The retail e-commerce sector that has witnessed a dramatic change in recent years with the advent of e-commerce has just been swept with yet another wind of change. While most offline retailers have been working on strategies to leverage e-commerce and keep up with their other online counterparts, Amazon, a market leader in the global e-commerce space, has gone ahead and done the unthinkable. It has opened its first offline store!
This month Amazon added yet another feather to its cap when it announced the launch of its pilot project of its “Everything Store” at Purdue University in the US. Students can order just about anything at the store, right from laptops to textbooks to groceries, and then pick it up from there the next day since no inventory will be maintained at the store.
However, what is important is to understand what made Amazon go against the tide and take such a decision of opening offline stores. Though e-commerce has been the buzzword in recent years and the industry has grown at a pace, few industries across the world have witnessed ever before that customers still missed the touch and feel element that offline stores offer.
The element of doubt regarding – What if I order the dress online and it doesn’t fit or the material isn’t good? Or What if that latest Nike shoe that is available at a 50 per cent discount turns out to be a fake or from the factory seconds lot?, left customers wary of e-commerce.
Offline vis-à-vis Online
As per an estimate by PwC, in report titled ‘E-commerce in India - Accelerating Growth’, online stores will account for a mere 3 per cent of the total retail market by 2020. In 2014, this figure stood at a miniscule 0.4 per cent.
Though the Indian e-commerce sector has demonstrated a CAGR of 34 per cent since 2009 to reach $16.4 billion in size in 2014, and is expected to touch $22 billion in 2015, the fact remains that India lies far behind countries like China, where e-commerce enjoys a much larger market share of 8 per cent to 10 per cent of the retail market.
Low Internet penetration of only 16 per cent in India as compared to 50 per cent in China or 70 per cent in Australia further compounds the problem. To add to it, making online payment is something that most Indians are still not comfortable with, given the history of online debit card/ credit card frauds. They would rather see the product before paying for it, and ensure that it meets their expectations before paying for it.
Offline stores will allow online companies to accomplish just that – give customers a sense of assurance that what they see is what they get. The move will also allow companies like Amazon to study customer habits such as style, colour, size, preferences etc. in real time and use the data to their advantage to further drive sales across the world.
More than anything else, nothing can replace the personal touch that a physical store can offer. Just having someone to talk to and respond to your queries face-to-face can instill a great sense of confidence in the product or brand. In fact, customers end up spending almost twice as much when they buy at an offline store rather than buying online, according to Andy Dunn, CEO, Bonobos, a New York based clothing store.
With Amazon showing the way, it is imminent that others e-commerce players will follow suit. The struggle for online companies will be to decide the ideal mix between the online and offline model, since that is just what the customer was looking for.
The writer of this article is Ashish Jhalani, an Angel Investor, Mentor & Advisor, Founder – eTailing India and Co-founder, Indian School of eBusiness. The views expressed here are personal.