The Future of Shopping – And Why Does Flipkart.com need another $200 Million?

Our earlier office and home were embedded in one of Bangalore’s mall corridors.  Five minutes could get you to Lifestyle, Sapphire Toy Shop, Garuda Mall, Central and HomeStop.  I used to do a lot of shopping then.  Now that we’ve moved to a leafy road where even buying bread requires effort, what little shopping I do is online or at the airport.  It’s pretty amazing how fast the change has taken place.  And the point is, it isn’t driven by price, but convenience.

Welcome to the new world of ecommerce – where shoppers are driven not only by price but by attributes such as choice and convenience.  Will shops be replaced by ecommerce portals? Not immediately. And not all of them.  But many, yes.

Let’s see which are the categories most susceptible to being “e-commerced”:

1.  Anything that can be delivered digitally. And watch out for the rise of digital printing.

2.  Big ticket items – 10% off on a product valued at Rs 10,000 is worth the hassle as opposed to one valued at Rs 100

3.  Personalized items.  If I can get something customized I’m quite likely to buy it online and wait for delivery.

4.  Unique products. Capturing the long tail of customer desire – along axes as diverse as religion, region, sexual orientation, literary tastes

So what this actually leaves for all those big fat malls we’re putting up is really:

A.  Things which have a tactile experience

B.  Small value items where the cost of delivery will make it prohibitive

C.Items you need at very short notice

Most things are going to be bought online.  And that’s why Flipkart.com needs all that money.  To create a massive marketplace where you can buy anything, and get it delivered instantaneously.

But wait.  This assumes that retailers and brand owners are going to lie down, play dead and let ecommerce rule.

Unlikely.  Some will. But others will fight this trend.  Here’s how:

1.  Most ecommerce aggregators today are founded on a price discount.  Generally speaking, brands like to control their pricing strategies and dislike discounting.  The brands will start selling directly to the customer.  Yes, today many of these aspirants haven’t figured out fulfillment and customer experience, but that’s just a matter of time.  This is what happened in the travel world – most airlines and hotels now offer the best prices on their own sites.   Aggregators are now sophisticated comparison engines and inventory managers – but there isn’t room for many of those.

2.  Retail is often therapeutic and entertaining.  Lot of people like to see stuff before they buy.  So there is an opportunity for brands to create ‘showrooming’ experience centers.  These venues can have limited stock – you pay a premium if you want it right now, or it can be delivered/collected later after an online order.  This allows retailers to turn their existing brick-and-mortar presence into an advantage for their online sites. 

3.  The store platforms.  Owners of long-tail, niche products in particular will avail of these ready-to-use store platforms to retail their products directly to consumers.  This is Amazon.com’s sweet spot.  Ebay.in functions much in the same way, with the added twist of the auction function.  And Flipkart.com is eyeing it too. 

Amazon.com when it is finally allowed to begin operations in India will be a big competitor.  Flipkart.com has shown they can coexist with eBay (though I think that may have more to do with eBay’s frequent leadership churn.)

But what about the others?  There is a lot of room for another strong player to emerge from the large trading houses that exist.  How about the Tatas, Reliance, Future Group? Don’t they have a few millions to invest in the future? A future with “brand experience centers’ not shops?

The internet saw the gradual demise of Encyclopaedia Britannica and even newer entrants like Microsoft’s Encarta.  They were replaced by Wikipedia.com which relies on crowd sourced information with all its potential flaws.  As delivery and payment systems get  stronger and more ubiquitous, the shops-of-everything are more likely to be run by a user community rather than a corporation.  Facebook realizes this and is busy gearing up to be the first entrant here.

So let’s come back to the original question.  Why does Flipkart.com need all this money? They say it is to fund growth, to reach their target of $1 billion in sales. They need to build their payment gateway, and their in-house delivery engine.  And all the IT required to support this behemoth.  Going by their previous track record I imagine a good bit is also to advertise their offerings to those who currently don’t buy online.  $200 million (plus the earlier $100 million or so) to reach $1 billion in sales is an interesting scale of investment, and should be good news for all the other ecom sites out there.  I’ve always advocated that firms focus first on creating mindshare, then acquiring market share, and then finally monetizing these assets to get a high profit share.  That requires a lot of staying power.  Makemytrip.com is one of the few Indian startups that followed this route, and I see Flipkart following this path too.

Disclosure: The author shops with flipkart, firstcry, bigbasket, amazon, aliexpress and shoppersstop.com. 

Pic: Google images

 

 

 

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