Caution: Don’t get addicted to Online Shopping – Discounts won’t last!!

Why do big online retailers like Flipkart, Jabong, Snapdeal continue to offer huge discounts and attractive offers despite of making huge losses?

It was a week before Diwali; I was helping my dad decorate our house. For my overseas readers, Diwali is the biggest Indian festival and just like any big festivities around the world, it comes with loads of shopping. Retailer offers discounts and schemes to boost sales and to cash in the festive spirit. One of my neighbors, who happen to be a retailer of electronic goods, started chatting with us. He explained how it’s been very busy for him due to the holiday season and that he wants to rush to open his shop. I asked him if online sales caused any impact to his business. He immediately replied; yes. I fired another question, how can they sell it so cheap? He paused for a while and then went on with his response; these websites are selling goods at cost price or even lower. He added further; they don’t want to make profits, they are only here to destroy shop owners and real retailers. They are there are here to increase valuation of their online ventures and then sell it off to the highest bidder. Before I could ask anything else, he left. I & my dad chatted about this topic for few more minutes where he gave me an example how he had seen a similar strategy by a company when he was young. Having written my last post on success of online retailers, I thought it’s fair to warn everyone on its sustainability.

Let me take you back to early 1900. This was the time when a trading company changed the way we start our day even today. This also happens to be the company which helped British, rule India for several decades. So, what change am I referring to? It is about the way we welcome guests in our homes, it is about the way we wake up, it is about the way we socialize. I’m taking about TEA, sounds familiar? Off course it will. Tea is now a part of India tradition. This has not been the case always. According to the historian Ville Melgén, the taste for tea was developed in India through a dedicated punch in the face of the producers of tea. Initially, free samples of tea were offered from horse-drawn carts. As early as 1907, Brooke Bond, an English tea company started experimenting with a fleet of horse-drawn vans for distributing teas. This is exactly what my dad told me. He told me how tea was distributed free along with a small pack of biscuits (small cookies/ crackers). My dad was born in the year 1948, which means this company distributed free samples for over 50 years. Give it for free unless it becomes an addition. That’s exactly what East India Company did, and this is exactly what online retailers are doing. They are making us habitual of free home delivery, huge discounts, luxury of ordering two sizes and returning other one, same day delivery, free returns if you don’t like the product. All of this was important to change behavior of Indian buyers, who wanted to touch everything, bargain hard before buying.

Now consider this; India's largest online player Flipkart continues to be in the red (in losses) after more than six years of operations. The fact is; no online retailer in India is currently making profits. Think about it. Why would they sell products for almost no margin? Why would they invest so heavily on advertising? Answer lies in East India Companies strategy. They are acquiring customers. They are destroying real traders. They are increasing their base and brand loyalty. You would have noticed how some of these companies have started additional features through membership programs. All of this is aimed at increasing customer base. In fact, companies like WhatsApp are doing the same thing. They started offering free messages, free media transfer, even free call (by some). All of these services were earlier charged by mobile companies. Sooner or later, WhatsApp will also charge for its services. For now, they are making us addicted to their features & cost free operations.  

Make best use of online shopping features till they remain cost effective, history tells us they won’t remain cheap forever. Share & comment if you like this post. Feel free to criticize.

How India Online Shopping Giants made it BIG?

Three top online e-retailers… All have IIT connections, all started small, all made some brave (read crazy) decisions, all of them made swift adjustments to their business model to make it “BIG”. From same day delivery to hassle free returns, from cash on delivery to monthly EMI, these companies have changed the way we shop, forever. All of them were able to sense the market and overcome their mistakes. They constantly “Check & Adjust” to survive & thrive in this very competitive world.

I have been an online shopper for a decade. My first online order was a memory card reader from Ebay. Since then, I have ordered laptops, camera, apparels, furniture, even smart TV and Air conditioners… yes that too. You can imagine my passion for online world. Let me show you the journey of these top e-retailers. Remember these companies started much later than Ebay, Indiatimes shopping & Homeshop18. Yet, they not only left all these mega brands behind but are also giving Amazon a run for their money.

Year 2007; Mukesh Bansal, Ashutosh Lawania and Vineet Saxen, all IITians started an online venture with a focus on personalization of gift items. I believe I was amongst the first few to register to their site. It mainly operated on the B2B (business to business) model during its initial years. Between 2007 and 2010, the online portal allowed customers to personalize 15 products such as t-shirts, mugs, mouse pads, calendars, watches, teddy bears, pendants, wine glasses and jigsaw puzzles. Customers could order for these online and these would be home delivered in 3 days’ time. It seemed like a perfect gifting option back then. Within the initial 3 years, it became India’s largest personalization platform with more than 50% of the market share. Company was eyeing for more. It started offering personalization of jerseys of various cricket and football teams including the Indian cricket team, the IPL teams and the Premier League football teams. By 2010, this company shifted its focus to the online retailing of branded apparels. Fast forward to May 2014, another e-retailer acquired this company in an estimated $300 Million deal.  If you haven’t yet guessed it, I’m referring to “Myntra.com”. Company, which started with selling customized mugs and t-shirts, was valued at $300M in 6 years.

This second venture wasn’t even intended as an online business. In 2007, its founders started with an offline couponing business. They convinced few investors to support and sustain their business. In 2010, couple of their merchants suggested them to go online. Its founders and key investor agreed to convert their business to an online venture. Start wasn't great. Kunal, one of its founding members, in an interview said; the site sucked initially, and we made a lot of mistakes. However, we were extremely agile, we obsessively tracked the customer preferences, and continued to rapidly revise and improve the platform. We evolved and learned from our mistakes and kept moving forward by taking intelligent risks, eventually things started working out pretty well. Their business, probably inspired by Groupon.com, offered discount coupons to restaurants, hotels, health clubs etc. They expanded in September 2011 to become an e-commerce company via a marketplace model. Fast forward to May 2014, this company has raised $100 million (INR 600 crores approximately) in yet another round of funding. This round of funding valued the company at $1 billion (INR 6000 crores approximately), WSJ's Digits reported. “Snapdeal.com” is the name of this company. From an offline couponing business to a billion dollar worth, Snapdeal is in talks with Alibaba.com for further investments.

Moving on to the third and the biggest one; “Flipkart.com”. I knew most of you would guess it, hence started with its name. Let me start with some fun facts. Did you know, legally, Flipkart is not an Indian company since it is registered in Singapore and majority of its shareholders are foreigners? Because foreign companies are not allowed to do multi-brand e-retailing in India, Flipkart sells goods in India through a company called WS Retail. Other third-party sellers or companies can also sell goods through the Flipkart platform. Founded in 2007, the business was formally incorporated as a company in October 2008 as Flipkart Online Services Pvt. Ltd. During its initial years, Flipkart focused only on books. It soon expanded to electronic goods & electrical appliances. Flipkart kept accumulating funds through venture capitalists & other investment firms. Today it is known as an online mega store. From apparels to books to electronics to exclusive product launches. In July 2014 Flipkart launched its own set of tablet, mobile phones & Phablet. Month later they launched their router as well a personal healthcare brand called Citron. Flipkart’s current valuation is estimated to be $7 Billion. Don’t even try to convert it to INR, you will end up with endless zeroes. And yes, Flipkart owns Myntra. (Remember Myntra was sold to another e-retailer)

I did not list Jabong as I feel it had an undue advantage. It started late, in 2012.” The company, backed by Berlin-based Rocket Internet GmBH – a venture arm of the Samwer brothers – which is known for cloning several successful online business models of the US in other markets, is reverse-engineering the success formula of Flipkart in India: Add as many categories as possible; acquire customers at any cost; build a logistics arm from ground up and delight the customer. Nevertheless, Jabong is a force to reckon with.

As you can see, most of them started with a small idea & big hopes. These aren't completely unknown stories and I’m not sure if this article will inspire you to take risks. But I think it’s worth mentioning this; it’s OK to start small but keep your antennas up and change constantly. Hopefully you enjoyed reading this article. At least, you will know who are you dealing with, the next time you shop. Remember - Once there was Heaven & there was Hell, today its either Online or Offline :)