The annals of human history are filled with stories and
accounts of numerous success stories, where the symbolic hero has to go through
several failures before he can finally taste success. This inexplicable and
unfathomable paradox has somehow managed to hold true through every such
account and every such story. At some point, one has to face the trials on the
path to glory. A phoenix must first burn in order to be reborn.
The current state of the e commerce industry in India brings
to mind the very same metaphors. But, few have managed to recognize the paradox
that is bound to follow. The past few months have brought nothing but blow
after blow for the industry. Indian e commerce’s stalwart, Flipkart has found
itself in the line of fire not just internally, but externally too.
February saw Morgan Stanley marking down its valuation in
Flipkart by 27%, and as usual, the Indian media as ready to jump the gun and
termed it as the beginning of the end for major e commerce startups. High
profile headlines followed and so called industry experts termed it a fiasco.
Was it?
Not even by a long shot. Such devaluations in internet
companies are a routine affair and Morgan Stanley’s markdown was in part a reaction
to the general shift in VC temperament all over the world. There has been a
monumental shift in the entire economic atmosphere across the globe which has
prompted investors to lower down their exposure to risk. The Flipkart
devaluation was a calculated move rather than a harsh reaction to an underlying
problem.
However, this valuation has done more good than harm for the
company and also for the entire Indian e commerce industry as a whole. It was
about time for the startups to end their nonchalant and bull crazy run spanning
a period of about 2 years. Once again, no need to jump to conclusions. The run
can be termed as one of the most successful ones in recent years, eclipsing
even those in the Western markets. As unbelievable as it may sound, but the truth
is, the VCs and investors have a close watch and razor sharp control over what
goes about in these startups.
The initial bull run is a market strategy which is employed
to gauge the capability of the company and the depth of the market. And it was
able to achieve just that and even more. This so called process of tightening
the noose has started the much needed process of restructuring and renewal. So,
now the metaphor ‘A phoenix must burn in order to be reborn’ must make much
more sense to you in this context.
This temporary down phase has been deliberately brought in
to re-strategize and regroup and prepare for the coming battle in a much more
organized and mature way. This is the coming of age phase for the Indian
startups as they move out of their adolescence and into their teenage years.
The biggest indicator for all the good times that are yet to
come for the e commerce industry is the constant entry of new and even bigger
players into the market. The biggest of these new players being TATA Unistore’s
e commerce venture TATA Cliq and Arvind Limited’s latest initiative Arvind
Internet Limited, which will engage in the e commerce space with a host of new
ventures. No new company will foray into a market that is into decline. And
neither have the TATAs and Arvind Limited.
But, they sure have found the sweet spot to enter where the
existing giants are fortifying their bases, the new entrants may be able to
gain a quick market share, if they are truly worthy of it.
Going forward, the game of e commerce will be fought with
the weapons of innovation and customer experience rather than those of
discounts and flash sales. Many experts have pointed out that customer
experience and feasibility will play a major role in taking the industry ahead.
It is common knowledge that the internet user base in India is poised to
increased rapidly over the coming years; which will lead to an increase in the
opening up of new fronts in this battle for supremacy. These new fronts will be
tier 2 and tier 3 town populace who will be riding the internet boom and
looking to taking their buying experience online. This will bring up the
challenges of creating differentiation and uniqueness across their services in
order to please everyone.
Amidst all this one may think that online retail is the only
way forward. However, current trends point the other way. Even with the arrival
of e commerce big wigs, offline megastores and retailers have had a boom of
their own, especially in FMCG. Future Group helmed Big Bazaar, which is the largest
supermarket chain in India saw over 15% increase in the FMCG sales year over
year. This is a tremendous achievement at a time when the bulk of the retail is
shifting online.
FMCG e commerce companies saw a sprout in mid-2015 and were
pegged to replace the way India shops for groceries and households. And they
started off aggressively, with deep discounts and festival special bonanzas,
which sought to pull buyers online. However, the boom that was, turned out to
be one of the shortest in recent times. One of the key contenders, Peppertap
which was backed by Snapdeal shut down its operations after just over a year of
going up.
Others like Grofers, Big Basket, etc. also had to scale down
their operations in tier 2 and tier 3 cities where acceptance rates were quite
low. This failure can be attributed to the hyper growth and zero strategy model
followed by the companies where they were spending too much too early without
generating the desired revenues. When they should have focused on localisation
and end to end control over its cycle operations, they focused on high profile
marketing and heavy discounting.
The symptoms are common across the board. There is a lot of
excitement and fervour, but too little control over how a startup’s operations
have been handled. Its almost as if handing the reigns of the business to a
sugar frenzied child, whose only focus is on all things bright and shiny.
Consolidation and end to end control should have been the mantra from day one.
Better control is an inhibitor, however, it is absolutely necessary while
venturing into a space that has no prior precedents.
The temporary failure of FMCG e commerce platforms has
ensured that the battle for Online Vs Offline retail remains relevant. The old
guard still poses a threat and is not ready to let go of the throne without a
showdown. FMCG has been the cause of great divide between online and offline.
Even in the United States, online retailers have not been able to perfect the
suitable business model to handle and effect FMCG sales online.
The remainder of 2016 will see a level of maturity take over
the online retail industry and discounting will continue, for now. But, what is
most awaited is the innovations and breakthroughs that are bound to follow as
the industry transcends and takes on new challenges.
