Online shopping THRILLS but KILLS. Yes it kills the patience inside you to wait for the product until you receive your order to your doorstep. We as customers know the story of the purchases that we make. And we think the retailers and e-tailers make a huge profit. But what’s the real story? Let us have a glance on the performance of retailing and e-tailing.
Mr. P.K. Mohapatra spoke to us on the position or retail and e-tail sectors in his last lecture. He told us how the consumers are inclined towards E-Tailing for their purchase. He taught us the concept of e-tailing through the history of retailing.
Before getting into the details of E-tailing and their survival in the market we need to understand how retailing has been working all these years.
Our country has the largest number of retailing outlets in the world. The reason behind this being modern retailing came up very late in 1997 when the government allowed foreign direct investment(FDI) in cash and carry wholesale. Though modern retailing started 18 years back, the growth of the organized sectors happened only 5 years back, largest being reliance Retail followed by the Future group and Aditya-more market. Modern retailing grew in India rapidly last 5 years because customers convenience in buying.
Mr. Mohapatra also gave us an insight on how manufacturers support small shops over major retailing shops. Manufacturers have more advantage over the Kiranas compared to Retailers as the supply of products is comparatively lesser than the retailers. Retailers over power manufacturers because the demand of products is higher. Manufacturers also cleverly use the bundling tactics with the retailers to release less profitable products.
Retailers sell their products at 30% above the cost price. But the profit margin is only around 1-2%. How is that possible? The other expenses that contribute to less profit margin are:
• Rent and inventory- Around 10%
• Man power-5%
• Electricity- 2%
This totals to 28%. One of the noticeable expenditure towards consumption of electricity is the freezers where cold and frozen foods are stored 24*7.The profit margin for groceries is based on sales in volumes and not through high or low pricing .We might think 1-2%margin is very less but with higher volume and sales the amount piles up. In retailing sector the highest profit margin is incurred by Horology shops and Antiques shops but they are the slowest selling sectors. The fastest with least margins comparatively are super markets and Kiranas.
After giving us a fair brief of Retailing sector,Dr .Mohapatro moved to explaining the current trend- E-Tailing.
E-Tailing concept came up with the idea of hiding space costs to achieve higher profit margin. Less did the E-tailers know that it would cost them so much.
– They will not only run the whole operation thru cloud computing but they have to pay the cost of maintenance, ware house cost and the logistics cost.
– They have to pass more benefit to the consumers because of competition.
The first wave of E-tailing was a complete disaster which lasted between 1995-2000. “Webvan .com” the first e-tailing site could not manage its expense leading to a huge loss. HamaraCD.com was another Indian website for music which had its slow death.
While books were an expensive affair in the brick and mortars, Amazon launched in 1995 promised to stock an almost unlimited virtual warehouse. Amazon got its first profit in the year 2001, 7 years since its launch. E-selling books turn out to be profitable so far leaving retailing book industry die slowly. While books contribute to the profit, electronic items like refrigerator, washing machines and furniture incur more cost than the selling price contributing to loss .The transport and delivery costs are so high that the profit of the ecommerce site depends on other items which contribute to profit. Analysis shows that websites like flipkart, Jabong ,Homeshop18 and other big ecommerce sites hardly make any profit but investment is huge. It takes a minimum of 5 years to achieve a minimum profit.
There is a huge competition between retailers and e-tailers. With e-tailers promising quick delivery for groceries, Retailers have also come up faster deliveries with groceries using web as a medium. Earlier we could differentiate Ecommerce and retailing. But things are changing. E-tailers and retailers are either merging or retailers are opening up their own ecommerce sites. The expense and investments have increased but growth and profit margin remains stagnant. To increase profit margin, one of the ways is to faster the sales and high volume. Collaboration with retail or other e-tail could also be beneficial.
However with the competition between e-tailors and retailors, the consumers are getting benefitted by
– Getting better price
– Having many choice
– Getting at their doorstep
– Visiting many online shops for getting best buy
— Neetasha Patnaik (CBS 2015-16 batch)
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