How is the Digitization Wave Impacting Smaller Retailers?

The rise of this digital ecosystem is helping small offline retailers in India to retain and expand their business outreach
How is the Digitization Wave Impacting Smaller Retailers?
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Founder & CEO, Tarnea
7 min read
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"Disruption driven by digitization". Only a few in the then-unchallenged offline retail market had realized the potential of this statement when it was being first conveyed to them. Pawan Gupta, an electronics retailer in New Delhi's Gaffar Market and one of the early movers who climbed aboard the digital bandwagon back in 2014, was left awestruck when his inventory needed to be replenished every week. Then, it became every few days - a marked improvement on the weeks and months that it took to sell his inventory earlier.

There was a visible demand in the online market. And as is the nature of every market, where there is a demand, the supply follows.

E-commerce Marketplaces Apropos Small Retailers: A Blessing in Disguise or an Eventual Curse?

The advent of e-commerce marketplaces was nothing short of a boon for everyone. The offline retailers, both big and small, experienced a wider digital audience that overshadowed their brick-and-mortar shop's customer base. The big brands, on the other hand, experienced greater moving volumes through direct and indirect channels as the customer propensity for purchasing products and services online increased.

But the biggest beneficiary of the market dynamics were the end-customers. It was now easier to buy their desired products without having to step out of their homes, compared to scanning an entire market only to settle with a lesser offering. Now, all they had to do was open a new tab in their web browser or download another e-commerce application. There was the added possibility of availing the same product (or perhaps even better) at a lower price point. Online marketplaces, moreover, endorsed 'return of orders' if they weren't as per the 'expectations' of their customers, encouraging more customers to try new products and find what works best for them.

Another merit of e-commerce platforms was that reaching customers located in tier-II and tier-III cities became easier. The working population could now also place orders while they were sitting at their workstations or at home. Coupled with decreased data costs, improved internet adoption, and the foray of new players into the Indian market, the circumstances pointed towards one thing - the coming online retail revolution.

But disruptions are not always beneficial, at least not for everybody. Online marketplaces looked to move deeper into tier-II and tier-III cities as they still lagged in terms of delivery and customer experience. Thanks to their successful strategies, placards such as "Aaj nakad, kal udhaar" (cash transaction today, credit tomorrow) on display gradually started being replaced with "Kindly don't argue over online prices".

The Lost Battle: Upping the Game for Bulging Bottom of the Pyramid

As some might've believed, creating their own store online would've been more profitable. It would've - had online marketplaces not been giving heavy incentives and organizing several-hundred crores worth of 'big' sales that drove increased footfall. What also remained hidden from plain sight was that these marketplaces extensively worked on their supply chain and logistics. Before purchase, the product had to be procured and made available at all centralized warehouses. Once the order was placed, it was quickly sorted and dispatched to the customer through established supply lines. Order fulfillment, therefore, involved multiple intermediaries that the online marketplaces on-boarded through strategic partnerships, something which is not possible for an ordinary brick-and-mortar shop owner.

E-commerce marketplaces, therefore, became indispensable to an ordinary retailer given their technological prowess and market expertise. Besides managing a majority of operations on behalf of their retailers, they also extended cloud-based information systems that provided supply-demand analytics and a centralized dashboard. This helped them effectively manage their end-to-end operations. And as they became indispensable, they also began taking their pound of flesh.

The incentives started dwindling, and so did profits, as online marketplaces now focused on reducing their burn rates, or losses that they experienced because of marketing. A large portion of sales was, moreover, driven by company-owned vendors rather than the conventional marketplace model where all vendors had equal opportunity. This practice was somewhat restrained with a maximum limit of 25 percent from a single vendor by the government. The 25-percent cap still took away a sizeable chunk of the overall sales and e-commerce platforms could further introduce more vendors to do away with the constraint. The bulging bottom of the pyramid had not only been deceived but also crushed. Small retailers started realizing the importance of greater autonomy and control over the business operation.

Advantage Retail: Supply-demand Dynamics Back in Play for the Benefit of Small Retailers

As is the nature of every market, where there is a demand, the supply follows. The burgeoning retailer-side demand has lately started being addressed by new tech-driven startups. They are enabling small, offline vendors to establish their visually-impressive online stores at prices as low as Rs. 500to 1,000 a month. They also enable them to gain complete visibility as well as control of their business operations, even remotely and simultaneously conduct business analytics on sales, customers, cash flow, inventory, purchase, and staff performance.

But how does this happen? "Technology" could have been a concise answer. A more elaborate answer takes us to an array of digital technologies. Today, digital adoption is at its peak and is gradually increasing for day-to-day processes, including the ones affecting retail businesses. A majority of retail store owners are already equipped with internet-connected devices for managing various operations such as billing, tracking the reverse and forward supply chain, and filing GST returns. They are also leveraging CRM (Customer Relationship Management) and ERM (Enterprise Resource Management) solutions to further increase their overall efficiency. Such systems, that often come in the form of easily deployable and scalable SaaS (Software as a Solution), eliminate repetitive procedures and minimize the need to manually enter or edit information, while at the same time streamlining business processes and making it easier to collect data for across-the-board operations - both offline and online. They, moreover, extend new-age technologies such as Big Data and Machine learning to further enhance productivity and deliver critical insights, while also benefitting such businesses with their own acquired knowledge through industry-specific and cross-industry applications. This helps businesses to cost-effectively manage their comprehensive operations and decrease everyday errors and inaccuracies. The collected data and its subsequent analysis, furthermore, not only helps businesses in managing their inventory but also facilitates accurate demand forecasting, making it easier to operate even on lean finances and inventory.

These digital enablers also alert and notify high-value transactions, store achievements, business summaries, GST filing due dates, and stock-level dynamics to the business stakeholder. Some market players are also helping conduct the end-to-end logistics operations, enabling businesses to enjoy similar strategic partnerships as their larger e-commerce counterparts do. The biggest USP of this retail ecosystem is that since its end-to-end transactions are not conducted via online marketplaces, retail businesses are not liable to pay hefty commissions charged by such marketplaces (that are often to the tune of 30 percent of the overall transaction).

The rise of this digital ecosystem is helping small offline retailers in India to retain and expand their business outreach, and that too without bearing the brunt of their technological limitations and the ever-increasing penetration of e-commerce marketplaces into their established market. This development is also happening when all major e-commerce platforms are gradually getting rid of their arbitrary incentives and discounts in a bid to achieve profitability - opening a new avenue for offline retailers to challenge such platforms on their own turf.

Now, as it is clearly visible, it's the small retailer David pitted against the e-commerce Goliath in both online and offline markets. Let's see who emerges as a victor.

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