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E-commerce poses a threat to traditional retail

The online retailing industry is growing in India at a fast pace as companies are luring customers with heavy discounts. Even though the e-commerce industry is still at a nascent stage in India right now it is expected to grow at an exponential rate. The size of India’s e-commerce market in 2013 was around $13 billion, according to a joint report of KPMG and Internet and Mobile Association of India (IAMAI). It is expected to reach around $50-70 billion by 2020 due to increasing internet penetration and usage of smartphones and other devices.

Last month the Big Billion Day Sale held by Flipkart received a huge response from customers. On October 6, Flipkart managed $100 million of GMV (gross merchandise value) sales in just 10 hours. Likewise, Snapdeal too claims Rs 1 crore a minute. Some customers were disappointed as they were unable to purchase the products as it was sold off within few hours.

Orders of many customers were being cancelled on the site. Many of them vented their frustration on social networking sites. Flipkart founders Sachin Bansal and Binny Bansal eventually had to tender an apology for the goof up.

Online retailing has picked up in a big manner in tier II and tier III towns which have lesser presence of malls. Most of the malls and retail chains are concentrated in metros. Customers from smaller towns are shopping online as they are able to purchase products at cheap rates and have easier access to products. E-tailing has offered a better shopping alternative to the urban customers who have to grapple with issues like traffic jams, lack of parking spaces, crowded shopping malls and huge queues at the billing counters. E-commerce website offers products at cheap rates and offers cash on delivery option for customers. The e-tailing growth has given a fillip to courier companies whose revenues have started growing at a faster pace.

E-commerce companies are giving a tough time to offline retailers by offering huge discounts to customers. Many brick and mortar retailers had seen a bleak Diwali due to declining sales as customers choose to go online this time. They had filed a complaint against online retail companies for adopting predatory pricing and thereby trying to eliminate competition. Earlier the government had promised to look into this matter and was planning to regulate the e-commerce business. But later they failed to do so and said that it was not the government’s job to issue guidelines to the sector.

In India, the online companies have set the customer service bar so high, that the traditional channels are struggling just to keep up. While there is room for both models to exist and expand, each is looking at new ways to increase clicks and footfalls. Online retailers don’t offer after sales service and feedback is generally bad.

The only way brick and mortar retailers will stay relevant and continue to be successful in the future is by developing omni-channel capabilities. In the US, out of the top 20 retailers selling online, the majority of them are omni-channel retailers who started primarily as brick and mortar retailers. Physical stores enable a firm to showcase its product and build its brand, while an online presence helps it to get instant feedback. Those who prefer to touch and feel products, and that is still a majority of shoppers, will go to the shops.

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