Snapdeal’s woes show e-commerce isn’t doing enough

There’s a pattern to why e-commerce start-ups like Snapdeal and ShopClues, or even Flipkart, are suffering 


India’s floundering e-commerce start-ups such as Snapdeal need new and innovative ideas to enhance the shopping experience. Photo: Aniruddha Chowdhury/Mint
India’s floundering e-commerce start-ups such as Snapdeal need new and innovative ideas to enhance the shopping experience. Photo: Aniruddha Chowdhury/Mint

Every week now, there’s news of one more e-commerce start-up finally accepting it has no future. As the irrational cost structure overlaid with a business model solely driven by deep discounts, catches up, the limitations of online shopping are being laid bare.

Last week Mint reported that facing an asphyxiating funds crunch, Snapdeal, owned by Jasper Infotech Pvt. Ltd, was in talks with its two larger rivals Paytm E-Commerce Pvt. Ltd and Flipkart India for what would amount to a fire sale. Snapdeal’s woes are neither new nor unique. Increasingly, e-commerce’s lead companies are finding that the number of transactions and the value thereof, isn’t a good enough indicator of their own health or that of the sector. 

Consequently, valuations have slumped, in some cases to a third of what they were even a year ago, indicating how much funders have lost faith in their investees as well as how the outlook on the sector has dimmed dramatically.

Contrast this with the striking success of supermarket chain, Avenue Supermarts Ltd, the parent of D-Mart, which is both profitable and growing, entirely in the physical retail space. It isn’t a coincidence that at the same time as pure play e-commerce start-ups are cutting back on costs, laying off people and pulling out of Tier-II and Tier-III cities, the big daddies of brick-and-mortar retail, companies like Reliance Retail and even Walmart India, are now stepping up their investments in stores and what is called in-store experiences after a period of strategic consolidation.

There’s a pattern to why start-ups like Snapdeal and ShopClues and even Flipkart are suffering. All of them set themselves up as pure online plays and nothing more. Today, without their deep discounts, they offer a customer virtually nothing else. The centuries-old offline retail system has quickly adjusted to anything else the newbies brought in. Home delivery, orders on phone, vast menu options, procuring off-the-menu items, loyalty points, various payment methods, anything the newcomers can do, they can do. In most cases now, offline retailers have a strong online presence as well and thereby allow customers the option of checking out products in the physical space while allowing them to order online. 

Instead of trying to complement a well-established if unorganized retail system, the e-commerce companies focused purely on replacing it with something of their own. If they had concentrated instead on removing the hurdles for shoppers, in much the way the first malls did on their appearance (basement parking, clean washrooms, children’s play areas, places to eat, ATMs), they might have found themselves fitting better into the overall ecosystem of shopping.

Most Indian online retailers are clones of their counterparts in the US and would do well to take a cue from what’s happening in the world’s most complex retail market. Data from US Census Bureau shows that in the US, Amazon-dominated non-store retailer’s category posted the fastest pace of growth in sales in February (up 13% year-on-year) even as department store sales reported continuing weakness in their results (down 5.6% year-on-year). While that’s encouraging, the fact is, two decades after Amazon kicked off online shopping, the category still accounts for less than 10% of global retail sales. While growth will continue to be robust, they will not match offline retail any time soon. According to projections by eMarketer, retail e-commerce sales will increase to $4.058 trillion in 2020, still accounting for just 14.6% of total retail spending.

That shows the way forward for India’s stricken online retail start-ups. There is clear evidence based on tracking of shoppers’ navigation to show that a bulk of those who search and evaluate products and services on the web, eventually end up buying offline. Indeed, the future of retail lies in optimum combination of various channels, both offline and online, what is now called cross-channel retail. 

According to Forrester Research, cross-channel retail sales will reach $1.8 trillion in the US by 2017. A 2015 Mastercard report, The Omnishopper Project, identified the physical store as the Centerpiece of the Omnishopper’s Universe. As the report said, “The omnishopper goes to physical locations for the entertainment value of shopping, superior inventory levels and social interaction.”

The high street isn’t disappearing, not now, not perhaps ever. India’s floundering e-commerce start-ups need new and innovative ideas to enhance the shopping experience. But vitally they also need to ensure they are in a place where shoppers look for them, online as well as offline. 

Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.

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