E-COMMERCE THE NEW PORTAL FOR ENTREPRENEURS

The last one is underway! Greetings, today I am going to write about what account for the large number of entrepreneurs in the e-commerce industry and why I believe this sector has seen a larger growth than traditional industries.

Now every industry that is going through a boom witnesses a surge in the number of start-ups and ancillary industries. But what sets this apart from traditional booms is the people being benefiting from it. This e-commerce revolution seems to be reaching the middle class and low income entrepreneurs. Traditional booms seem to only benefit the already rich or the occasional daring entrepreneur who is willing to take the risk of putting up that much capital. Right from techies quitting to start their own website to families beginning to manufacture products to sell exclusively online, e-commerce seems to be reaching the grassroots and making an impact. The question that therefore arises is why is this happening?

According to me this is because of the Ease of doing business. There are barely any hurdles to setting up a business as compared to a traditional brick and mortar business where licences, approvals and so on play a major part. Setting up a website costs a few thousand rupees and registering oneself as seller on any website like Flipkart or Amazon is easier. Also, the risk associated with this is lesser as compared to businesses that require huge capital. While there undeniably an increased number of failures, these seem to be offset by the one successful firm.

Overall the future looks bright. In a entrepreneur starved India, e-commerce seems to be the knight in shining armour that will create the much needed growth in jobs and opportunities. Adios!

– Narayan Sharalaya

Fashion e-tailers like Jabong and Myntra clock up impressive numbers!

So far, we have talked about how the e-tailers manage to sell goods at low prices and offer various discounts, next we talked about the capital venture followed by the distribution system of the goods by these e-commerce companies. Moving on, at the threshold of a revolution in a span of just three years, India’s biggest e-tailers of fashion, Jabong and Myntra, are picking up impressive numbers and profits in 3-digit and 4-digits, thereby reflecting how the urban Indians will dress themselves – they are most likely to move their clothes shopping to e-commerce. In these three years of operation (2012-2014), Jabong and Myntra combined have hit up to Rs.1,000 crore for the year ended March 2014. Jabong’s turnover increased from Rs.4.6 crore in 2011-12 to Rs.527 crore in 2013-14. It has shown an 11,357 percent growth in sales. Myntra has also seen booming profits – from Rs.67.1 crore in 2011-12 to Rs.441 crore in 2013-14. It can be clearly seen that the profits earned by Jabong is slightly more than that of Myntra during 2013-14.

In the past 3 years, Jabong and Myntra’s profits have outperformed those of brick –and-mortar (retail outlets) fashion biggies like Zara, Levis, etc. which have been operating in India for about 5 to 10 years. In a just a span of 3 years, these two e-taliers have clearly ousted these brands. Not only this, retail outlets chains like Shoppers Stop, Lifestyle, etc. which have been operating for two decades or more now have seen a slump in sales figures due to better deals being offered by these e-tailers.

Another reason for the clocking up impressive numbers could be merely because of the sheer convenience of the customers to shop by simply browsing through thousands of big label brands from their own comfort zone. Also, the ease of returning the goods in case of misfit adds on as an advantage. E-commerce has been accepted at a macro level and over time has also built reputation through customer reputation. Jabong and Myntra attribute their growth to an increase in its product portfolios, major and exclusive tie-ups particularly with international brands and even Bollywood celebrities who design for them.

But there is a question that arises here – will these e-tailers continue to pick up numbers or crumble against their bitter business rivals in brick-and-mortar?

– Harsshi Mitruka

Which Kart is Flip(Kart)?

(^^I hope you got the pun there!)

Hey, guys! We’ve all ordered something or the other from e-commerce biggies like Amazon, eBay, Flipkart (if not something else then, at least Debraj Ray). So whenever you’ve ordered something online, I’m sure you’ve waited eagerly for it to come, because I definitely have!

Today’s post is about the distribution channel of these e-commerce firms. Hope you like it! (Please comment if you do!)

THE DISTRIBUTION CHANNEL

To begin with, we need to know how e-commerce distribution system works.

In the early days of e-commerce, it was about the convenience of ordering a product from home. No driving to the mall and no waiting in line, just living life (except at NMIMS, maybe) and waiting for the package to be delivered to your doorstep. Shippers used snail mail (slow postal delivery) and phone calls to communicate with customers and order delivery times were in time periods of weeks, not days. Free shipping quickly became a tool that intensified competition, since there weren’t many carrier options and purchased items were only distributed via a postal, parcel or freight network.

In e-commerce lingo, an e-fulfillment center is a warehouse at which merchandise is stocked and picked at item level. Today, there are numerous e-fulfillment centers, which are operated by the retailer or a logistics service provider like eKart for Flipkart. A parcel hub center is where orders are sorted by zip or postal code, so they can be delivered to the relevant parcel delivery center for final delivery to the customer’s home or designated collection point. Parcel delivery centers handle the ‘last mile’ delivery to the customer. E-commerce poses the unique challenge of inventory arriving in bulk, but requires more care from then on – receiving bulk orders, then inventorying and picking those as individual products (there are robots that pick inventory and move it around the warehouse!).

Often, with dozens of suppliers, multiple warehouses, and an extensive number of sales channels, the chances of a misplaced order are much higher. Other than giants like Amazon, not many retailers have the resources to operate multiple distribution centers in strategic locations and instead are turning to third party logistics service providers to reach their customers. The evolution of multiple shipping options allows customers more control over the delivery process than ever before. Flipkart’s Delivery-In-A-Day & even on the next day are testament to this. It’s no longer about being the fastest rat in the e-commerce delivery race. Instead, it is about being able to deliver an order at a time frame and price point that customers want.

“Not very long ago, the e-tailing channel accounted for only about five per cent of industry sales. Thanks to these flash sales by e-commerce majors, their customer base has increased. According to our assessment, the e-tailing channel today constitutes 15-20 per cent of industry sales,” said Amit Chadha.

The next post will be uploaded soon.

– Simran Bhatia 🙂

E-Paise Kahaan Se Aaye?

A slight request: Please read the title again in a Bhojpuri accent. Thank you!

Moving on to business.

Think you know the bossiest person on the face of the earth? Well, it’s time to change your perception and make you meet a venture capitalist. Internet memes will tell you that a venture capitalist is the person you just won’t be able to convince to invest in your business. To put it aptly,

AND

You might have guessed that today’s post is about venture capitalist firms and how they’ve supported the dot-com revolution. I hope it’s an informative read!

To begin with, let’s technically understand what venture capital is. According to Google (thank you, Larry Page & Sergey Brin!), venture capital is financial capital provided to nascent, high-potential, startup companies. The venture capital fund earns money by owning equity in the companies it invests in, which usually have a novel technology or business model.

 WHY E-COMMERCE?

In the case of e-commerce, the necessity of a traditional brick-and-mortar business set-up is rendered nonexistent, which could increase profit margins because of no costs related to inventory and real estate. This leads to an increased interest in this industry by venture capitalist firms. The e-commerce industry is increasingly becoming a safe haven for venture capitalists for this very reason. As the company profits, so do the venture capitalists. To put it simply, there is a direct correlation between the growth of a firm and the investments it is bound to receive.

Also, e-commerce industries penetrate the retail markets very quickly, simply because of the convenience of buying online. Sit snugly on your couch, switch on your laptop and surf through a few websites that spoil you with abundant choice, place your order, and ta-da!; your shopping is done! All you have to do is wait for your order to be delivered, which usually doesn’t take more than a week. This series of events doesn’t take more than 45 minutes, while shopping at the mall wouldn’t have taken less than 2 hours. Online shopping is primarily convenient for people who can’t spend too much time fighting cantankerous customers over a simple t-shirt. And with modern lifestyle making people too busy for their own good, online shopping seems like the only way ahead. Venture capitalist firms took this global increase in demand for online shopping into account and invested big bucks in e-commerce.

Another very obvious reason for increased investment is market penetration through price competition. We are cognizant of the extremely low prices (1^st blog post on this topic; read, read!) charged by e-tailers, which instantaneously sway consumer preference towards online shopping and thus make e-commerce firms sound investments.

TIME TO BRING IN THE NUMBERS!

According to a report by the Economic Times, there are about a 100 VCs operating in India, but there are 7 that are more active in their operations than the others. These 7 firms account for around 60% of the total private investment in Indian e-commerce since 2007. These are Accel Partners, Helion Ventures, Nexus Ventures, Tiger Global, IDG Ventures, SAIF and Kalaari Capital.

More on how venture capital works in the next post!

Till then, Hakuna Matata!

– Arushi Kotecha

E-Discount Kaise?

As the heading suggests, today’s blog will discuss the phenomena, if you can call it so of the massively low prices available today at major sites like Amazon, Flipkart, Myntra and the others. But before I start off on that, it will be worthwhile noting that while e-commerce is not a new thing anymore, the issue of their discounting is (relatively). Customers are delighted at the discounts they see, online sales are reaching the size of Black Friday (not the movie) in America and retail shopkeepers are wondering whether they will soon be able to afford their next meal.

HOW IS IT SO CHEAP!?

Well that’s the question people never thought they would ask themselves, would they? The simple reason they are able to do so, is because they sell below the cost price. Thankfully, things are not so simple- otherwise this blog would not be written.

To start off, most of the mentioned sites are not direct retail sites, they are just online MARKETPLACES that connect buyers and sellers. So how are they able to coax their sellers into selling at such low prices? The answer- they pay for these discounts. Discounts offered by the sellers are re-imbursed by firms through something clever called “Promotional Funding”. Simply put, seller gives discount, buyers happily buy, Flipkart sends cheque for discount so offered and its termed promotional spending. A more detailed analysis can be found at the link below.

http://www.livemint.com/Industry/boWA7iCWJ2sa6eDrNH4YdL/How-Flipkart-Amazon-and-Snapdeal-fund-discounts.html

The tax implications of these are enough material for another blog, so moving on….

HOW DO THEY AFFORD IT?

The question that naturally arises out of this is how they can afford this and more importantly who is willing to pay for this. Flipkart by 2014 has raised upto $1 billion mainly from its three major venture capitalist firms: Tiger Global, Accel Ltd, Morgan Stanley Investment group. Snapdeal too has followed suit whereas Amazon has its parent company in America. And to the question of why they are ready to fund these discounts, it’s because these Investors do not care about profitability at this juncture, they are looking at Expected Future Value of these firms and more importantly with an increase in market share of the large firms, the VALUE of their SHARES drive up. Hence, the incentive is there to fund losses.

LET’S BRING SOME MICROECONOMICS INTO THIS

Now that we have established how they go about this, its time to look into WHY this is done and how this is even legal. Starting with the legal part first, what the e-commerce sites are essentialy doing is called PREDATORY PRICING. They are selling below costs and incurring a loss to drive out competition. There is a law in place in the form of the COMPETITION ACT that protects producers against such actions, the dilemma with this case is that all these companies are NOT Indian and also it is not them who are discounting it. All said and done though, the government is looking into this matter and will try providing a solution to this.

As to why it is done, the answer comes quite easily. Once they have a large share of the market, these companies can go back to charging the normal prices or even Monopoly ones.

(A small side note: The example given by Prof. Sneha Thayyil on the “find a lower price and we will match it” by Amazon seems perfectly applicable here)

WHAT THIS MEANS TO VARIOUS STAKEHOLDERS

OFFLINE RETAILERS: While it might seem like doomsday to offline retail stores, this is not the full case. Luckily, there are other factors other than price affecting Sales and the utility derived from offline shopping seems to generally beat the one received from online shopping. That being said, these retailers have definitely felt the pinch and must look for other ways to attract customers.

GOVERNMENT: At this point, the government seems to be stranded on this new affair and is still figuring out how to ensure healthy competition and more Importantly, TAX these companies. Since none of them are actual retailers, it becomes hard to impose normal taxes and add to that the fact that they are mostly foreign and it seems like a big problem.

CONSUMERS: While this seems like a win-win situation to consumers, there is also the fact that the methods used by them are quite ingenious and psychological. A nice example of this is Google Ads- where, if you open a site and are looking at something like Sweaters, Google saves the information in the form of cookies in your browser. The next time you are browsing, all internet ads point towards sweaters and it acts like a psychological PRIMING. More of this can be seen and the Behavioural Economics of it is for another blog (Another teaser, I know).

CONCLUSION

Hopefully, you have liked this blog and learnt something new from it. We plan on updating you as soon as possible with various economic aspects of e-commerce soon and our group is looking forward to writing the next blog as soon as possible (seriously).

Good Day!

– Narayan Sharalaya