The Online Bubble

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Online retail has tremendous potential to work in favor of mainstream retailers, but to expect it to put the mainstream retail out of business is an exaggeration.

There is a general notion that, in the years to come, online retail will rule the retail industry. However, such conception may not be very realistic, if one tries to closely observe the online retail industry.

One may base argument for the online retail potential on the growing size of the market. But, trying to identify the real size of the online retail industry reveals the obstacles that exist because of the discrepancies that lie in its interpretation by numerous reports, experts and industry analysts. Irrespective of what experts say or want us to believe, the online retail is not as big as it is projected to be.

In the first place, what essentially should be considered for determining the size and consistency of online retail industry is the issue that needs to be addressed properly. In UK, for instance, in November 2006 the Internet retail sales are estimated to be $6.4 billion. This by all means is an astounding figure, and is $1.5 billion above industry estimates. But here again, the fact remains that online retail is particularly popular with consumers during the months before Christmas.

Ideally, sale of tickets, insurance sales, car rentals and travel related sales should not be included in the total online retail sales, as such sales account for the leisure and entertainment category. Most often, this category is included while making any estimate about the online retail industry’s actual size, which only helps in distorting the true picture of the retail industry.

The important question is whether the online retail industry is capable of taking over traditional retailing. If the financial perspective is taken into account, one can’t help but feel that this might be the case in the due course of time. Conversely, mainstream retail is here to stay. Case studies in this regard accentuate the fact that though online retail would grow, but this would not deter the companies from incurring the costs of opening and maintaining stores and sales staff. For many of the companies their online presence is nothing else but filling of the gap that exists between the actual store and the online world. In other words, it is just an extension of their physical stores, as retailers cannot afford not having online presence.

At present online retail is no match for the mainstream retailing. Official estimate suggests that US online retail industry is estimated to be worth $134 billion in 2006, which is approximately $100 billion more compared to 2001. Incredible as it may sound, these figures are still not very high compared to the money that mainstream retail makes.

The so-called perceived threat from online retail is that it will eat into the mainstream retails share. But thus far this has not been the case, and a testimony to this fact is that commercial property rates anywhere in the world be it Europe, US or even in Asia have gone northward. Facts prove this point beyond doubt, out of the annual 2.5 per cent overall growth of the UK retail market, 2 per cent comes from mainstream retail, and online retail accounts for 0.5 per cent (excluding the leisure and entertainment category). Experts believe all that will change by the domination of the online retail industry, if that ever happens, is the shifting of sales from one channel to another. The ultimate aim of the retail industry will still be to sell.

The size of the online industry may still be small but it has somewhat changed the whole dynamics of the relationship between consumer and retailer. It has granted the consumer the power to research and compare everything be it delivery time, products, prices or various other things of different retailers or brands. It has also enabled the retailers, wholesalers and manufactures to enter the market directly.

Online retail has enabled the consumer to directly get involved and research about what they want to buy. It has empowered the consumer to surf and shop at any time of the day, from office, home or any other place. Consequently, this has encouraged the consumers and brought a change in their shopping behaviour.

Analysts are of the opinion that online retail should not be seen as something which has revolutionized the retail sector. In a way it has helped the retailers by enhancing their ability to serve the consumer better. Many consumers research products and different product features before making the actual purchase. It has instigated healthy competition among the retailers.

The retailers have recognized the potential hazard of not having Internet presence or even worse having presence, which is not user friendly. The challenge for the retailer today is to be shoulder-to-shoulder with the changing habits and preferences of the consumer.

Another significant issue is that in online retailing the delivery person is the only possible human contact that the consumer comes across. So for retailers the delivery person’s job is not just to deliver the product, but also to provide final touches to the consumers’ brand experience. Practically the delivery person is more of an extension of the retailer. Hence for the Internet retailer, their investment in logistics and final delivery is equivalent to the investment in outlets and its sales staff.

The myth about online retailing is that such retailing is always cheap. Missed deliveries and repeat deliveries bleed the retailer dry and cannibalize the already low margins of this business.

Indian Scenario

Internet retailing has picked up in India in the last year or so. Online shopping sites have started making good money. Research shows that online retailing has made close to $511 million (Rs.2, 300 Crore) in 2006-07. This is just a diminutive part of the total organized retail sector, which is estimated to be about $12 billion (Rs.52, 000 Crore).

Online shopping in India began with the small low cost articles like cassettes and books, while gradually apparels and other high-margin goods like the consumer durables have joined the bandwagon. Many big brick-and-mortar retailers for example, Kishore Biyani of the Pantaloon, has come up with the site like, where different brands and goods are sold at good price. Leading online retail sites like ebay, rediff, indiatimes etc are making decent sales and expanding aggressively.

The main consumer of the online retail is the youth of the country. It is estimated that approximately 80 per cent of the internet buyers are male. About 25 per cent of these buyers are between 18-25 years age, 46 per cent of buyers are between 25-35 years age.

The potential of the online retail industry in India and worldwide is immense, but to believe that it will take over traditional brick-and-mortar retail is a misconception. Both channels of retail are going to co-exist and in fact help each other in providing the consumer with good shopping experience.

Graphic details of the Indian online retail market:

Where Do The Shoppers Live?

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