<p>Besides the benefits to customers, e-commerce as a business model has several advantages over traditional retail models, says <strong>Vipul Parekh</strong><br> <br>The world was a different place when we started our first e-commerce venture Fabmart in 1999. Internet connections were few and far between, and ran mostly on flaky dial-up lines. People distrusted an “invisible retailer” and were unwilling to use their credit cards online.<br><br>Today, with more than 30 crore people connected to the Internet (thanks in large part to smartphones), secure payment systems, and increased willingness to transact online (thanks to IRCTC and other websites), the e-commerce industry has truly taken off. In addition, people are increasingly strapped for time, and value the convenience offered by e-commerce companies much more than they perhaps did a decade ago.<br><br>Besides the benefits to customers, e-commerce as a business model has several advantages over traditional retail models. First, rentals constitute a significant chunk of the cost base for a traditional retailer given their need to be present in locations with high footfalls; e-commerce companies, on the other hand, can have their warehouses in relatively faraway locations with cheaper rentals. Second, for people in smaller cities and towns (home to more than 50 per cent of the retail market) with the same aspirations as those in large cities, e-commerce offers access to a much greater range than traditional retail.<br><br>Third, e-commerce companies can have centralised control over inventory, which allows superior operational efficiency and also curtails shrinkage (loss of inventory due to inefficiencies and theft). Fourth, e-commerce companies have the ability to use data and analytics to help customers make better purchase decisions. Fifth, many e-commerce companies operate as marketplace models, which significantly reduces the need for inventory and associated capex. While e-commerce companies have structural pluses over traditional retail, there are some key success factors for them that are worth keeping in mind:<br><br>=Merchandising skills to enable them to buy the right products at the right time from the right place, and the ability to set and control quality standards. BigBasket.com carries more than 15,000 SKUs today and ensures that each is delivered at the right price and quality requires strong processes and capabilities in the team.<br>=Supply chain management skills to manage a fragmented and varied supply chain for procurement and same day/next day delivery for customers across the length and breadth of the country.<br><br>=People management skills to manage, recruit, train and motivate blue-collar workforce that works in the warehousing and delivery of the orders.<br>=Technology skills to ensure that they are able to consistently offer customers a great experience while buying online and to keep them current with rapid technology changes, and also to lay the foundation for processes within the company.<br><br>With all the news of funding in the sector, there is some concern whether seemingly sky-high valuations are justified. While it is hard to answer this definitively one way or another, a few facts keep me optimistic. In the US, after all these years, e-commerce constitutes only 4-5 per cent of the retail market; on the other hand, in China, the e-commerce industry constitutes nearly 10 per cent of the overall retail market. I think India may follow the trend of China rather than the US.<br><br>We still have a lot of runway left. Internet penetration is still at less than 20 per cent in India versus over 50 per cent in China, and only 10 per cent of Indian Internet users are online shoppers versus close to 50 per cent in China. It is also no coincidence, in my view, that for Amazon, India was the fastest international market to clock $1 billion in revenues. Overall, I am confident that the best days of Indian e-commerce are yet to come. <br><br><em>The author is co-founder of online grocery store BigBasket.com</em><br><br>(This story was published in BW | Businessworld Issue Dated 13-07-2015)</p>
