Growing popularity of online retail is a formidable challenge to traditional retailing says Amit Jain, CEO & Co-founder, Purple Commerce. Offline retailers are forced to think out of the box as online retail increasingly becomes “the new norm” than a “nice to have.” Retailers can no longer afford not to sell their goods online.
In the last 12 months, there has been a lot of media coverage about e-commerce, led by players which have become household names now, such as Fashion and You, Myntra and Snapdeal. Most of these are pureplay Internet businesses started by entrepreneurs from the technology space. A lot of money being spent by them is private equity or venture capital and most of them are still not making money. So what does all this mean for brick-and-mortar retail stores (offline retail)?
India is a nation of 1.2 billion people, with over half of them below the age of 24. That is a lot of people looking for goods and services, from basic needs like food and clothes to white goods, entertainment, and luxury products. About 40 percent of these live in tier 2 and 3 cities where modern retail has not reached yet and is unlikely to reach even in the near future, given the expensive real estate, wastages in supply chain, and paucity of trained manpower.
The mobile and TV penetration in India has reached 80 and 50 percent, respectively, which means that majority of people in small towns get to watch IPL matches and the Saas Bahu shows, making them aware of the latest fashions and gadgets and the lifestyle of those in the metros. There is a rising demand for famous brands and products. It is just a matter of getting access – the consumers are already there.
Tablet PCs will breach the Rs 3,000 barrier this year, broadband costswill become comparable to voice telephony and, most importantly, regulations on mobile payment systems are in the works.
Given the favourable demographics, awareness level and accessibility, the question for established offline retailers is: Can they afford to ignore this huge demand and leave it to the upstarts? There are skeptics, but the figures do not lie. Over 40 percent of all online sales in India last year came from tier 2 and 3 cities! The Indian Railways online site irctc.co.in does four lakh transactions a day. In 2010-11, 20 crore passengers bought their tickets online, which represents 40 percent of all reserved travel. What stops them from making a purchase online in the coming years?
The Internet fundamentally brings in some advantages and disadvantages for retailers. First, it is cheaper than setting up a new store. A good e-commerce website can be developed in two months with an upfront capital of a couple of lakhs of rupees, with another one lakh rupees a month for managing and marketing it. This compares well with a typical retail store in a metro. But the big difference comes when you start to expand. Every additional physical store needs upfront and inventory costs, but the incremental cost for a website lies primarily in marketing efforts.
Online stores can provide much more variety and intuitive display than an offline store. A website is not limited by space – you can showcase last year’s stock in the clearance section in addition to regular products. In contrast, a typical 1,000 sq.ft. apparel store can accommodate only about 500 SKUs. Intelligent search features can make the buying experience quick and pleasurable.
Another significant advantage of online store is reach. Offline retail has limitations due to its physical presence at a single location, but the Internet has no such. Your site is immediately visible to the entire world. Multiple channels like comparative shopping sites and aggregators become an option. Products are visible to wholesalers and resellers and expand your reach in the offline world too.
Setting up an online store is a decision that requires careful study ofyour product and potential customers and understanding the key aspects of the new setup. It needs a whole new set of skills which a typical offline retailer rarely possesses.
For the uninitiated offline retailer, the best option is to hire a consultant who can help formulate his online strategy, set up the team and hire the various service providers. It is a good idea for you to start off with most of the activities outsourced to a third party and gradually build your own team as you understand the intricacies of online selling and, specifically, your own industry vertical.
Selling online is an imminent reality. It is important that offline retailers recognise the opportunity and take the first steps to add this new channel to their business plan.
**Purple Commerce is a provider of retail and e-commerce IT solutions.
*This column was originally published in April 2012 issue of Images Retail.
