Getting real about etail PDF Print E-mail
Saturday, 25 February 2017 00:00
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Shobhana's edit

Snapdeal shows buying customers can't be a strategy

That e-commerce player Snapdeal is strapped for cash and letting go of hundreds of employees does not come as a surprise. If there are other online ventures that are still around, it is because their benefactors—private equity funds—generously continue to support them. This newspaper has argued for a long time now that most e-commerce players in the country do not have a viable business model since they are essentially relying on huge discounts to attract customers, while not being able to rein in costs. And although there may be 30-35 million online shoppers today, the total spends simply aren’t enough to go around. That is the story of organised Indian retail, whether in the brick-and-mortar space or in the online arena; the top-line is simply not big enough to keep everyone in business. So, while there may be millions of customers, there are also thousands of vendors—in the organised and unorganised sectors—catering for customers at every price point. The competition, as it were, is keen. And while spends could have been much higher today, a sluggish economy has robbed consumers of spending power.

Snapdeal attracted shoppers as long as it could offer deals and discounts, but clearly others have done better, though primarily due to their deeper pockets. In FY16, the firm reported losses of close to R3,000 crore, an amount which was almost twice its revenues. Today, the promoters of the venture are making a virtue of admitting they made mistakes and of forgoing their salary for the year. Indeed, it has taken them several years and billions of dollars to realise what some sane voices have been trying to tell them all along, namely that a business cannot be run on the basis of buying customers forever, and at some point, the business must make money. The e-commerce world always talks of GMV—Gross Merchandise Value—rarely of its own revenues, and never about profits. Every player claims it is building scale and boasts of profitable ‘unit economics’, though this is never clearly defined. And going by the losses that e-commerce ventures have piled up—over R16,000 crore in 2015-16, across 49 ventures—they are not great believers in cutting their coat according to their cloth. A glance at some of the expense sheets, for instance, reveals that benefits for employees account for the biggest chunk of costs at over 50%. According to media reports, Snapdeal’s owners earned around Rs 40 crore each; that is way more than the compensation most CEOs in India get for companies that generate real profits year after year. To be sure, online buying is here to stay since the convenience it offers is tremendous. But business models need to be reworked to ensure customers are paying for what they buy and also by keeping costs in check. Else, several more players are likely to fall by the wayside.


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