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The words “Indian e-commerce” have become almost taboo in recent times. Many over-eager investors who had their fingers burnt pouring millions into unproven businesses during its initial boom years now recoil at the mere mention of the sector.What caused this spectacular fall from grace for a sector once considered the poster child of India’s burgeoning hi-tech economy?
Much of the fault lay with a specific kind venture capitalists and companies who purely focused on top-line, creating an environment where this became the only metric that people cared about. Near-term gains were excessively prioritized, as heavy discounts and similar short-sighted tactics were employed to drive sales. This, of course, proved to be unsustainable, as profits were never realized.
There are companies that have built differentiated businesses
Nowhere is this clearer than with the recent collapse of Jabong. One of India’s e-commerce giants, once rumoured to be the target of a $1bn bid from Amazon, it was recently bought at the near fire-sale price of $70m. Its demise, and those of others like it, have led many to declare that this is the end and there is no future in Indian ecommerce.
But this is far from the reality. In fact, Indian e-commerce has a bright future, even if the landscape will look very different to what came before.
Out of the ashes of Jabong, a new breed of Indian start-ups is already starting to rise. While failing companies have dominated the headlines, this set of startups has been enjoying success by quietly focusing on something entirely different - their bottom line. The obsession with profitability common to this new generation of e-commerce startups in India has emerged from one fundamental realization - that India is not, and cannot simply be a carbon-copy of business models from the Western world.
We CANNOT emulate the west!
In the West, it is generally assumed that once you have reached a certain size, the transition into profitability will be automatic and relatively straightforward. But this logic fails to recognize the fact that turning a profit from e-commerce in India is an far more complex challenge, for a number of reasons. Take for example basket size. The value of the average order placed online in the UK/USA is far bigger, but costs in India are not sufficiently lower to offset the difference for retailers. Likewise, Western e-commerce firms have far less sensitivity to discounting to worry about – Indian consumers are by their nature are much more likely to buy on discount due to culture of bargaining, creating a race to the bottom in the previous generation of e-commerce.
The community is increasingly recognising that India is not a “one size fits all” market. Learning from the example of successful offline retailers e-commerce startups have also begun to appreciate that consumers in Bangalore and Mumbai are entirely different from those in Uttar Pradesh or Bihar, and seek ways to tailor their offerings accordingly. We at StalkBuyLove have built a business model that takes into account the India-advantage and have done things very differently.
By having a de-centralised supply chain we’ve managed to create an inventory-lite business model allowing us to be capital efficient whilst simultaneously reducing the need to discount.
There is so much potential in all sectors for amazing and healthy companies to emerge. There’s not just going to be one winner here, it’s just they’re going to look a little different from you’ve been traditionally used to.