The Half Yearly Report on the State of E-commerce

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.