 "Great Indian retail battle: Online is where the money is")
Investors should be aware of the online onslaught. Investing in companies that are either becoming out dated or are failing to compete effectively in a fast changing business environment is a definite losing proposition.
Investment portfolios should reflect the new world and that is what will drive returns into the future. However, at the same time one should not get carried away by hype of the online world and should invest in companies that have solid revenue models that can stand the test of time.
The brick-and-mortar retailers are fighting a losing battle to online retailers. The news of the retailers association trying to get laws passed on online retailers to curb under-pricing of products is like Blackberry trying to get laws passed to save itself from Apple and Samsung.
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The retailers association should instead of fighting off online retailers join them in their game and try and beat them there.
Online retail is garnering money from big investors and is spending on customer acquisition. All the online retailers in India are burning money and some will burn out while some may survive to make profits or gain in valuations. Amazon went through the dot-com bust in early 2000s to come out on top of the e-commerce retail industry worldwide.
In India, the concept of online makes a lot of sense to consumers. Banking is completely online and there is no case for visiting branches except by those who have time or do not wish to transact electronically. Similarly the tourism industry has gone completely online, driving many of the travel agents out of business. It is a big effort to travel in a country where infrastructure is awfully inadequate and online bookings at least make one task easier for travellers.
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More ShortsThe retailers do have a point when they say that online retailers can afford to sell goods at a loss, but they cannot do anything about that as the consumer has the final say in the matter. Online retailers cannot indefinitely run on losses and at some point in time pricing will stop becoming predatory. However, until then it will drive many out of business as the cost of brick-and-mortar business makes doing business unviable.
The world is in an online grip and is changing the way of doing business across the globe. Indian businesses have to realise that it is a matter of time before they become extinct if they do not embrace the online world. It is not necessary to change products or services but it is definitely necessary to change the way the products and services are delivered.
The online world can create offline businesses. For example, logistics firms are reaping the benefit of e-commerce. Wealthy online entrepreneurs are embracing luxury goods and services and that is boosting the luxury goods and services manufacturers and providers. The brick-and-mortar businesses may have to change strategies to cater to the needs of online business rather than competing with them in the retail market.
Is the world going back to the dot-com bubble seen in the late 1990s? Probably yes as money is still going into unprofitable businesses. Twitter that is making losses has managed to increase its offer price by 25 percent in its IPO slated for this month on high demand for its equity. A manufacturing company would be hard pressed to float an IPO if it was loss making. Money goes to the business in which the future lies and that is the online world.
Arjun Parthasarathy is the editor of www.investorsareidiots.com a web site for investors
Arjun Parthasarathy has spent 20 years in the financial markets, having worked with Indian and multinational organisations. His last job was as head of fixed income at a mutual fund. An MBA from the University of Hull, he has managed portfolios independently and is currently the editor of www.investorsareidiots.com </a>. The website is for investors who want to invest in the right financial products at the right time.