Oh! we are a Marketplace – This has been one of the favorite topics of discussion around ecommerce in the recent times. So much so; that it seems to influence smaller players and new launches to rethink on their strategies if they aren’t thinking marketplaces. It has been made to believe that ‘Marketplace’ is the only ‘Path to Profitability’ for ecommerce ventures in India. Is it really so?
Is marketplace ‘The New Mantra’ to succeed in this fiercely competitive ecommerce industry or is it just another fad?
eCommerce is still a nascent industry in India. We are talking about an industry size of $1billion versus $150b for China and bigger for US. And we cannot ignore the fact that inventory led ecommerce businesses have played a very significant role in shaping ecommerce industry in India. Over the last 5 years; significant amount of investments have gone in building technologies, processes, logistic capabilities, awareness, discounts and above all inventories; to be able to provide desirable buyer experience and hence build affinity & acceptability towards the medium. Inventory led models have provided a good platform for the industry to leapfrog to the next level and enter from a ‘Start-up’ mode to ‘Main-Stream’. But is it time to divorce this model and move away? Has inventory lost its sheen? Too many doubts & no straight answers.
Lets look at some data points and facts to arrive at some sort of conclusion.
1) The Largest Retailer in the World ‘Walmart’ is an inventory play.
2) Also some of the largest ecommerce players of the country & the world; are inventory models.
3) Is inventory really such a bad word?
4) We need to recognise the fact that ‘Inventory’ is one of the biggest point of leverage & efficiency for some of the largest retailers in the world. As one grow bigger so does one’s leverage through inventories.
5) And one should not forget that even in a marketplace model; there is someone who carries inventory.
So – what is the Answer, Inventory or no inventory?
Rather than Inventory or no-inventory – Retail Business thrives on efficiency which is driven through scale and processes. The most efficient and probably the only profitable retail format in the country so far is ‘Kiraana Store’. Would online players be able to break into the profitability club? It is yet to be seen…
In this ‘ever capital-scarce world’; businesses are looking for capital efficiencies and innovations in business models and I believe ecommerce would keep gaining significance and momentum over physical retail, as world is getting more and more connected on the world wide web.
Efficiency can be created through process design and innovation across various cost centres of the business like marketing, inventory & supply, technology, manpower, logistics & shipping etc. Marketplace approach towards inventory is one such innovation designed to reduce risk and costs & provide efficiency to an online business. But are companies able to build efficiencies through marketplaces in the current scenario?
1) Marketplace means lesser margins compared to when you take inventories.
2) Marketplace means higher delivery cost– multi points pickup and hence very less possibility of shipment consolidation.
3) And the Biggest cost of all is the Compromise on Customer Experience. Marketplace would mean longer shipping periods. So less of the ‘wow’ experience for Buyers. Marketplace would mean less control over supply chain.
So – what is the answer?
There is NO straight answer. Both models provide different leverage points and behave differently. Successful businesses have been built across the globe for both the approaches and same would be true for India too.
Digital foot prints of India are increasing at a faster pace than ever before and retail piggy backing on the same has been able to grow and reach to smaller towns and cities of India which were till recently more confined to geography books. With poor infrastructure and low penetration of organised retail in the country and consumption patterns of Indian Diaspora growing beyond kiraana stores – ‘Walmart of India’ is in the making and it could very well emerge on the internet as a virtual entity rather than a physical play confined to 4 walls of a store. But would it emerge as a Marketplace model or an inventory led model is a ‘billion dollar’ guess… !!
(About the Author– Rahul Sethi is the Co-founder & CEO of Ladyblush.com, he has over 12 years of experience in managing and leading eCommerce firms. Prior launching Ladyblush, Rahul was the eCommerce President at Ibibo group and has also worked with Future Bazaar India Limited, eBay India, Baazee.com, etc.)
Image Credits: Frank Gehry’s followers