E-retail: Short-term valuation or long-term value creation?

The Indian e-commerce sector is expected to grow 70 per cent in 2015 and cross $6 billion to become one of the fastest-growing e-commerce markets in the Asia-Pacific region. Market players are providing various incentives to lure customers in order to gain market share. They have adopted a low margin and high customer acquisition cost business model. However, players must focus on long-term value creation while racing for the bigger piece of the pie.

The e-commerce companies are not focusing on certain operational essentials as their internal functions are not able to keep pace with the explosive growth.

Logistics anomalies: In instances where consumer experiences have been less than satisfactory, companies are facing challenges in maintaining the quality of services, leading to reduction in customer satisfaction. Listing sub-standard products on the website, delivering pieces of wood/soap/marble instead of the promised smartphones and listing faulty pricing strategies can create unwanted hassles for customers.

Customer security and safety issues: Rapid expansion of business operations have led to overlooking of critical business processes. Some recent unfortunate incidences related to individuals' security and safety issues have raised serious concerns related to background check of employees. Companies, as well as their manpower sourcing partners, should follow strict measures to check their employees' antecedents. While expanding their operations, the e-commerce players need to diligently fulfil the responsibility of ensuring security and privacy of their customers.

Compliance defaults: Since e-commerce is a nascent market in India, the regulatory system is not very developed. There are various conflicts between the e-commerce companies and government on interpretation of regulations. For instance, there is a debate regarding the liability of unpaid service tax on these companies. Although these companies claim to be facilitators between buyers and sellers, they are using warehouses to store fast-moving products to reduce their delivery time. Further clarity in regulations and diligent compliance by companies will ensure smooth operations.

Are deep discounts sustainable?
Despite concerns related to operations, the increase in velocity toward gaining scale is enthusiastically backed by multi-million fund injections of foreign investors. With significant funding backup, e-commerce companies are able to adopt strategy of providing considerable discounts while earning wafer-thin margins. This strategy of providing regular deep discounts to scale up is making the game difficult for e-commerce players and is becoming a tiger ride, which is difficult to dismount. The high growth expectation of PE investors in e-commerce is likely to suffer a setback when PE firms do not find it lucrative to fund consumer subsidies without an alternate differentiation strategy. The irony in the e-commerce space is that there is low brand loyalty.

As a profitable model is yet to evolve, less-than-expected performance on a "Big Sale Day" or accidental miscalculations in pricing should be seen as small hiccups in an attempt to attract consumers to the concept of online shopping.

There is a need to take a more patient approach towards e-commerce while players take the long road to create high brand value by providing reliable services along with differential offerings. To ensure smooth growth, companies should invest in optimisation of warehouse operations, loyalty management, robust recruitment process, stronger backend technology infrastructure, better digital store front and logistics management especially in rural areas where they rely on third party logistics. It will be interesting to see how this industry unfolds, as the players gain experience and serve the country with full sincerity.

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E-commerce expansion benefits real estate and logistics sectors

India’s warehousing and logistics real estate segment has benefited immensely from the expansion in e-commerce over the last two years. The emerging retail segment took up about 1.7 million sq. ft. of warehousing space across Mumbai, Chennai, Bengaluru and the Delhi National Capital Region in 2014, according to a report by CBRE, a leading commercial real estate services and investment firm. The report said that almost 25 per cent of the total warehousing/logistics space uptake across India in 2014 was by e-retail players, while the uptake in logistics space rose by more than seven times over that of 2013.

The last few years saw the segment becoming a new addition to the mix of major office space demand drivers in India as online retailers increased their footprints for front-end as well as back-end requirements.

“By the end of 2014, approximately 3.5 million sq.ft. of office space had either been leased or was in various stages of negotiation by e-commerce firms across the country, a growth of more than 400 per cent year on year,” the report titled, ‘Indian Online retail driving realty,’ said.

India’s online retail sector saw exponential growth as a number of local market-specific services — cash on delivery (COD), multiple payment options, and EMI options — assisted in developing the growth curve of ecommerce in the country. Online retail as a sector is still at a nascent stage in India, as leading players try to establish a strong foothold and consumers get accustomed to this new medium of shopping.

In the outlook for e-commerce, the report said, the sector’s future looks buoyant and it is likely to emerge as a strong demand driver for real estate space in the years to come. “The sector will also play a major role in the evolution of existing logistics providers, as well as in the development of logistics infrastructure in the country.”

AaramShop to launch services in East Africa, South-East Asia

Delhi-based AaramShop, which allows customers to shop at local neighbourhood stores via the internet, is planning to enter East African and South-East Asian countries.

The company will find local partners and launch services in these markets through the franchise model.

Last year, AaramShop had launched its services in Pakistan by tying up with Red Bucks Grocery, a company promoted by an ex-Unilever employee in Pakistan.

“We would test the limits of our technology in new markets such as Nairobi (Kenya) in East Africa, Vietnam and Indonesia in South-East Asia and even the UAE through the franchise model. There would be no equity participation and it would be an asset-light model run through franchises,” said Vijay Singh, CEO & Managing Director, AaramShop.

“Like in India, goods are sold on MRP (maximum retail price) in Pakistan and not on recommended price like in the more developed markets. In the past year, we have got 7,000 grocers on our site in Pakistan and have a franchise partner since we cannot own equity in this country.”

In India, it currently has 5,000 grocers registered on its site.

The company is providing them with technology-based solutions to reach out to their neighbourhood consumers.

“We should have 60,000 grocers with us by next year,” Singh said. 

Revenue generation

AaramShop does not charge the grocers for its services, instead its revenues come from consumer goods companies and brands that sell through its site for services such as analytics and advertising.

“We get our money from most of the big FMCG companies such as HUL (Hindustan Unilever) and P&G (Procter & Gamble) for providing services like coupons and advertising on our site,” he added.

AaramShop’s services are mainly restricted to the local neighbourhood ‘kirana’ stores and general trade outlets, not modern trade retailers.

The three-year old home-grown start-up is now planning to raise funds through private equity players.

“We have been waiting to get our business model right and generating funds on our own in the past. But now, we hope to raise ₹36 crore in our first round through PE players,” said Singh.

Apart from grocers, AaramShop has also added local pharmacy outlets on its site.

Flipkart content ‘objectionable’ for Telangana

What does Flipkart, an ecommerce major, have in common with Iambesharam-.com, Thatspersonal.com and Ohmysecrets.com? Nothing, it would seem. But all four are on a list of websites the government of Telengana wants blocked for "objectionable content". A senior government official told ET the state government feels some websites need to be blocked to avert crimes against women as "there is a strong concern that viewing porn sites is leading to crime against women."

"The state government has sought our help in directing various internet service providers (ISPs) to set up appropriate software tools which will block content violating the provisions of the IT Act of 2000, as amended by amendment ACT 2008," the official told ET. The list of ISPs include Airtel, Hathway, Idea Cellular, Reliance Communications, Tata DoCoMo, Tata Indicom and Vodafone.
The country's largest e-commerce player's name has cropped up for supposedly promoting and selling alleged objectionable products, but the names of the products couldn't be ascertained. Flipkart didn't respond to an emailed request for comment. The state government's request comes barely a fortnight after the government blocked 32 websites and links, including several popular online tools like Vimeo, Github and Sourceforge, as they were found to have hoisted 'jihadi propaganda'.
The government later ordered ISPs to unblock all 32 of those websites. The block was believed to have been imposed at the behest of the Anti-Terrorism Squad, Mumbai. The government had invoked section 69A of the Information technology Act (2000) and Information Technology (Procedure and Safeguards for Blocking for Access of Information by Public) Rules ("Blocking Rules") to ban these websites.
Many websites have been blocked in India from time to time on various grounds. Following the Muzaffarnagar riots in September, more than 80 websites and links on social media were blocked. In June last year, the Delhi High Court ordered the blocking of 472 file-sharing websites.

Arvind eyes Rs 1000 cr revenue from e-com foray in three years

Arvind Internet the online arm from Arvind textiles is eyeing revenue of Rs 1,000 crore in the next three years from its foray into the e-commerce space. According to senior officials in the company, Arvind Internet will be launching several business models under its e-commerce foray.

To begin with the company announced the launch of Creyate.com, which uses omni-channel including online, offline and kiosks. “This is the first of the several launches that we plan to do under our e-commerce brand. Towards the mid-of next year we will announce our second big launch. Between these two brands we expected to clock revenue of Rs 1,000 crore in the next three years,” said Kulin Lalbhai, executive director, Arvind.

Lalbhai also shared that between each of these launches there will be a gap of atleast one-and-a-half years.

“All the models that we will launch in the e-commerce segment will be focused on lifestyle and omni channel models. We have been planning to enter the e-commerce space for some years now. For us e-commerce is not a channel to just sell products but how we engage with customers,” he added.

With Creayte.com Arvind Internet is trying to merge personalization and mass consumption.

“Personalisation is a global phenomenon. We are trying to use technology to give users personalized products and they will have a factory at their disposal,” said Lalbhai.

“Over the last one-and-a-half years the company has built a factory that can come out with thousands of design in a day. It is supported by an automated warehouse that takes care of the delivery,” said Lalbhai.

Users using Creyate.com can schedule a home visit with Creyate’s ‘Style Stewards’. They not only take a customer’s measurements, they also give them style advice and complete wardrobe solutions. “Our style stewards are not your local tailor, these are smart girls and boys who have good experience in retail and trained for over two months with us,” he added.

Other than a home visit, users can also avail of Creyate retail outlets, which according to Lalbhai are on the lines of Apple Store’s. “We will also have pop-up stores or digital stores. These would be kiosks set at strategic places like malls, or areas where you have high concentration of young professionals. These would be set at certain location for a certain period of time and then moved to other areas. The first of this is soon to be launched in Delhi,” said he.

At Creyate users can get access to fabric that Arvind provides or even opt for international fabric.

The products from Creyate are at a premium of 15-20 per cent from brands such as Louis Philippe or Arrow. Depending on the fabric a product will be delivered between 12 – 25 days

Arvind Limited is the manufacturer of garments under brands such as Flying Machine, Colt and Excalibur.

The company also has retail brands such as Megamart, Next and Club America.

Arvind Limited has licence for selling products of several global brands such as Arrow, Elle and US Polo Assn, and a joint venture in India with Tommy Hilfiger.