B&E: Many new firms and offline retailers are getting attracted to e-commerce. But the problem is – this new model in India isn’t a profitable one. When will e-tailing turn profitable in India?
Manmohan Agarwal (MA): This sector is one of the fastest growing segments in the Indian economy and is still largely untapped. The consumer base is growing at an amazing rate and is likely to pick up pace as mobile Internet and Internet-enabled devices become more popular and affordable. The profitability of these business models depend on financial prudence and operational efficiencies. This is a capital-intensive business, especially in the initial stages. Once the elements of logistics, warehousing and infrastructure reach maturity and your brand is recognised, it becomes easier to get profitable. The hyper-competitive nature of the sector has led many smaller operators to over-extend their marketing budgets. The key lies in reducing costs and improving efficiencies through innovation and creative thinking.
B&E: What according to you will work for the sector then? And what exactly are the loopholes?
MA: A strong supply chain and premium quality service is the key to a successful e-commerce model. The cost of customer acquisition is really high with less than 10% consumers transacting online. It is very important to ensure 100% customer satisfaction-levels to win brand loyalty and stand out in the clutter. Payment options like COD are very expensive for an e-commerce company that is reliant on third party logistics network and quality and consistency of service is not guaranteed. We have found tremendous success by investing heavily and building our own logistics network.
B&E: We have seen a lot of consolidation happening in the sector. Why so?
MA: The e-commerce space is now stabilising after the initial boom. The space will have 4-5 major e-tailers with several niche category players. Bigger e-tailers will acquire smaller players to enhance their capabilities, acquire new customers and skilled and experienced workforce. Many new start-ups are focussed on increasing valuation in the hope of funding or buy-out. This is a long haul game.
B&E: What is your view on offers like heavy discounts and free shipping, and hefty ad-spends that e-tailing firms are incurring?
MA: Discounts, free shipping and hefty advertising spends have helped educate and encourage online shopping. It is a good start towards customer acquisition, but to create consistent growth and success, the sector needs customer loyalty and brand building. The only way to ensure continuous business is to offer consumers more than they expect in terms of choice, pricing and service quality. Innovations like “Try and Buy” are helping consumers shop risk-free and this makes online shopping popular.
B&E: What kind of business models do you see emerging in the Indian e-tailing space in future? MA: There are two major models in e-tail. They are: ‘Own inventory’ and ‘Marketplace’. Both models have their own specific advantages and drawbacks. We believe the best way forward is a hybrid model focused on customer experience. B&E: What got you moving from Vishal Megamart to yebhi.com? MA: E-tailing is ‘in’. Brick-and-mortar retailing is something that would perhaps be of interest to the previous generation. I wanted to offer the modern web-loving, facebooking buyer class the best over the Internet.
Manmohan Agarwal. Co-founder & CEO, Yebhi.com
