Posted in Finance Articles, Total Reads: 776
, Published on 21 May 2016
The term “E- commerce” is almost on news, advertisements, magazine, in fact, at everybody’s tip of tongue, on daily basis. Though the Y-o-Y growth is speculated to be exponential still the skepticism of an abrupt saturation of the industry or even death persists among the industry experts. The two contradicting facets of the scenario are that the industry is steep growing but it is suffering significant losses consistently since their inception.
Hence, the million dollar question is - Would they be able to sustain in long run?
The factors to be considered to answer this question to the slightest extent are:
Companies are striving to make their operations effective to the maximum extent possible. Incorporating latest technologies like robotics, drone facilities and even digging into R&D. It requires huge amount of investment in the amateur phase and at the end of the day the returns are either not very promising or they just cannot be anticipated.
For multiple reasons companies like Flipkart are developing indigenous logistic services as an alternate to 3rd party logistics. The costing involves inventory, packing, warehousing, shipping, tracking and the back orders to a great degree.
Whilst companies like Amazon have already focused high on operational innovations and excellence but the replication of the same at a greater scale is highly questionable. The failure of the “Big Billion Day” of Flipkart is a definite example for inability to scale-up. Hypothetically, if these company do manage to uplift their scale then would they be equally efficient in scaling down during low demands without considerable losses.
The customers are equipped with immense power as the companies operate on the notion- “Customer is King”. The shifting of power to customer endangers their sustenance to a deeper level. Evident with the rising back orders coupled with the race to achieve the highest ratings and therefore a brand, incurring huge reverse logistic costs and substantially drooping the profits of these companies.
Also, the dynamicity of the industry is so high that a company could be successful or mix up in ashes overnight. How many of us have not ordered stuff from these websites and most importantly, eagerly waited for it to arrive? Almost none. Any discrepancy or failure to deliver the exact product with exact condition at the exact place within the stipulated time stirs the social media and degrades the brand image. For the same reason we the customers, often tend to be a negative influencers when our expectations are unmet and rarely do we take the stance of appreciation.
The companies are over-burdened with the responsibilities of the sellers. We tend to blame the platforms for the deeds of their sellers, pilferages or inefficient 3PLs. Interestingly, politicizing of some issues induce costs too. Wondering how?? Why would Snapdeal suffer for some random statement made by Amir Khan’s wife.
The successful penetration of these companies or rather the concept of online shopping is clearly owed to the variety, ease and primarily the huge discounts they have to offer. These discounts are counter balanced with the constant funding fetched from numerous sources but the question still persists- How long can these sources be explored without considerable profits. For the same reason investors are apprehensive of funding more monetary supply to these services.
Though the people of developing countries continue to get habituated to these services with the penetration of internet but still there exists extreme apprehension about the security layers incorporated in the design of the websites/apps. Especially, while in the process of payment for the goods, most of the people prefer for cash on delivery option over other alternatives like credit/debit cards payments. Evidently, not all the merchandise is available on COD terms, under such circumstances, customers tend to opt for retails. This behavior pattern is also reciprocated while purchasing expensive items like high end electronics, automobiles and luxury furniture.
Essentially, the power shift to consumers has made a space for fraudulence. These companies have witnessed many cases where the purchaser has involved in embezzlement. For instance- Frauds order expensive goods and in turn fill the boxes with something worthless. Similar illegal cases have existed for electronics where cheap quality counterfeit goods have been replaced while the delivery.
On the flip side, the phantom that e-commerce is gradually annihilating the mainstream retail sector and hence the employment scope seems falsified. E-commerce platforms are rather complimentary enablers than a direct threat to these retails, attributed to the fact that these platforms are empowering them to sell goods to a larger geographical boundaries which they could not, otherwise.
Right now, it is difficult to weigh the inclination. Is e-commerce the future of trade or just another fanciful word in the limelight for a snapshot. We can only wait to witness
This article has been authored by Kishore Polaki from DMS, IIT Delhi
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