K Vaitheeswaran, Founder and CEO, Indiaplaza.com, talks about the Internet retail in India and how online stores are putting huge pressures on physical stores.
Q. What is the total size of the Indian online retail industry and the expected growth rate for the same?
The online retail industry in 2012 is expected to cross Rs 2,500 crore and estimated to grow by 30-35 percent per annum for the next few years.
Q. Can you tell us about some of the online retail trends in India?
Currently, the top three online retail trends in India are:
a) While absolute sales from top 10 cities are growing, the highest growth rates are coming in from tier II and III cities.
b) Consumers are quite comfortable shopping online. They have graduated from buying low value items such as music CDs and books to high value branded electronic gadgets like cameras, mobile phones, tablets, and laptops these days.
c) Online retail brands are building loyalty with their customers. Despite the apparent ease of moving from one website to another at the click of a mouse, consumers prefer to shop with select online shopping sites repeatedly.
Q. What are the key challenges in establishing and running an online retail platform in India?
There are several key challenges: for starters, India has a myriad of regulations for movement of physical goods from one state to another like entry tax, central and local sales tax, octroi, and specific permits, etc. Overcoming these and transporting items across the country is a challenge.
Another challenge is profitability. Given that newly launched e-commerce companies are primarily focused on acquiring customers at any cost, they tend to sell items below cost. In such a competitive scenario, it is hard to make money.
Q. What are the differences you have spotted in the online shopping behavior of Indians as compared to the past?
When we launched online shopping store in 1999, there were less than 3 million people on the Internet in India and hardly 50,000 customers were shopping online. Most internet users had a concern on the security of online transactions and preferred to stay away. These concerns today have largely gone away thanks to the overall comfort with the online medium and the success of transactions like online banking, bill payments, online train, and air ticketing, etc.
The other change is the increase in transaction values. Earlier, consumers preferred to just buy books and music since the values and hence the perceived “risks” were lower. The same customers today have graduated to comfortably buying mobile phones, cameras, appliances, apparel online and hence the value growth has been stupendous.
Q. Do you think online retail in India is a bubble that will burst just like in the early 2000? If not, why?
Online retail is here to stay and grow because customers are loving the selection, pricing, and convenience. Usage will explode, the industry will grow, new players will enter, offline retailers will also start online retail stores.
However, a bubble is certainly building up because of frothy valuations of e-commerce companies driven by investors. So many new e-commerce companies are being funded blindly with nothing beyond hope and I expect this bubble to burst shortly. Many of these new companies will find it hard to sustain and survive once capital availability becomes tighter. Given the grim economic outlook globally, this tightening is not far away.
Q. How much do metro cities and small Indian towns contribute to your sales?
In the year 2000, small towns contributed to less than 20 percent of our sales. This number has now crossed 40 percent and less than 60 percent sales now come from large metros.
Q. What is your customer profile?
Indiaplaza’s customers have grown with us over the past 12 years. Today, most of our customers are working professionals over 35 years of age. We describe them as the money-rich-and-time-poor class who are looking for selection and convenience at low price.
Q. What are the top selling categories on your portal?
The product mix has seen significant change over the years. Till recently books accounted for over 80 percent by volume. Now this is down to 40 percent while electronics has caught up in volume terms. By value, electronics accounts for almost 65 percent of our sales.
Q. Are the top selling categories and brands same for India and US?
While brands may differ depending on local strengths, the category break up is similar. Even in the USA, electronics is now the largest by volume and value in online retail.
The only other significant difference is that digital downloads of ebooks and music is growing into a large category in USA but is still insignificant in India.
Q. Did you customize your offerings for the Indian market?
Customization reduces the addressable market size. If I need something made for me, I prefer to talk to the vendor, see samples and then order – these are processes that are cumbersome for online retailers. If online retailers get into individual customization, they can build a niche but profitable business. Internet retail is best suited for mass branded products.
Q. How do you maintain the quality of over 8 million products listed on your portal?
The entire process of vendor development, vendor selection, quality process monitoring is done by a team of retail professionals at Indiaplaza. If we get feedback from customers that products or service levels delivered by certain merchants are below expectations, we work closely to improve service levels and in extreme cases stop working with the merchant.
When we get orders for perishable items like flowers, cakes, and sweets, we have a network of people spread across the country who pick up fresh items locally and deliver it to customers on our behalf. These are not stocked.
Q. Do you think the emergence of too many e-retailers in India is responsible for declining sales in physical stores?
Not really. An indication of dropping sales at physical stores should drive the physical retailers online but that is not happening at large scale yet.
What is surely happening though is that online stores are certainly putting huge pressure on physical retailers because more and more customers prefer to shop online these days.
Q. What is your targeted revenue for 2012?
Our sales goal for 2012 is to exceed US$200 million, up from US$50 million in 2011. Also, at the current run rate and growth rate, we should be shipping out over a million items in India in the next 12 months.