Growing investments into e-commerce sector from international firms like Softbank Corp, Foxconn Technology, Tiger Global, Naspers etc are posing lot of challenge to the existing retailers. E-commerce giants have raised around $4 billion last year and are they expect to increase their valuations in the coming years. Also, the government is in talks with e-tailers to allow FDI in e-commerce sector, which again would be boon for some of the e-tailers as I mentioned in FDI in E-Commerce, A Boon Or bane ?
In this scenario, won't it be difficult for MSME (Micro, small and medium enterprise) to survive the competition and grow their enterprise ? Are e-tailers posing challenge to retailers ? How can this problem be tackled ? Let's explore...
Internet penetration in India has been growing at a rapid rate. Also the number of online purchases to the total online users has been growing very fast. According to a report, India will have 100 million online shoppers by 2016 and country's e-tailing market will be of $15 billion by 2016. Some of the reasons for increased online purchases are:
- Large discounts or offers
- Ease of purchase
- Easy to compare price
- Increased faith in e-tailers
- Efficient cross selling or remarketing by e-tailers
Because of the above mentioned reasons, local retailers are losing their market share. Although we may think that it might be difficult for retailers to survive and grow, but IT IS NOT TRUE.
E-tailers like Flipkart, Snapdeal and Amazon do not have access to a large number of cities, provide limited service in some of the cities and their services are not upto the mark in few cities. There are many products which are only delivered through local retailers or manufacturers but not sold online through e-tailers. So on one hand, local retailers have products which only they can sell in their city, but on the other hand these retailers do not have the access of large audience to sell their goods. The problem could be addressed if both retailers and e-tailers work together to achieve their goals. This is their mantra for success.
We know e-tailers work on marketplace model, as I mentioned in How do e-commerce companies make profits. Now to gain access to more number of cities across the country, e-tailers want more number of retailers from every part of the country to sell their products (retailer's product) through the platform of e-tailers. Doing so, e-tailers would gain access to an untouched geographical location and at the same time, it would provide retailers access to a large customer base across the country. It will benefit users as they will have more options to chose from and also get better customer service.
Companies like Snapdeal and Amazon are exactly following the same route to expand their presence across Tier 2 and Tier 3 cities. SBI recently signed a MoU with Snapdeal, Amazon and Paypal to embrace e-commerce sector. According to the deal made with Snapdeal and Amazon, SBI would finance or provide loans to sellers and manufacturers from SME ( Small and medium enterprise) at competitive rates. So those sellers who are selling their products through Amazon or Snapdeal would be provided with adequate liquidity, which would help the sellers and manufacturers to expand their range of products, ramp up productions and scale up their operations. Under the deal, SBI would provide a loan to SMEs without any collateral, upto Rs 1 crore with interest rate of around 11.35 percent.
According to kunal Bahl, CEO of Snapdeal," The agreement with SBI would have profound impact on SME business. The biggest problem of SMEs, which has been marketing, distribution and lack of liquidity could be addressed with this deal."
So this is not a fight or a competition between e-tailers and retailers. In order to be successful, it is essential to create an ecosystem where both e-tailers and retailers work together to achieve their goals. E-tailers would have access to more geographical locations and at the same time, retailers will gain more customers to sell their product along with funds to expand their range of offerings. This would be a win-win situation for both retailers and e-tailers. In the end, the one who would benefit the most would be consumers as they would have access to the products sold by local retailers and at the same time they get better customer service.
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