Future of eCommerce and Retail in India – The Perfect Storm
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The online retail environment in India is eerily quiet. The overall online pie is still very small. Broadly speaking, Indian consumers are not shopping online. The distributors or local vendors still look at the online channel as a drop in the bucket. New online retailers are slowly emerging – though Indian ecommerce just can not seem to hit its stride. What does this all mean? Is online retailing not for the Indian market? Are the cultural preferences of Indian customers so unique that ecommerce will never achieve a mainstream status? Although the current state paints a very somber image for eCommerce in India, it reminds me of the time when we went on a vacation to Florida, only to find out that the area was about to be hit by a category 3 hurricane. Standing in balcony of the hotel room, I could feel an uneasy quiet. Wind was calm though I could feel something big was about to happen. Two years later, I find myself standing on the verge of another perfect storm – a storm that will change the face of online shopping in India.
It is not a mystery anymore that the retail industry is going through a significant organization in India. Some would appeal that this opens up more exciting options for consumers to shop in a physical store, which would further impact the adoption of online shopping in a negative way. Fair argument, however, I would like to share some specific reasons why I strongly believe that a reverse phenomenon is inevitable – organization in physical retail will fuel an explosive growth of online ecommerce in India.
Why has eCommerce adoption been slow in India?
Before we look at the factors that will drive an explosive growth in eCommerce, it is important to look at why eCommerce has not taken off so far in India. Although there have been several discussions on this topic, to me the most basic reason is that most Indian consumers still do not see enough value proposition in shopping online. They can not be blamed because over the past few years, they have heard a lot of horror stories about not receiving the right products, not receiving products in time, notwithstanding the issues related to cumbersome returns and cancellation processes when shopping online. On the other hand, we can not fully blame the online retailers because they have to rely on third party vendors, logistics partners who still have not achieved enough scale and the level of technology automation to consistently meet the required service levels. These issues really point to the lack of a mature eco system across the eCommerce value chain. The organization in retail will give a significant boost to this eco system, which will help build trust with consumers so that they can feel comfortable in shopping online.
Organization in Retail will catalyze eCommerce eco-system
First and foremost, as the retail industry gets organized in India, the overall supply chain infrastructure will see a significant improvement. This will have a direct and positive impact on the online channel. Today, the online supply chain infrastructure is essentially non-existent. Distributors use adhoc means to replenish inventories and fulfill customer orders. This leads to significant "out of stock" situations, which affects the overall online customer experience. Having a solid supply chain infrastructure in place, distributors will be able to fulfill online orders in a predictable way.
Second, organized retailers will push for standardization across manufacturers and fulfillment partners. If we look at categories such as apparel, one of the largest reasons consumers do not like to shop online is that they do not know what they are getting in terms of size, quality and fit. However, as there is standardization in quality as well as the attributes, consumers will feel more confident in purchasing the products online, without needing to "touch and feel" the physical product.
Another factor that will play a significant role in building this eco system is technology automation across the value chain. For nationwide retailers to maintain a competitive cost structure, they will push the manufacturers as well as suppliers to offer sophisticated technology integration so that they can better manage the flow of merchandise across the value chain. Online retailers will directly benefit from this sophistication in technology because they will be able to fulfill customers' orders in a predictable fashion.
Lastly, national retailers will need to pool large amount of inventory in their distribution centers to service their stores across India. Holding inventory comes with an inevitable risk of over-forecasting. In these excess inventory conditions, retailers will need warrants for clearing the merchandise to free up the capital, and to flow fresh season merchandise into the stores. Web is a great channel for the clearance strategy, and retailers will be able to offer deep discounts online to clear up the inventory before they get ready for the next buying season. In US, various online retailers such as Overstock.com are built around the business model of buying overstock merchandise from retailers across US, and offering deep clearance pricing to customers.
Looking beyond Supply Chain & Fulfillment
The factors discussed above will help improve the adoption of eCommerce by making the online channel much more reliable. However, the role of online channel does not end here. With organization in retail, new online business models will emerge that will help facilitate online as well as offline sales. In Sears, we used to call these "Web Influenced Sales". Over 70% of retail sales across high consideration categories in the United States are influenced by some kind of research on the internet. There are online businesses that provide comparison shopping services (eg Shopping.com), discussions on hot deals (eg Fatwallet.com), product reviews (eg CNET.com), Local store promotions (ShopLocal.com) etc. All these services are part of the online eco-system, that provide information at consumer's fingertips so that they do not have to scour through 100s of printed store ads or more on the word of mouth to determine where they can purchase that new XBOX 360 console . As retail organizes in India, we will see the evolution of similar online agreement and retail focused services that will not only help customers make informed purchase decisions, but will also put the online channel in the center stage of online and offline retail.
The confluence of above factors will set the stage for a perfect storm that will redefine the role of online channel in the minds of Indian shoppers.