What will the Flipkarts and Naaptols of India do

Khyati Dharamsi
 
The Indian e-commerce space in India is about to undergo a transformation, thanks to the recent entry of Amazon, the world’s largest online retailer. But it’s not as if major Indian e-tailing portals weren’t prepared. In the weeks before Amazon.in launched here, portals such as flipkart and snapdeal made a major change in their business models, aligning them with that of the global multi-brand online retailer.
But selling online is much more complicated than that, and chopping and changing business models is likely only the first step in weathering a storm that is inevitable. Let’s take a look at how e-commerce portals will have to adapt and what it means for all the stakeholders involved.
 
Setting The Stage
 
In a knee-jerk reaction, major Indian portals switched from an inventory-based approach (selling themselves) to a marketplace model (offering a platform to third-party sellers). This was a smart move for two reasons. One, by thus expanding their catalogues, Indian portals hope to thwart a massive diversion of online traffic to Amazon.
 
The second reason, points out Pearl Uppal, founder of 5Ideas and partner at Startup Superfuel, is to minimise risks. “Owning inventory is a big cost to any business and Indian e-commerce sites realised that operations were turning out to be cost-intensive,” explains Uppal, who believes that regulatory regime too has a hand in this.
 
Kunal Bahl, co-founder and CEO of Snapdeal.com, is wearing a brave face. “The Amazon move further validates the potential of the Indian market and reiterates the importance of the managed marketplace model in India,” he remarks.
 
Market Will Improve
 
Thus, e-commerce in India is set to change irrevocably. Here’s how the market at large is set to benefit.
 
Logistics: Experts point out that for Indian e-tailers, Amazon’s entry means more than changing their business model. It will alter the entire online retailing ecosystem in India. “Logistics and infrastructure will improve through investments in technology,” explains Uppal.
 
Unscrupulous Sellers: Unscrupulous sellers, whose goods are either rip-offs or sub-standard, will also be weeded out. But this would require a strong back-end support system. Ajeet Khurana, early-stage investor, mentor and entrepreneur, says, “Since Amazon has tremendous experience in the marketplace model, it will ensure that it weeds out unscrupulous players if the products are not up to the mark. Our players don’t have the expertise yet to stop someone selling a fake Rolex watch or illegal goods.”
 
Buyer Protection: Some portals are revising their terms to make them more attractive to customers. Says Nimit Grover, Director, Marketing, Tradus.in, “We have a buyer-protection guarantee, where if the seller doesn’t deliver the product within the requisite time or the product is damaged in transit, the liability lies with Tradus.in and the seller. The money is refunded on the fourth day. We have a strong quality-control mechanism.”
The ‘returns policy’ may further improve because, while Indian players (barring a handful) offer a 15-18 day return period, Amazon.in has a 30-day returns policy. The cost-to-return will also be a deciding factor. “We have a 15-day, no-questions-asked refund policy, where we pick up the product from the customer,” counters Grover.
 
Consolidation: Now, here’s the big one – consolidation. “Like in any other sector, there will be a growth phase, an optimisation phase and streamlining of operations, leading to consolidation. Only the top two to three players will survive. Only portals that can deliver quality and scale up their businesses by constantly growing their customer base will emerge as winners,” predicts Uppal.
 
“Well-funded businesses and those with strong leaders will grow faster,” believes Sudhir Sethi, founder, Chairman and Managing Director, IDG Ventures, which has e-commerce portals such as Brainbees Technologies (Firstcry.com), myntra.com, Valyoo Technologies (Lenskart.com) and zivame.com in its investment portfolio.
 
But, experts point put, deal sizes will shrink considerably. “The industry may consolidate but the days of high valuations are gone. Portals are running out of money and are anxious to acquire customers at any cost. Weaker portals may be acquired but at fairly low prices,” remarks Khurana.
Investors Brace Themselves: The heat is also being felt by investors in Indian e-commerce. “Recruiters have seen a slowdown in the number of candidates being interviewed by e-commerce portals. Replacement hiring too is on the back burner,” says an HR consultant requesting anonymity. “Investors are getting panicky,” adds Khurana. There’s a flipside though. “Since Amazon presents itself as a serious buyer in India, it provides a potential exit route for investors,” points out Sethi.
 
Strategy being adopted by E-tailers
 
To counter the Amazon threat, Indian portals are cranking up sales in Tier II and II cities, where Amazon will have a tough time gaining customers. At present, major Indian portals claim half their customer traffic comes from Tier I cities, with the rest coming from Tier II and III cities. 
 
Moreover, in a couple of months, the first few products purchased online will be landing at the doorstep of rural households in Maharashtra, thanks to Desta’s unified platform for marketing and managing logistics.
 
Nishant Banore, co-founder and Managing Director, Desta, a technology and cost-saving products and services provider to rural Indians, is not willing to reveal much but he explains how it works, “Local stores will act as a point of delivery and cash collection for e-commerce players. Rural customers can go to these stores and collect their purchases on cash payment. This is similar to the Amazon ‘lockers model’ in the US. As our systems are used by various companies to reach out to rural areas, we are able to significantly cut the cost of reaching the rural population.”
 
Retailers Cheer
 
If Indian e-tailers are on tenterhooks, retailers are cheerful. “SMEs will get one more credible marketplace as a retail growth channel,” reasons Uppal, adding that a greater number of sellers will find a place to sell goods.
But, Khurana, argues, foreign sellers might find their way into India, giving Indian retailers reason to worry. “When amazon.co.uk. started selling in the UK and later branded itself as amazon.co.uk, suppliers in the US started selling on amazon.co.uk. The same thing might happen in India and new foreign retailers will widen the supply base.”
 
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