Are eTailers really challenging the Retailers?



Let us assume that there are just 3-5% people who are actually shopping online, rest either don’t have means or knowhow of online shopping or their location does not permit them to buy things online. So will still believe that Online shopping is changing anything in India, and specifically for the retailers sitting in their shops?

In the present market like India, two ways of buying is getting very popular – ROPO – Research offline, Purchase Online; OR Research Online, Purchase Offline.
And depending on what you want to buy, you choose your research method and then filter the purchase channel. Lets take a few examples….
1. You want to buy a mobile phone. Now a mobile is not something which you buy in a jiffy, at least not for 99.99% Indians. It needs a thought. You needs a price discovery mechanism. And even before going for prices, you want to understand which features do I really need. What is my peer group using. etc. Now, the easiest way to get this much information is to simply read online. And visit a few online stores and get a sense of what is being sold. So, you research online. And then, depending on the kind of phones you shortlist, you would sure want to get a feel of it. So you walk down to a store in your locality and have the product in your hand. You also get to know the store price of the products and then judge whether the online is cheaper or the store? You finally purchase it wherever its cheaper.
Lesson here – Price discovery is getting easier for a consumer. And this does matter a lot to the retail stores. Their margins have eroded like never before. And even if looks like 3-5% people who buy online, but these 3-5% have totally changed the way how retail stores work – They just can’t afford to charge more than an online store.
[As a matter of fact, electronics market is the worst affected by the online retailing.]
2. You want to buy groceries. For most affluent people (not more than 3-5% people in India), this is a daily hassle which they want to get rid of. I mean who wants to reach out to a vegetable seller and negotiate the prices. The mechanism for price discovery in this market is totally biased towards the cartel of vegetable sellers. So, chances are very high that you won’t be able to buy at your terms. What is the escape – Go to an online grocery store, and order the stuff. You also get the deliveries done at your home.
Lessons here – You just removed yourself from negotiating with the cartel. And hence reducing their pricing power. Instead you chose someone who is giving you an additional service.  And it does affect the sellers – they are losing customers rapidly, because the word spreads like fire in the jungle.
[Online shopping is slowly and silently eating-away the share of retailers, however the market is so big that it will take a few years to show some real impacts. But the impact will be seen for sure.]
Plus there are many more things which are changing day after day, like earlier if you wanted products or services which were not available with your retailer, you were forced to choose an alternative (which was solely the choice of your retailer), now thats just not possible – If you want something, you get it. Irrespective of whether you retailer has it or not. Earlier your retailer had the incentive to not sell the product of your choice, but the competitor’s products (because the margins were richer), but now he has no option but to keep it (even if the margins for him are lower) and hence impact the bottom-line.
Take for example…Every Indian household needs condiments to cook their food. Now this masala business is an interesting business – it’s highly correlated to the advertisements you see on the TV. The higher the Ad spend by the company, more is the demand, and lesser are the margins for the retailer.
So who do you think gives the least margin to the retailers? MDH. And which is the most demanded masala? Again, MDH. But go to any retail kirana store and ask for MDH masala, 60-70% stores just don’t keep it. They simply refuse to keep it, after all the margins offered by MDH are the least in the whole industry. And they keep most of the alternatives. But what if you want to have only MDH masala and nothing else? You force your retailer to keep it by not buying an alternative and ordering it online, and hence take away his recommendation power and fat margins.
That is how these 3-5% online buyers are forcing the retailers to change.

Next time when you visit a shop, irrespective of what it sells, ask yourself the same question – What might be changing in his life because of online shopping? Is is ready to compete with the online brigade? If not, what is going to change in his business? Or else what should he do to stay relevant to his customers. It would sure be an interesting exercise!

[I wrote this answer originally for a question asked to me on Quora, and you can read my original answer here.]


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