Tuesday, November 4, 2014

War between "Brick and mortar" store retailers and e-commerce market players-Where will this end?

With on -line retailing giants like, Flipkart etc pitching their tent in India there are naturally apprehensions all around in the throbbing $ 600 billion retail market in India regarding the ultimate out come of this churning process. Admittedly unorganized market segment is controlling the market currently while the more sophisticated supermarket players have not been able to penetrate the market as expected leaving the latter with with less than 10% of the market share. During the last one and a half decade many supermarket chains have sprung up in the country, the investments coming mostly from domestic players with some marketing muscle in other sectors. Recent foreign investment policy changes effected by the UPA government raised lot of expectations, hoping for an influx of international giants to tap the ebullient market. This has not materialized due to many reasons though there are a few successful whole sale trading players making a mark for themselves. Under such a situation sudden appearance of another competitor in the form of on-line sellers is causing a churning in the market place with no one sure about the future contours of retailing business in the country in the coming years. Recent street protests in some parts of the country against on-line retailing sector, mostly spearheaded by unorganized traders will not solve the problem, real or imaginary and there is an urgent need for the government, traders and the on-line players to better understand the reality at the ground level. Here is a commentary on the situation which is revealing as far as the common man is concerned.

"At a time when the hotting online-offline war is making headlines in India's retail space, the brick-and-mortar (offline) segment seems to be putting up much less than a spirited united fight against its online challengerEven as deep discounts by e-tailers are hurting the bottom lines of all companies running physical stores, and smaller offline traders - mostly mom-and-pop stores - are resorting to protests and agitation, the larger ones are looking to leverage the online medium. They see in the e-commerce marketplace model, also followed by the likes of Amazon, Snapdeal and Flipkart, a great opportunity to spread their reach and sales. While brick-and-mortar stores account for the bulk of India's $600-billion retail market - a majority of the total retail trade is still unorganised - online transactions' share stands at three-four per cent. For large groups with deeper pockets, the online marketplace model reduces the real estate cost of opening more physical stores and allows passing of the saving to consumers in the form of chunky discounts, say analysts. By comparison, the smaller traders, wary of the deep discounts they would also have to offer if they went online, are resorting to protests. Recently, the Confederation of All India Traders (CAIT) led a nationwide agitation that saw about 250 unions (primarily of smaller retailers) holding street protests. Major offline retailers chose to stay away from this, in spite of efforts to get them on board. According to CAIT Secretary-General Praveen Khandelwal, the larger players form about 10 per cent of the total offline retail trade. "We are trying to communicate to them but many of them are keeping off the protests and favouring discriminatory laws. This is also because of cut-throat competition among themselves," Khandelwal says. Ajit Joshi, chief executive of Croma Retail, Tata Group's electronics and durables chain, says his company is against predatory pricing, but street protests are not the ideal way to address the issue. "We have to reach our consumers and, if some of them are online, we should to take a balanced path and make an attempt to reach them as well... Of course, selling below cost price will do no good to anyone," Joshi says, adding digital presence of media outlets will not kill the traditional medium. Online retail has grown over time, but the recent pre-Diwali mega sales by Flipkart and Amazon, which offered deep discounts, drew severe criticism from offline traders."

Whether one likes it or not on-line trading or buying and selling is loaded in favor of the consumer and there is no way consumer is going to give up this advantage easily. It is well known that mark up in prices between the manufacturer and the retailer can be as high as 35-75% and and naturally the on-line products will incur insignificant promotional, ware housing, distribution and aisle display costs making them pass on the savings to their consumers. How ever if predatory pricing, offering even at prices below the manufacturing cost, is resorted to by the on-line sellers it is reprehensible to say the least. As for the government it will be a big dilemma as to who should be supported in this attrition war. Of course the small traders numbering over 8 million, according to some estimates, cannot be allowed to wither away because of this fierce onslaught on them by the organized trade. Another dimension to this issue is the unevenly loaded advantage for only a section of the consumer community who are computer savvy while denying the same to a vast segment of the population. But how this can be solved is a question that needs further consideration.


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