Taggle had shut down due to competitive price-wars, FlipKart acquired LetsBuy, and now we see reports that Exclusively.in is also up for sale. Yes, 6 months back, these were some of the big names around which the Great Indian Ecommerce Story revolved. So what all went wrong in six months?
Other mortalities in the space include Nammagroceries.com, which has stopped its groceries initiative. A message on its website says, “Temporarily suspending operations for three-four months.” Others that have wound up are Harisabzi.com and Subzimandi.in, according to a BusinessWorld report.
In our year end feature, Sachin Bansal of FlipKart had hinted that larger players will emerge in this space, thus fuelling further investments and growth in the ecosystem. He had a reason to it. The upward spiral of the ecommerce graph in India is making this space vulnerable to have more casualties. Online retailer Taggle.com had shut operations in December 2011 attributing its demise to irrational price wars. Most certainly, amongst the rest of the pack, some consolidation will happen, perhaps driven by the common VC factor.
India Digital Review spoke to some experts in this sector to understand why this sudden disinterest in the sector and what is the way forward for Indian ecommerce.
K Vaitheeswaran, Founder and CEO, IndiaPlaza said that ecommerce is a hard and tough business and the ONLY internet business where a large part takes place outside the web – unlike jobs, matrimonials, classifieds, travel etc. “Retail margins in India across categories are the lowest globally, there is constant pressure on margins and large offline retailers constantly struggle to keep margins up. Internet retailers take a different route worldwide and in India. They offer consumers low prices and attract them to shop online. The financial model here is that internet retailers do not have the costs of warehousing and inventory and rentals and hence can afford to offer such low prices. So far so good,” said Vaitheeswaran
According to Vaitheeswaran, this logic gets turned on its head is when internet retailers also invest in warehouses, inventory, huge manpower and start incurring the same costs and yet continue to offer low prices. In other words they marry a high cost model with a low margin business and such businesses can never make money. “The only way out is to get acquired by a strategic investor, shut down, get sold on a distress basis or keep raising Series A,B,C,D and so on. I have no doubt we will see more such collapses like Taggle.com and Letsbuy.com, this is just the beginning,” added Vaitheeswaran.
Faisal Farooqui, CEO, MouthShut.com, who also runs a daily deal website DealFace.com, was of the view that Indian ecommerce will see absolute bloodbath as there will be companies losing money in the race of becoming the provider of cheapest deals. “Majority of the websites that operate in India now are competing to each other on price and no one is bothered of creating value to the consumers. It is very early stage of ecommerce in the country and hence everybody is trying to brand themselves. And we all know branding (especially TVCs) comes at a hefty price. A company like Amazon can afford to bleed but as a startup how does one survive when you are doing TVCs of VC money? And there is no margin in selling books,” added Farooqui.
Mukesh Bansal, Founder, Myntra.com was of the view that consolidation is part of natural evolution of any new industry and this should not surprise anyone. “We will certainly see more consolidation in future and we will see emergence of 2-3 category leaders in each category. The companies that will manage to provide exceptional customer experience, build scalable infrastructure and get the business basics right will be to survive and grow.”
Ankur Warikoo, CEO, GROUPON India (Crazeal.com) held that consolidation was bound to happen and in India it is happening sooner than expected because the pressure to grow with the investments pumped in did not match with the pace of demand from customers.
Providing another perspective, K Vaitheeswaran of IndiaPlaza said, “I pioneered India’s first ecommerce company in 1999. We did Series A in 2011, after 12 years and over the past 13 years we have just raised a total of 8 million US $. That is what most well known ecommerce companies burn in a few months. Ecommerce has to be run like a business that should aim to make money, not as a hobby where the primary purpose is to run through investors’ funds. Our head count is less than 150 – after 13 years. That’s what most ecommerce companies hire in a few months after starting! All this costs money.”
Mukesh Bansal of Myntra further added that ecommerce requires deep foundation in technology platform, supply-chain and digital marketing to acquire customers and this requires reasonable amount of investment. One can potentially build a boutique business which is profitable at small volumes but that will grow very slowly. As a whole online retailing is lot more efficient than offline retail.
According to Warikoo of Crazeal, ecommerce is not a tough space; it just hasn’t had enough time to grow in India. While the opportunity to grow is boundless, it is relatively new. The consumer has just started responding to it. But the market is expecting a lot from a country that is only two years old in this game. In our race to grow, we have skipped several evolutionary steps that the west has gone through.
What the VCs say now?
In 2011, investment bank Avendus Capital Pvt. Ltd released a report restating its belief that ecommerce in India was poised for rapid growth. It was one of numerous reports to suggest ecommerce will boom with an increase in internet users and online shoppers in the world’s second most populous nation.
But of late, investors have turn sceptical on ecommerce space saying that more ecommerce companies have been funded than are sustainable and hence we will see some starting to fall off the bandwagon.
Another reason for the scepticism might be that in the online book retail category, for instance, FlipKart.com has raised more funding so far than any of its peers in the same space. Similarly, in the deals and discounts space, Snapdeal.com has raised more funding than others. With investors looking for differentiated models, the first round of funding will become increasingly difficult and there will be more instances of start-ups shutting shop, experts say. They also cite a concentration of VC and PE capital with only a few ecommerce category leaders and funding constraints confronting others in the same space.
At present, there are numerous ecommerce sites in the country. And almost everyone says it is only a matter of time before there is a shakeout in this increasingly crowded market and consolidation is bound to happen. We will continue to see consolidation and clear emergence of category leaders in this space. All companies can't become large independent business just like any sunrise industry.
