In a bid to curb higher marketing costs and cater to diverse customer needs in a highly competitive market, Indian e-commerce players, in a reverse trend, are now expanding their platforms to brick-and-mortar outlets.
“The crux of the online business is low operating costs. This is fundamentally how e-commerce companies in the West have been successful. However, e-commerce in India is still at a very nascent stage because here the population who shop online is limited, whereas the amount of money that goes in to acquire those (customers) or to make a noise to bring awareness, is much higher,” Co-founder and Chief Executive Officer, Voylla Fashion, Vishwas Shringi told IANS.
Shringi explained that higher marketing and customer-acquisition cost in the online space in India make it imperative to search for an alternate business model.
“In the Indian scenario, running a business offline is more profitable than an online business now because of higher marketing cost. In case of offline, the operating cost is high, but you can still run the business with low customer-acquisition cost or a low marketing cost,” he said.
“Fundamentally, if the customer-acquisition cost and the marketing cost, coupled with the operating cost in running a retail store is lower than in online, then it still makes sense, which is what the offline story of India is all about,” Shringi added.
According to a report by the India Brand Equity Foundation (IBEF), India’s retail market is expected to nearly double to US $1 trillion by 2020 from US $600 billion in 2015, driven by income growth, urbanisation and attitudinal shifts.
While India’s business-to-business (B2B) e-commerce market is expected to reach US $700 billion by 2020, the report added that online retail is expected to be at par with the physical stores in the next five years.
Lenskart’s CEO Peyush Bansal points at better returns from going Omnichannel (being present both online and offline) along with lower alternative expenses, like marketing costs and maintenance costs.
“Whether the online (store) is going offline or the offline is going online, the way I would put it is that they are all going Omnichannel. That improves the ROI (return on investment) of the business quite a lot,” Bansal said.
“Online penetration of retail in India is still around some 20 per cent, in fact some 10 per cent for most categories. So, of course, offline shares would be higher. But as online penetration will increase, this conversion will increase,” he added.
Moreover, going brick-and-mortar ensures the e-tailers do not lose their customers in any space — either online or offline.
“There are all kinds of customers — some buy only online, some like omnichannels — sometimes they buy online, sometimes offline — and sometimes there are customers who buy only offline. So, we can try and tap all three kinds of customers,” Founder of online beauty retailer Nykaa, Falguni Nayyar told IANS.
“And most importantly, those customers of ours who like a mix of offline and online for various reasons. We should not lose our connect with them,” she added.
But does this mean that the e-tailers are taking a step backward?
“It’s definitely not going backwards, it’s coming up with a new model… You’ll see in two-three years that ‘Omnichannel’ will be a big buzzword,” Nayyar asserted.