Incentivising customers might be e-comm’s Achilles heel: Karma Bhutia

E-commerce has changed the dynamics of business globally as well as India, and has seen several success stories. While the sector is still on a growth curve, there is consolidation and course correction being seen.

We at AdGully are seeking to explore the new shifts happening in the e-commerce sector, the consolidations, the mergers and the eventual shakeout. In this context, we have spoken to a cross-section of e-commerce and digital media experts, who have shared their insights on the new equations emerging and implications for the e-commerce industry in India. Over the next few days, we will be carrying the views and insights of these experts.

Karma Bhutia, CEO & Founder, iShippo.com, gives an indepth analysis of the new equations shaping the e-commerce industry in India. iShippo.com is an online e-commerce marketplace where people connect to sell and buy handcrafted goods. The website not only promotes handcrafted ‘Made in India’ products, but also promotes the cultural heritage of India’s traditional handloom artists and craftsmen.

Here’s what Bhutia has to say…

New equations shaping the e-commerce industry in India

By 2030, more than 1 billion Indians will be online. By 2019, India will have 13.5 per cent of the global smartphone marketshare. India is the world’s fastest-growing economy, and has the biggest population of people under the age of 24 years.

A battle is brewing in the Indian e-commerce space between homegrown local e-commerce companies and the ones coming from abroad. Even though the numbers prove that e-commerce market in India is still in its infancy, about $16 billion last year. The battle is not for the present, but rather for the future of e-commerce in India, which is supposed to be the world’s fastest-growing e-commerce market and is prized by global giants after the US.

Global e-commerce players have been denied access into China. Chinese regulations have discouraged tech giants from the US entering their economy and they’ve always encouraged homegrown local enterprises like Alibaba, Tencent, Baidu, WeChat, LeEco, and Huawei, among others.

The India e-commerce business model is straight cut and paste of companies abroad. Hence, foreign and homegrown companies fighting for market share are spending feverishly on logistics and discounts to lure consumers online. This model of incentivising customer using discount/ deals ‘greed’ might be the biggest ‘Achilles Heel’ of the burgeoning Indian e-commerce industry that could potentially see its undoing.

We have seen a host of food-tech, hyper-local delivery and e-commerce companies shut shop because they couldn’t compete or sustain with the unsustainable business model. However, on the flip side it was good for consumers that they benefited through discounting and deals in the e-commerce sector.

The Us Vs Them will continue for some time, but at the end the consumer is king. They will decide who will survive and who will perish.

The Indian e-commerce industry in general and eTailing in particular never really had the infrastructure of established retail giants like Walmart, Tesco, Walgreens or good logistics providers or banks that could cater to the needs of the e-commerce industry. So, we witnessed Indian eTailers trying to do it all by themselves – from setting up a marketplace to building logistics and payment systems. Finally, what they ended up trying to disrupt were the local businesses like kirana store, manihari, ticketing agents, or other merchants.

However, these local businesses have long entrenched relationships with the customer who couldn’t be disrupted by discounts and deals. The best way to measure this effect is to ask yourself how many kirana stores have closed in your neighbourhood? The answer is probably none. The same can’t be said for the start-ups in the sector trying to disrupt the kirana stores and free home delivery.

The area where e-commerce in India has had some positive impact is in the Fashion and Electronics categories.

The local neighbourhood stores thrive despite these discounts and deals because they have the consumer’s confidence and trust, years of relationship, free home delivery and a monthly revolving credit facility, which no e-commerce company can and will provide.

The consolidation scenario

Consolidation is an inherent nature of capitalism; which invariable gives rise to the top-down pyramid of market dominance and abhors anything that is equitably flat. This process, I find it akin to agitating the milk to get to the butter.

That said, these last couple of years we have witnessed interesting acquisitions in the e-commerce space: for example, Myntra ->Flipkart, TaxiForSure –>Ola Cabs, FreeCharge ->Snapdeal, redBus ->ibibo, Jabong ->Flipkart, and so on.

This trend is going to continue till we have only a couple of players at the top. After vertical consolidation, the sector will see a horizontal consolidation on the lines of conventional conglomerate with multiple businesses in different sectors. This trend will eventually lead to a time when e-commerce will no longer have an “e” preceding it; indicating that is the default way to conduct business.

GST Bill’s benefits for the e-commerce industry

It will bring down the tax-rate, which will help companies just starting out.

Start-ups need VAT registration from sales tax department. Currently, different states impose different fees in each state. GST will bring uniformity in process and will help business to grow faster across multiple states.

Implementation of GST will increase VAT limit from Rs 5 lakh to up to Rs 10 lakh, which benefits start-ups.

Start-ups spend time and resources to manage the various taxes at various points. GST will simplify the process by integrating all taxes, making the process of paying tax simpler.

Reduction in logistics, storage and transportation cost and time across States as efficiencies increases and reduction in lead times for transportation of goods

Mergers the best way out for smaller e-commerce players in India?

No, they are not the best way out for smaller e-commerce players, however, they are a necessary in order for the market to grow.

Smaller e-commerce players and share of mind

The smaller e-commerce players should innovate and try to reach the consumers while spending less. Social media and digital have become the platform for choice not only for smaller e-commerce players, but also for the big boys.

Should e-commerce players go the public funding way?

If your business model is sustainable and unit economics are great, then even banks provide debt based funding. Invariably debt financing might not be palatable to early stage start-ups. However, don’t lose hope, the Government of India, under the leadership of Prime Minister Narendra Modi has set up schemes for start-ups to access equity funding – this should be taken advantage of by start-ups.

Why this pressure on funds?

The damp global economic outlook has reduced fund liquidity, fund mobility and the appetite of funding agencies to go out and make bets. As with all industry when the going gets tough companies become conservative and frugal with their money. So the current scenario playing out in India is just an extension of that sentiment/ logic.

Is there a course correction underway in the e-commerce industry now?

The damp global economic outlook has reduced fund liquidity, fund mobility and the appetite of funding agencies to go out and make bets. As with all industry, when the going gets tough companies become conservative and frugal with their money. So the current scenario playing out in India is just an extension of that sentiment/ logic.

On e-commerce companies turning to social media platforms

Social media and digital marketing provide the best return of investment toward customer acquisition and conversions – they help you track customer behaviour closely and analyse what type of advertising works and what doesn’t, compared to radio, TV or newspaper. It even allows you to see how far up the funnel each customer is and help you re-target them with personalised just in time offers and deals.