It’s a very fundamental question to which few are willing to offer honest answers: Why do we shop online ?
Let me attempt this. If I were to confine my answer to India, it’s usually for two reasons. First, crazy discounts on standardised products, like cellphones. Second, the product itself is not easily available or accessible in stores where I live or not at all.
But if you were to take away the discounts, usually funded by casino-grade investors sitting 13,500 km away, then it is quite clear that the incentive to shop online will drop dramatically. At least now.
The question is not if it will happen but when and how fast?
The process has already begun. Ecommerce and allied businesses are already starting to shrink as their investors realise India was the wrong country to create blind replicas of similar successes in the U.S. Though to be fair, you can’t blame foolish investors for assuming this, such is the nature of capitalism and markets.
The second factor is an understanding of the consumer.
It is crystal clear that Indian consumers are loyal to one factor only and that is value or the deal. As long as you shower discounts they will buy or transact on your site.
Take the discounts away and they are gone.
Amazingly, billions of dollars have been poured in assuming this fundamental tenet of an Indian shopper can be changed or reversed.
Next, what is the size of the market? There are mouth watering projections on the size and scope of India’s online consumer market. Most of them are patently false. Like the 250 million Indian middle class consumer fantasy that multi-nationals saw in the early 1990s, a figure that is still materialising in 2016.
According to this insightful report from Kotak Securities that came out last year, the size is roughly 40 million customers. A figure that all my friends in ecommerce tell me is either stable or shrinking.
It is in this context that Future Group’s decision to dump ecommerce is interesting. A report in the Business Standard of August 29 says Kishore Biyani’s Future Group is closing the chain’s ambitious online retail venture Big Bazaar Direct, finding the business unviable.
Significantly, Biyani says they want to focus on it’s core business of physical retailing where it plans to add 3.5 million square feet of space, the highest ever in a single year!
If you are one of those who are fed on four years of puff/PR pieces on India’s ecommerce industry and are thus unlikely to see a contrasting point of view, this is where you should get off.
If you are still with me, read on.
First, Kishore Biyani has been wrong in the past. He can be candid to the point of being blasé about it. “I thought making films were a good idea because the process of Bollywood provided insights into consumer behaviour,” he told me in an interview a few years ago.
He still believes in Bollywood’s ability to define consumer behaviour but is out of films now.
In the same report of August 29, he says he has entered and exited ecommerce four times. But he also acquired FabFurnish, a furniture retailing company but now has a different take on it. “With the acquisition of FabFurnish, we are learning what not to do in e-commerce,” he said.
He also says that customer acquisition costs, fulfilment costs and other expenses in ecommerce add upto 50% of overall business costs, making it unviable. The figure of 50% to anyone who runs a real business will actually appear understated but that’s a different story again.
The larger question to ponder is about timing.
Biyani’s announcement is, presumably, a reflection of four thoughts:
- His ability to crystal gaze on how Indian consumers are likely to consume in the near future. He has been right on this in the past. And wrong, by his own admissions.
- A sound understanding of past consumer behaviour and loyalty particularly in regard to discounts. Don’t forget Big Bazaar has run its own massive discount-led sales. He has been more right on this.
- The flow of capital, notably that of reckless venture capital firms funding even more reckless customer acquisition. This is clear as day. The tap is closing and an increasing number of VC-fuelled investments are in their death throes.
- Failure. The e-commerce experiment has gone wrong. He recognises he can’t crack it so best to cut losses now, as he has done in the past. Don’t forget, he has regular shareholders to answer to, not the wild-west venture capitalists who take Las Vegas-style bets on enterprises.
So if he has the timing wrong, then the party will continue for a little while longer. After all, as recently as last week, the major e-commerce companies were still taking out full pages in national newspapers offering heavy discounts.
But then ask yourself, if a brand or company has to use precisely the same approach for customer acquisition 3-4 years down the line, isn’t there something nightmarishly wrong with the proposition ?
So Biyani is surely right on some counts and partially timing too. The question is which of which and how much ? Biyani may nor may not matter in the `watch billions go down the sinkhole’ game but his statements could be a turning point.
Not for what they will do but for the baseline reality they potentially reflect.