Online retail caught in a vicious trap

E-retailers are relying largely on steep discounts to attract shoppers, but it is not a viable model over the long-term.
Online retail caught in a vicious trap

 

The growth of the Indian e-retail sector is one of the fastest, globally, but that has been largely driven by discounts and allied promotional activites of online merchants. Apart from that, a large proportion of online transactions take place in the range of Rs 200 – 300, and it has once again raised doubts on the viability of the large expenditure incurred by e-retailers to attract clients. This development comes at a time with players like Koutons who have faced operational difficulties due to a strong focus on discounting, in a bid to scale up their online operations.

The key question – who bears the burden for these discounts offered? Ashish Jhalani, Founder, eTailing India, an investor and advisor for e-retail firms, pointed out that online retailers have an efficient supply chain, which helps fund a small proportion of these costs, and the remainder is largely borne by the marketing and promotional budgets of these players.

However, Praveen Sinha, Co-founder and MD, Jabong, pointed out that e-retailers do not offer only discounted products, but it is an essential component of their communication strategy.  “We offer a broad range of products at discounted prices as well as at regular prices,” said Sinha.

 Reducing discounts

Marketing experts stressed on the need to curtail discounts offered at e-retailers, but pointed out that some promotional activities were needed to attract browsers to a site, given the intense competition in numerous categories.

Jhalani added, “E-retailers work on an efficient supply chain model, and the resulting savings are passed on to consumers.”

Future growth strategies

The e-retail sector has benefited from increased investment by PE players in this sector over the past 12 months, including the recent investment in Flipkart. Nevertheless, the emphasis is on ensuring an optimum balance between pricing, operational efficiencies and promotional activities.  

In addition, e-retail experts stressed on the importance of online merchants building technology-related strategic innovations, in a bid to stay ahead of peers. For instance, the Kindle by Amazon, has helped to carve a niche for this global icon, and its relevance for local players just cannot be ignored.

Clearly, e-retailers need a new mantra for driving their growth.

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