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E-COMMERCE VS BRICK MORTAR RETAILERS

This Article is taken from our:

ISBN : 9789385846335

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Last two decades have witnessed a series of changes in the way we communicate, learn, read, express, consult, buy, sell and run business.

E-commerce has emerged as a totally new concept. Presently, High dependency on internet and mobile phone usage has revolutionized the way business reach people.

E-commerce connotes a method of conducting business through electronic means rather than through physical means. The term takes into account not just the act of purchasing goods through online platform but also other activities associated with transaction such as delivery, payment facilitation and service management. This means it is a ‘click and buy’ method using computers and mobile phones.

With the massive adaptation of common man to technology, the e-commerce industry continues to evolve and experience high growth in both developed and developing markets. The largest population within that market segment is 23-year-olds. That means millennials are big consumers of this market. Since, they have their prime earning years still ahead of them - about 30 of them, those 30 years should make millennials tempting targets for any e-commerce strategy.

The digital commerce market in India has shown remarkable growth from $4.4 billion in 2010 to $13.6 billion in 2014 whereas the global market is forecasted to reach $1.5 trillion in 2016. The emanation of non-banking players in the payments industry and exhilarated emergence of innovative start-ups mark the expansion of the Indian e-commerce market at a rapid pace.

Nowadays, many people are working for longer hours than before and more people are entering or re-entering the labour market working part time.

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Lifestyles are changing. And this change has led to increased consumer demand for a choice of high quality goods and services which can be purchased and delivered quickly. In recent past, the e-commerce revolution has latched on to country to the extent that it has taken the shape of recent paradigm which the physical retailers have to confront. E-commerce or e-tailing is the recent challenge in the face of retailers and it has left them with no choice but to adapt to the changing ways of doing business.

Around 75 per cent of retailers have already adopted e-commerce in some form. Globally, retailing has already graduated to a multi-channel, omni-channel retail industry. According to a new study, the shopping malls are already witnessing lesser footfalls, leading to increase in vacancy rate at 25 percent, along with a 30 percent drop in rentals during the last year. In view of such developments, over 45 percent of shopping malls are expected to be converted into non-retail space within next 15 years, as per the reports of Assocham.

Challenges confronted by brick and mortar retailFlipkart, Snapdeal, Myntra and Jabong are confronting resistance from all

stakeholders of modern retail - from consumer goods makers and distributors to offline retailers - as they try and grab a larger share of the consumer’s wallet by swaying deals and discounts to attract customers.

The Assocham -PWC report has concluded the challenges of suburban sprawl, bad automotive traffic, rising fuel prices and the difficulty of time management in modern families have made visiting to the malls a difficult activity. To the contrary, improvement in logistics, broadband and Internet-ready devices have increased the number of consumers buying online from 40 million to 65 million in 2015.

Similarly, as per the report, while the share of e-tail is expected to plunge from 2 percent in 2014 to 11 percent in 2019 (more than five times), the share of brick and mortar modern retail is expected to fall from 17 percent to 13 percent during the same period.

Source : Crisil IAMAI, PWC analysis and industry experts

3.80.4

E-tailing E-Commerce

In Billion USD

2009 2010 2011 2012 2013 2017-20 (E)

58%53%

10-20CAGR40-50%

29%

53% 57%37%

29%32%

5.3

0.6

7.0

1.0

9.5

1.5

12.6

2.3

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Heavy discounting from festival sales and daily deals, more online loyalty

programs and growing popularity of smartphones and tablet computers among

consumers are the key factors contributing to the growth of e-commerce.

According to Knight Frank India CMD Shishir Baijal, “The e-commerce

industry is booming like never before and this coupled with high disposable

incomes have led to a spurt in the internet culture that aims to change the

dynamics of the brick and mortar modern retail segment.”

Lately E-retailers have been able to attract significant customers to online

buying. These are not just limited to very exclusive categories such as consumer

electronics, apparels, jewellery and lifestyle, books, music and video but also

other categories such as food and beverages, departmental store, household

services, home furnishings, healthcare, home cleaning, maintenance and

office equipments.

Commodity Distribution in E-tailing

Books15%

Beauty &Personal

15%

HomeFurnishing

6%

Healthcare3%

Baby products2%

Electronics34%

Appareis & Accessories34%

FDI issue

The online retailers are allowed 100 per cent FDI, as most of them are

run on the marketplace model, providing a platform for vendors. Multibrand

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retailers, on the other hand are eligible for 51 per cent FDI, based on the consent

of state. Eminent Physical retailer and other chains argue that their stores should

be regarded as similar in nature as they are also marketplace because some

22,000 small and medium companies sell their products through their stores.

They questioned why (100 %) FDI couldn’t be allowed in their business as

well. The law says FDI is allowed only in B2B (business to business) whether

it’s online or offline, but in case of online business, ecommerce transactions

are happening between business and consumer. This remains an unresolved

issue for physical retailers.

Future of Retailers

Retailers are hampered

with huge physical spaces that

they are bound to pay rents

for. Unlike the e-commerce

players, they aren’t getting

heavy funding from private

equity investors; in any case,

not for their brick-and-mortar

business model. Due to the

excessive discounts in sales offered by the e-commerce channels, the margins

of retailers have been impacted to a great extent. Although, it is expected that

discounting will continue for 12-18 months, the players are moving beyond

discounts and thinking about building customer loyalty. In the light of this

intensified competition and consolidation, retailers are forced to adapt to the

e-commerce opportunity.

The existing scenario portrays future, where India is going to see a model

that is not completely online nor completely offline. The retailers are likely to

function through omni-channel —where they are able to address a customer’s

needs through multiple touch points.