Online retail in India. Boom or Bust?

What is ailing online retail in India?

It is everywhere!

In offices. At coffee shops. At restaurants. At fast food joints. At family reunions. At school reunions. The buzz word… Startup!

If one were to go by research reports, India is ranked right up there, among the top, in the number of startups that have suddenly surfaced all around us.

Gone are the days when conversation between friends was about cricket, sport, politics or one’s progress in life relative to one’s friends. 

Funding is now ‘the’ catch phrase. Everyone is talking about how their ‘disruptive’ idea will redefine the way retailing, as we know it, is run. About how the small and meek players shall be gobbled up and wiped off the face of the earth, while the large players will now need to reorganize and reinvent, in line with their ‘new’ mantra.

So every day a new idea is born. A new company is registered. And a new set of investors are conned into putting money on an idea that can’t go wrong. In reality, most of the times it does.

Not because the idea is wrong. But because in the excitement to rule the world, the entrepreneurs forget one basic thing. That apart from a few really pathbreaking technology based innovations, most online retail businesses (including their own path breaking idea) are just a traditional business, delivered over a new medium. They use technology, but don’t really leverage what it can do.

For example, having a product delivered to you wherever, whenever isn’t really new as a concept. Even the Kirana store next door does that. The only difference is the convenience of ordering on an app… the interface. And while you may speak for hours about how the UI or the UX is what makes the experience ‘sexy’, the fact is that apart from the intuitive interface, promotion of laziness and the ‘below market price’ tag, there is nothing spectacularly different about the experience to make it a necessity. It is one more among many options that one has, to order products.

A majority of Indians still like to touch, feel, choose their products and bargain hard with the shopkeeper, before making a purchase. Something an online ordering facility can’t offer you (which would probably explain the high return rates that most online retailers in India suffer from). 

Additionally, the fact that many businesses are surviving on funding, providing discounted / subsidized services to drive registration, trial and purchase, means that the numbers (on paper) look awesome and extremely promising, without actually being a reflection of reality.

Somewhere down the line, companies will have to stop subsidizing the products they sell and actually start driving revenues and profits. Even the most patient investor will someday hold the entrepreneur responsible for ROI.

What would happen then? Will the companies fold up? Will this euphoria last? 

Depends. 

The challenge most online shopping in India faces today, is the same challenge faced by Kellogg’s when they launched their corn flakes for the Indian consumer. Indians were not used to having corn flakes for breakfast. So, even though they tried Kellogg’s, they eventually drifted back to traditional breakfast foods. It has taken a long time and a lot of effort for Kellogg’s to be accepted and they managed that, not by pricing themselves cheaper than a Parantha, but by understanding Indian eating habits and building a connect with it. 

Likewise, online retail in India faces a big challenge. A majority of Indians are not comfortable making purchases online. Many factors, including a fear of technology, distrust towards credit cards and online monetary transactions in general and the wariness of dealing with a faceless customer care division, ensure that this is not going to change in a hurry either. The Cash On Delivery experiment is a very expensive affair for the retailer, as the consumer has no obligation to accept the product (or bear the cost incurred in delivering it and then returning it to the seller). Reducing prices can only drive trial or a spike in short term sales. It cannot ensure loyalty.

The challenge is not about adoption. In a country which has been the cornerstone for the invention of ‘Cash on Delivery’, insane sales and lowest price guarantees, driving trial is not an issue. 

The challenge is retaining consumers while charging them profitable market prices.

The challenge is about changing consumers’ purchasing habits. And that is where the battle will be fought.

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