The recent statement by Softbank’s Nikesh Arora that the valuation of e-commerce companies is ‘far ahead of reality’ may be the first indication that the bubble has reached its peak. Though the statement is self serving, Softbank has recently moved out from funding startups to do more of late stage funding. And a statement from Nikesh Arora will certainly depress funding at late stage. But the issue is much larger as not only is e-commerce funding inflated but the sector is set for another round of disruption.
This disruption is coming from many directions. Regulatory, legal, incumbent retailers, and even the ecosystem is fast changing with the emergence of new players.
Small retailers and organised retail are now both lobbying against the FDI in e-commerce, an interesting coming-together of two rival section of the industry. Earlier the small retailers were lobbying against FDI in organised retail but they soon realised that their biggest competitor is now e-commerce companies who are willing to offer discounts and offer free delivery to customers.
Organised retail players saddled with expensive real estate and huge debt are already witnessing sluggish sales as consumers are fast moving online to meet their requirements. For instance, consumers visit shop, compare prices online resulting in loss of sales at malls. As a result of this, small brands are exiting malls to sell their goods only online.
Organised retail players, who invested heavily in building large malls, too, are also struggling. Experts say, that over the next three years malls will have to reinvent themselves. They will have to devote 60-70 percent of their space for food and entertainment segment and the remaining to accommodate high-end brands.
Even branded manufacturers are rebelling against the e-commerce companies as this fast-growing online medium has been affecting their traditional distribution channels. Dealers ranging from consumer durables and mobiles to home furnishing etc are up in arms as consumers are getting products at prices lower than what a dealer offers.
In a bid to help dealers avoid a squeeze on their margins, several brands have prohibited e-commerce companies from selling their products online. On the other hand, several new brands are bypassing the dealer or distributor route, and are selling their products through an online distribution model.
To stay in the competition, organised retailers are planning to roll out their own omni-channel strategy of delivering products at home. Some are even tying up with e-commerce retailers to deliver, like the recent arrangement between Snapdeal and Shoppers Stop. The old organised retailers are trying to ride on the logistic networks that e-commerce companies have developed.
Free delivery is something that is expected to change sooner or later, as it is the biggest cost factor for e-commerce companies. Currently, the companies are bearing all the cost of delivery while the consumer is benefiting from the same. Organised retailers are planning to use their stores as quasi-warehouses or logistics hub, and unlikely to offer free delivery. Most organised retailers are publicly listed and do not have the resources to offer such services.
Besides, the discounts and select exclusive deals on mobiles, the top e-commerce retailers like flipkart.com, amazon.in or snapdeal.com have almost identical inventory. And this is where the next round of disruption is expected to take place. Till now the rush was to increase branded retail items, but the organised retail understood long time back that more needs to be done to stay in competition. The customer is always looking for differentiated products, especially, in categories like fashion, home furnishings or lifestyle, differentiation is the key.
This is where the next round of e-commerce retailers like justdial.com or kraftly.com are expected play a major role. Justdial.com is looking at creating an e-commerce platform for all the small businesses for B2B trade. Meanwhile, Kartrocket.com that used to build websites for small retailers and home businesses has launched a mobile platform called www.kraftly.com. Now, both these companies will be able to offer unique products, but not on the volume front.
In a way the long tail has caught up with e-commerce as a producer selling even a single product will get a platform to showcase.
Moreover, platforms like kraftly.com are leveraging communication platform like Whatsapp to reach out to customers and resellers. Until now, the social media platforms have not been used to build e-commerce platform, but it is a killer application if it is used smartly.
Kartrocket.com allows its resellers to use Whatsapp to upload pictures of their products on their site. In China, wechat.com is the preferred platform for creating e-commerce websites, and most small producers use it very actively.
While e-commerce companies are discovering their mobile apps, the new players will move to mobile social media platform to launch their services.
The author is a senior journalist based in Delhi. He tweets @yatishrajawat
Updated Date: Aug 12, 2015 15:50 PM