Bengaluru: With e-commerce marketplace ShopClues’ recent fire sale to Singapore’s Qoo10 Pte Ltd, the third position in India’s e-commerce market will now be closely contested between Paytm Mall, which is backed by China’s Alibaba, and Snapdeal, which is back in the reckoning after an extensive restructuring.
What’s common for the two firms, experts say, is their business model. Both are seller-oriented marketplaces, where the focus is on adding thousands of small sellers, selling goods at very low margins to a fairly large economic segment. In contrast, India’s e-commerce leaders—Flipkart and Amazon—own large warehouses to store goods, which are then sold online. The two e-commerce giants have adopted convoluted structures in order to get around foreign investment laws, which bar direct online retailing by a foreign firm. For example, Flipkart has a separate business-to-business (B2B) commerce entity which supplies products to various third-party sellers who then sell to shoppers through Flipkart’s app and website.
“Seller-driven marketplaces are scalable and usually offer a large spread of options to buyers," Harsha Razdan, partner and head, consumer markets and Internet business, KPMG in India, said in an email interview. “Seller-oriented marketplaces offer a balanced medium to sellers, particularly SMEs (small and medium-sized enterprises), for expanding their customer base. Additionally, seller-oriented marketplaces differentiate their portfolio from other marketplaces by offering unbranded or private label SKUs (stock keeping units), which are well accepted by the target segments," said Razdan.
India’s e-commerce market can potentially grow more than four-fold to $150 billion by 2022, fuelled by rising incomes and a surge in internet users, said a report by Nasscom and consulting firm PwC India last year.
The business model of Paytm Mall and Snapdeal comes into prominence after ShopClues recently sold its business to Qoo10 in an all-stock deal. The deal saw a massive erosion of ShopClues’ valuation from around $1 billion in 2016 to merely $80 million. Mint reported last week that Qoo10 also invested a small amount into ShopClues to keep the company afloat.
Shopclues held talks with rival Snapdeal for a $200-250 million acquisition deal in May 2019. Snapdeal was facing heavy competition from Walmart-owned Flipkart, and Amazon, and after its merger talks with Flipkart failed to materialize, the company then laid its eyes on ShopClues. However, by June 2019, the Snapdeal-ShopClues merger was called off.
“ShopClues had signed exclusivity papers with Snapdeal, and after the exclusivity period, Snapdeal had to give an offer, but this offer was lower than the asking price from ShopClues (management)," said a ShopClues investor, requesting anonymity.
After the Snapdeal talks failed, ShopClues approached Paytm Mall and Reliance Industries Ltd (RIL) for a strategic deal, which also failed to take off, the investor cited above said.
A Paytm Mall spokesperson declined to comment. ShopClues didn’t respond to an email query.
On both ShopClues and Qoo10, small, medium, and big sellers list their inventory directly on the online marketplace.
To be sure, seller-oriented marketplaces have their own challenges. This model requires continuous liquidity on the seller and buyer side and tighter control over inventory, quality, and service levels.
“Seller-driven marketplaces usually tend to have limited control over order fulfilment which is usually the responsibility of the seller. This could potentially lead to challenges in gaining customer loyalty and stickiness," said Razdan.
Yet, in India, there is a largely unexplored market in tier-2 and tier-3 towns. With one player exiting, e-commerce investors and analysts doubt whether a third player could exist amid intense competition from Flipkart and Amazon India.
“To gain an edge over inventory-led marketplaces and tap the potential of tier 2 and 3 cities, seller-oriented marketplaces have to put in continuous effort to manage service levels as well as product quality, offering the right price, providing adequate post-sales service and support regional/local content in Indian languages," added KPMG’s Razdan.
Snapdeal cut its losses in FY19 by reducing expenses and focusing on growing its marketplace by listing more seller-sourced products. It reported losses of ₹186 crore in FY19, which is a 71% year-on-year drop from around ₹611 crore losses reported a year ago in FY18. Paytm Mall also trimmed losses by 34% year-on-year to around ₹1,171.44 crore during FY19. Paytm Mall was originally inspired by Alibaba’s T-mall in China which runs on an Offline-to-Online or O2O model.
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