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    Can the e-commerce model ever turn profitable?


    A growing number of Indians are turning into full-time online shoppers, buying everything from books to apparel, home decor to electronics and now even food & grocery at the click of a button. A recent report by Bank of America Merrill Lynch reckons India’s e-commerce market is expected to witness significant uptrend in the coming years and touch USD200 billion in terms of gross merchandise value (GMV).

    The number of e- commerce websites have also seen a rapid surge in business in recent years largely because of attractive pricing and deep discounts. Some of the players are even claiming to turn profitable or are targeting sales as high as USD 10 billion. While it seems all gung-ho on papers and reports, none of the big e-retailers is anywhere close to making profits, years after being in business. The profitability and viability of e-commerce business model always remain under the scanner. Some of the veterans in the industry even compare it to the dotcom bubble of the 1990s, that will burst sooner than later.

    “Whether the business is physical or digital, the principle remains the same. We are all ultimately in the business of consumption and their is no point running it without profitability and viability. Theseyoung enterprenuers are thinking very small, and this needs to be changed. E-commerce is creating businesses of less than Rs 1 crore. I find entrepreneurs coming up with ideas that can barely give them business beyond a time. What is the point of having a venture like this if you cannot build value or scale?” Future Group founder Kishore Biyani asked while speaking on a session at India Retail Forum 2015 in September.

    Also, the Gross Merchandise Value (GMV) concept adopted by the e-commerce business to show revenue is based on the maximum retail price (MRP) of products sold on the website and does not factor in discounts, or even cancellation or return of products.

    Earlier in an interview to ET, Biyani had lashed out at ecommerce majors, saying that the latter are violating laws on foreign investment. Noting that the ‘marketplace’ model adopted by ecommerce companies in India differs little from brick-and-mortar formats, he said, “There is nothing different about marketplace (from brick and-mortar retail) except for accounting.”They (online retailers) sell to consumers. They are violating the law (on overseas investment) in spirit and in letter,” Biyani was quoted as saying.

    “All retailers source almost all goods from manufacturers and suppliers,” he said. “Virtual retailers, like real retailers, store most of their merchandise or inventories in their own warehouses. How one treats this inventory in the financial accounts may differ. Some account this inventory on their own balance sheet, others account for it in their suppliers’ balance sheet. There are real-world retailers as well who do not account for the inventory on their own books.”

    And yet, companies that run brickand-mortar stores face stringent curbs when it comes to foreign investments unlike their online counterparts, he said

    At a time when profitability and viability of e-commerce is under a constant scanner, Drs Joost van der Lann, director, Retaileconomics, is believes there are nine essential battles e-tailers have to win in order to be profitable. He is set to discuss the nine profit battles of online retail, in a knowledge series session at the upcoming India Food Forum 2016 business event on 19-20-21 January at Mumbai.

    A retail veteran who provides consulting services and training to retailers, suppliers and service organizations, van der Laan has worked with major consulting firms including PwC and Nielsen. Targetted at online businesses, his talk will build on cases from the US, UK, France and The Netherlands and decode online forecasting, understanding shopper behavior, Identifying best in class online marketing,and the nine battles retailers have to win in order to develop a profitable online food business.