rests with traditional retailers who already have a

strong offline presence and are merely making a Web extension. This is because

the items that are selling online bring about low profit margins–here, an

offline presence can complement the sales turnover and bring in advantages of

scale.

The Success Factors
There’s no proven strategy to get customers to buy your products. However, here are some of the aspects that successful B2Cs took care of when they decided to set up an online presence:
	One of the strongest components that can determine the success of B2C sites is strong customer service focus. In order to keep a good hold on customer confidence a highly predictable and reliable delivery system must be in place
	Buying online shifts the advantage towards the buyer wherein he must be well informed about the product being bought. Therefore it is essential that online buying sites give customers, as much information as possible on a particular product and also gives him/her an alternative search incase the item looked for is not available
	A proven strategy for e tailing to be really successful in India will be to maintain a double channel strategy. An online presence should co-exist with a strong offline channel
	Since people are apprehensive about paying online the success here will lie in being able to make alternative modes of payments like ‘cash on deliver’ and ‘e-cash’. Most B2C sites in India have adopted multiple-payment modes
	A telephone number or live chat for customer assistance (preferably toll-free) should be accessible for site users

The problem



"The penetration level of the Internet is low, and this is further

compounded by the fact that few Indians use the Net to shop.

The fear is because of the perceived risks involved in online transactions.

The situation gets ggravated by the high last-mile delivery costs–pumped up in

the absence of economies of scale," says KSA Technopak senior consultant

Anil Rajpal.

E-tailers lose money on almost every transaction due to the absence of

economies of scale–volumes remain low and this pushes up costs. The very

nature of the delivery infrastructure pushes up fixed costs as volumes rise.

Money is lost also because most orders are small gifts, toys and chocolates,

whose cost is many times lower than the delivery cost. Most e-tailers,

therefore, have had to pay up heavily in winning over customers without much

gain in initial stages. Also, e-tailers have an order fulfillment purchase that

just about covers operating costs.

"E-tailing is still in its early stages, though more and more customers

are slowly considering the option. We believe that in the next 18-24 months, the

customer base for online shopping will rise dramatically and reach threshold

volumes, where the business size will itself will bring in profits. Till such

time, our focus is to keep building our systems and processes internally, so

that when the volume surge happens, we have a brand and a system to take

advantage of the opportunity"–that’s K Vaitheeswaran, vice-president of

marketing at Fabmart.

Triggers to e-tailing:
	Safe and alternative payment mechanism to facilitate the payment
	Evolution of a brick and mortar organized retail system
	Selling products that are normally a difficult find in the real market

If the economic challenges faced in online retailing weren’t enough, there’s

the need for special skills to make the offline part work. According to Ashish

Kashyap, general manager (e-commerce) at Times Internet, some of the hindrances

in this segment are supply chain conflicts, higher delivery costs than profits,

and time-lags. "The most crucial aspect in determining a strategy of

on-line retailing is to look at this business exactly the same way you look at a

ground business. Further, the most successful strategies evolve. In the on-line

retailing space, action precedes learning and, therefore, it is imperative to

experiment. And consumer insights, or knowing your consumer, is the mantra of an

on-line play," he adds.

Payments



Though customers show signs of being wary of online payments, a majority are

now paying online–most payments for rediff.com and Indiatimes are made through

credit cards. "Payments through credit and debit cards are the future for

Internet transactions. Payment gateway companies are already working on creating

enhanced security measures and credit card companies are establishing Internet

pin numbers. But credit and debit card payments will continue to be supported

with payment on delivery. There are other technologies being worked upon like

wallet services, which become important for micro-payment," says Kashyap.

What does the future hold?



Existing factors hindering online retail growth are a small Internet user

base, lack of bandwidth and a nascent retail segment. B2C does come in with a

number of benefits for both vendors and customers–access to newer markets,

enhanced service and improved cycle times. But compared to the $180-billion

retail segment in India, online retailing remains miniscule. Annual online sales

happening and being booked out of India fluctuate between Rs 10 crore and Rs 65

crore. Online players have managed to survive by striking a balance between an

offline and online strategy and aggressive customer servicing. The future will

belong to those who use an online presence as a break-even proposition, and

reinforce and extend their existing retail outlets.

Radhika Bhuyan In New Delhi