Is a dot-com bubble shaping up in general merchandise retailing?

Internet business has definitely altered the way we shop but internet retailing will keep existing along with Brick and Mortar shops in future. Yes, “along with it”, as people will always have socializing needs as well as convenience of shopping online. I predict that brick and mortar shops will soon convert into something like life-style-shops, where people will come to have socializing time in an ambience and environment that will allow them spend quality time along with shopping goods with confidence of touch and feel. For example, there might be Mid-size or large cafes having a small-boutique store inside with a classy-touch so that women can shop while their husbands can sit down, sip a cup of exotic coffee or play games on a play station (A large-scale existing model of this is malls with shopping stores along with food and gaming stores; such models may change but will not erode away) and socialize with other people around in many ways. There can be ways to incentivize customers to socialize, network with people and refer their “experience” further; this can induce exponential demand. The whole idea is about creating user-experience because people don’t just buy products/services now…. they buy experience, whether its offline or online.

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I would be delving into the internet retailing business in India to see if it’s another bubble-burst in making, more so for the top-three players that claim 70% of the market share in India viz. Amazon, Flipkart & Snapdeal and analyze who stand to win.  Among these three Amazon seems to be pacing much faster than other two. Each E-retailing company has its own strategy to increase its market share; What would help them to win would be business fundamentals rather than winning the “who-has-better-valuation-race” (based on some model, matrices and cash-flows in future….blah..blah …blah) While they are doing everything from price-slashing-discounts, Faster Delivery, exclusive tie-ups with brands, acquisitions to even backward integration in supply chain, the consumer is clearly able to get a different experience with every new move. Valuations can be subjective, over-optimistic or even completely off-the-track; what I would want to look at is whether this is again a bubble-bust scenario or is there some stability or sanity shaping in the online-retailing industry mostly driven by Amazon, Flipkart and Snapdeal.

As per industry report from various sources collated by Brand equity forum, Indian Retail Market is poised to grow at 12% per annum to about US$ 1 Trillion till year 2020 from US$ 600 billion in year 2015. Out of this B2C E-commerce is expected to reach US$ 102 billion by 2020 and US$ 220 billion (in terms of Gross Merchandise Value) and 530 million shoppers by 2025. Overall E-commerce market is expected to reach US$ 120 billion by 2020 supported by faster internet speeds and faster adoption of internet services along with increase in app-based customer base.

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Brand equity

I strongly believe that any business proposition has to comply to established economic theories; Like how a country cannot keep printing its own currency at will, without substantial products, services & other fundamentals in the economy to back it up, any business also cannot be ascribed a value/assessed without strong fundamentals, products & services to back it up. Brand equity reflects a lot of these parameters as it also covers the perceived confidence of sellers and buyers. While recognition of a Brand as a performing brand, increasing market share and price inelasticity reflect a lot about brand equity, Online retailing industry is not yet  in a price controlling position (Can’t raise their margins, they don’t have any for that matter).

a) Customer’s Side

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In B2C online retailing, Amazon has steadily increased its market share and has captured more than 1/3rd of the market-share, whereas Flipkart and Snapdeal combined have nearly 40% market share. If we talk about most used apps the numbers are still high for Flipkart at 34% along with 11% for Myntra and 6% of Jabong that it already owns. Amazon is installed on 21% of the mobile devices, whereas snapdeal on 16%. Noticeably Amazon seems to have picked up at the app-installation figures since November 2015, the time when Flipkart decided upon the strategy to provide mobile-friendly site for direct browsing rather than from app.

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b) Seller’s Side

An important point that I would make is that assessment of any online retailer from sellers’s point is as important as it is from customer’s perspective. As per the results from a study (Neilsen’s E-commerce Sellers study Q1 2016-Jan-March) highlighted by Business Standard, starting point to assess the brand equity  is the brand-recall for most sellers (Amazon-25%, Flipkart-21%, Snapdeal-20%), second is the overall awareness (Amazon-86%, Flipkart-82%, Snapdeal-20%.). Providing a favorable platform to sellers increases the brand equity of an online retailer manifolds.

Fundamentals

Tracxn Technologies Pvt. Ltd. Has its own list of Deadpool companies (online business) in India and has its own matrices (like shrinking team size, , suspended operations and decline in user traffic) to list them. This approach seems logical when we look at recent failures in e-commerce business like askmebazaar that suspended its operations due to lack of funds/Cash and  as reported, left 4000 employees jobless in August 2016 ,was looking out for a potential sell-out.  There have been many dead and walking dead companies in the Deadpool list of Tracxn. Looking at recent sell out of Jabong at much lesser a price than valuation (giving rise to a terminology called Jabonged) and downfall of askme bazaar there are new rounds of discussion on e-commerce bubble.

So simply building an online business & burning cash to achieve figures that help you to make it saleable (be it Plan A or Plan B) is a “well-planned-scam” under the daylight, atleast for the stakeholders (Investors, debtors, vendors, employees…..well not customer… they just have to download another app and shop like a boss). Though finance is fungible and the money can be rolled but there has to be enough cash to be rolled. A business that was not started with intent to run & sustain on its own constructs rather than just the mercy and so called loyalty of its customers is a scam as somebody is going to lose sooner or later. Abidali Neemuchwala, new CEO of Wipro (although from a different industry) interestingly said, in an interview for Mint, “I am not afraid about falling Revenue or profitability, I am excited about profitable growth, we will not buy revenue by sacrificing margins”. Most of the internet businesses focus on growth, expansion, revenues and await success that never happens. Simply put the business has to generate its own cash from margins. On contrary all online retailing companies (taken in this write-up) have negative profits.

In case of internet retailing there are lines of products mostly common across all companies (only Snapdeal, Flipkart & Amazon in this write-up) whereas services, value proposition & operations would definitely vary as per their own common or mutually exclusive strategies because each one of them is trying to differentiate & win maximum market share whether it is volumes, Revenues, Product segments etc. So to have a pulse of the industry and see which company is going which direction, we should look for their past & present operations as well as current strategies that have futuristic approach or scope for profits as well.

FLIPKART

  • Flipkart has acquired Myntra and Jabong that have already been leaders in apparel retailing and it is going for strong private brand tie-ups (like how Myntra’s 25% revenue comes through Roadster, Mast & Harbour and Dressberry). HRX by Hrithik Roshan is a lifestyle & sports clothing brand (and some accessories) which is soon going to tie up with Flipkart (Flipkart is targeting the majority stake)
  • As per a report by A.T. Kearney and Google; fashion is expected to be dominantly, the largest product category in online retailing by 2020. Fashion segment offers much fatter margins viz a viz books and electronics and in fashion, private brand tie-ups reap larger margins than third party.
  • Flipkart is much ahead than everybody else when it comes to fashion segment (with 12 private brands of Myntra). As per a commentary by EY, having private brand tie-ups helps a company learn about merchandising and branding giving them better negotiation power with external brands. Flipkart is aggressively trying to improve in this segment as it offers fat margins and may help them become profitable.

AMAZON

  • Amazon is consistently improving on Revenue and market share and surpassed Flipkart in gross sales in July
  • Amazon is catching up well in Smartphone segment with Flipkart while it is already a leader in book sales.
  • Amazon is coming up with its fulfillment centers in Chennai, Coimbatore, Delhi, Jaipur and Mumbai with a total of 5.5 Million square feet storage space (adding to 2.5 million sq-ft. already existing over 21 centers in various states in Gujarat, Haryana, Rajasthan, Delhi, Punjab, Karnataka, Rajasthan, Tamilnadu, Telangana, West Bengal) for sellers which shall bring down their fixed costs. This strategy as per my opinion is going to have double impact for Amazon as it will get products at real lower rates (bringing down storage/logistics cost for sellers, also building closer association with them-80% of sellers on amazon use its fulfillment service) and consumers will keep getting lower rates on Amazon with faster delivery (two important factors in user experience). This strategy will have a strong backward integration advantage and strong geographical hold across India in supply chain.
  • Amazon Prime is a paid service that gives customer a faster delivery (1 or 2 days). This has seen success in US and other markets. But Indian consumers want more than just the faster delivery. However even a small part of the 50 million user base can be enough to give benefits.
  • Fulfillment center and Amazon Prime combined can help Amazon do away with discounts. Any company that can build a strategy around this idea will eventually see the sustainable success (profitable growth). Amazon seems to have taken a formidable position.
  • AmazonBasics (by cloudtail India pvt. Ltd.) brand selling headphones, charging cables, bags and various other accessories contributes more than 40% of its business and is set to expand it substantially this year (2016)
  • Have aggressive plans in private label offering in electronics accessories, groceries and fashion segments. If this happens they can take Flipkart head-on.

SNAPDEAL

  • While GMV (Gross Merchandise Value-Value of goods sold on an online-marketplace company) has remained a dominant metric to monitor the growth, Snapdeal-CEO, Kunal Bahl said Snapdeal is focusing on net revenue rather than GMV. It has cut down discounts and cost of advertisements; helps fight cash-crunch situation.
  • Snapdeal has diversified portfolio wherein it has FreeCharge (mobile recharge), Shopo, Vulcan, Gojavas, Rupee power (online financial services platform), exclusively (luxury ecommerce site) etc. in its basket.
  • Shopo is a market place for sellers of handicraft products (with zero-commission in revenue, just a fee). It has seen good amount of success with one lakh sellers onboard in just nine months. Shopo can be a promising online shop for small businesses with logistics (connects to logistics companies) and payments tools (freecharge) embedded.
  • Vulcanexpress and Gojavas were conceptualized by snapdeal to compete with its rivals flipkart and Amazon as having in-house logistics is more economical for marketplace companies (it makes logistics reliable & scalable) but snapdeal was late to do this and has faced problems with these two ventures.
  • Freecharge has much younger customer-base 18 to 25 years (age-bracket), with 10 million app-install-base. Snapdeal has a app-install-base of 20 million and its customers belong to 25 to 35 years age-bracket.
  • While Snapdeal seems to have taken a diversified approach, success is yet to be seen in these ventures as well and focus will be shared on all such ventures, whereas its rivals are focusing to improvise on lesser diversified models.

Conclusion

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The financials available for the online-retailing companies (on public forums and platforms) do not give a veritable insight. However, I have tried to track the fundamentals and strategies being followed by the major players in the industry.  While Amazon and Flipkart seem to have taken the formidable position of top-two players over last one year, Snapdeal despite its move to focus on profitable growth, is losing market share and its strategy doesn’t seem too focused. Snapdeal is trying to grab everything it can, Flipkart is much focused on its most profitable segment, Amazon has a sound approach of wooing both customers and sellers on its market place and is working towards weaning off the discounts. My personal opinion is that Amazon and Flipkart can be the last survivors with profitable growth. Snapdeal and other players may lose the game. It’s a boom-bust situation for everybody else than Amazon and Flipkart.

Disclaimer: This study is based on use of data from private company database, newspaper articles and internet-trends. The data collated through different sources like “similarweb” etc. have been duly credited to and are indicative in nature. The author doesn’t claim any ownership or the veracity of figures mentioned. The ideas that have been borrowed have been duly credited and other self-proposed ideas are inconsequential and meant only for the academic-engagements of the institute.

Author : Gaurav Chauhan

Senior Research Fellow, Great Lakes

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Chairman Emeritus Reconnect 51 “Re-defining HR”

My dear friends,

As human ambitions are growing, quest towards excellence in performance is continuing to intensify. Experts and Management Gurus all over the world are revisiting HR concepts and practices to face the new challenges and opportunities in the field of Human Development and Utilization, Talent nurturing and retention, Employer Branding, Global mindsets, Drivers of Engagement etc. Call of the hour is to dissect HRM & HRD right at the foundation level and re-define these human sciences afresh in organizational context.

Business Management / Project Management were conventionally defined as management of 4-Ms:

  • Man
  • Material
  • Machinery
  • Money

Multinationals feel that talent is cheap in India!! According to them manpower resource is so cheap in India  that you can import material and export products after getting them engineered and manufactured in India through cheap manpower. Jack Welch the-then CEO of General Electric (GE) once said during the inauguration of GE’s R&D Centre in Bangalore “India is a developing country but it is a developed country as far as its intellectual capital is concerned. We get the best intellectual capital per dollar here”.

Question Arises

Is man an objectified resource like any other inert resource viz. material, machinery and money; which can be hired and fired any time! Can the choicest divine creation of God be reduced to such an inert level of consciousness that it can be queued up with lifeless material resources?

The Answer is NO…

  • One single intuitive idea of a person can fetch you billions of dollars….
  • Entrepreneurial geniuses like Bill Gates and Dhirubhai Ambani have proved to the world that even qualifications are not required to be visionary……and successful.
  • World Leaders like Mahatma Gandhi could inspire millions to achieve historic objectives without any material resource in their hands.

Human beings are Living beings not Inert Resources

  • Human beings are divine souls with unlimited power of enlightenment.
  • According to Hal F. Rosenbluth founder of “Rosenbluth International” (world Leaders in Corporate Travel Management operating in >50 countries), there can never be employees but associates, who cannot be “fired” but only parted with dignity.

We have to appreciate how “emotional and spiritual intelligence” plays a crucial role compared to mere “intellect and expertise” in raising the productivity bars.

‘The Customer Comes Second’ by Hal F. Rosenbluth deliberates upon utilization of human beings, harnessing their potential with dignity. His Company achieved 98% client retention rate by focusing on their staff, not their clients. Once I stayed in a Hotel in Hyderabad and came down to the “Reception Desk” complaining that there was no wall clock in my room and I was not able to regulate my time for preparing for an International conference organised in that city. I had forgotten to bring my own wristwatch in that trip. The lady at the reception had no clock to provide but immediately she spared her own wrist watch saying that I could keep it till I was staying in that hotel. I could not comprehend the kind of motivation infused in the staff by the Hotel Management to provide service from their hearts till I read ‘The Customer Comes Second’.

Human Potential

Human beings have “infinite potential”. While this is an undeniable truth and does not require elucidation, hardly anything is really done for optimal utilization of this limitless power. An average man makes use of not more than 5 to 10% of his hidden talents; even people like Einstein have been able to use only about 18% of this latent power.

There is, therefore, a dire need for professionals concerned with HRD to give a thought to this tremendous under-utilization of the human potential and find ways and means to augment it. Every man is capable of performing much better than what he thinks he can. Even if he improves himself by 1% the resultant cumulative effect on overall organizational proficiency will be tremendous. Sky is the limit.

Happiness in an Organization

As more and more companies pay as much attention to their people as they do to public image, employer branding, increased profits, everything else would fall in place. Profits are a natural extension of happiness in the workplace. People work better when they want to work. Henry Ford said “There is joy in work. There is no happiness except in the realization that we have accomplished something”.

Changing Management Paradigm

The changing career management paradigm is shifting from organization to individuals to be in charge of their own careers. The significant shift in terms of different parameters can be seen as below:

No Old Paradigm New Paradigm
1 Success = Career Ladder Success = Valued Skills
2 Authority Influence
3 Vertical Hierarchy Horizontal and Orbital Hierarchy
4 Entitlement Marketability
5 Loyalty to Company Loyalty to work and self
6 Identity = Job, position, occupation Identity = Contribution to work
7 Attention to bosses and Managers Attention to clients and customers
8 Employees Associates, team members
9 Full time employment Part time, Flexi time and contractual
10 Bureaucratic Organisation Shared vision and mission

Need for change in HR paradigm

Treating human beings as a resource to be used, utilized and manipulated like any other resource is demeaning. Shifting from “Personnel Administration” to “Human Resource Management” including “Human Resource Development” could not give any comfort to the employees since equating human beings with any other resource was derogatory. It was like putting old wine into new bottles. People cannot be relegated to corporate resource; they can at best represent corporate strength or corporate potential of the organisation. Working people would prefer the organisation to enable them attain their true potential and in so doing, help the organization to achieve its objectives. Synchronising the personal ambitions with the organisational objectives would be the key.

The Magic of Organizational Physics

Magic is in the understanding of the intrinsic natural frequency of individuals and synergizing the same with the induced frequency of the organizational enthusiasm. Human potential is so mesmerizing that if it is motivated/ vibrated to the right degree, it can resonate to infinite amplitudes of performance!!!

Matching the expectations at the onset

If we look at recruitment advertisements, generally the job description is mentioned along with required qualifications and experience. People have many more expectations like respect and dignity, recognition, growth etc. as shown alongside. The organization also has expectations more than mere job description. Why not define them at the first instance?

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Competency Mapping and Enhancement

Competency Mapping is a process of identifying key competencies of a person for a job and incorporating those throughout the processes viz. recruitment, job evaluation and training. Competency mapping identifies an individual’s strengths and weaknesses. The aim is to enable the person to better understand himself or herself and to point out where career development efforts need to be directed. Competencies are derived from specific job categories within the organization and are often grouped around classes such as strategy, relationships, innovation, leadership, risk-taking, decision-making, emotional intelligence, etc. Once mapped, training can be planned to fill the gaps and enhancing the required skills.

Re-defining HRM/HRD as HPD

If HRM/HRD can be replaced by Human potential development (HPD), it would make a sea change in the mind-sets. HPD would be an integrative and continuous process of enhancing human capabilities and capacities by enriching human beings’ existing potential and helping them to discover and tap their latent potential. It would focus on self-development and self-management synchronising with organizational needs and development.

Sooner the organizations shift to HPD, better it would be for their higher productivity and higher accomplishments together with overall happiness.

Best wishes and Regards,

Dr. B.S.K.Naidu

BE(Hons), M.Tech., Ph.D., CBI-Scholar, D.Engg. (Calif.), FNAE, Hon.D.WRE (USA)
Chairman Emeritus, Great Lakes, Gurgaon, NCR, New Delhi, INDIA
Former Director General (NPTI & CPRI) Govt. of India

No job is small or big, the way in which you do, makes it small or big (c)