According to the latest research by Forrester, a leading global research and advisory firm, the E-Commerce market in India is set to grow the fastest within the Asia-Pacific Region at a CAGR of over 57% between 2012-16. Factors like increasing internet penetration, a burgeoning middle class with rising disposable incomes, busy lifestyle and consumer evolution indicate that the ecommerce industry is here to stay.
The Indian market is currently seeing a deluge of ecommerce firms each trying to differentiate and attract footfalls but their ability to break even and make profits as per most analysts is still a concern. The Founders of FlipKart.com, one of the leading players in the Indian E-Commerce scenario today speak to Executive Access about the company and the underlying dynamics of the industry in general.
E-Commerce is the latest trend in the market but despite the ever increasing number of players, no one seems to be making profit. Where do you feel are we lacking and what steps should be taken to replicate the success stories of the US and other countries?
E-commerce in India has come a long way since the first wave in early 2000. During that time the market was plagued with problems such as lack of investment, infrastructure, issues related to shipments and product quality. While these problems have not been entirely solved, the penetration of the internet, entry of serious players who believe in delivering a reliable online shopping experience and the success of online travel sites have rubbed off on consumers. They are now keener on considering e-commerce as a viable mode of shopping.
What we need now is more attention to infrastructure- especially in areas of supply-chain and payments in order to further ease the experience. Greater education and awareness generation on the benefits of online shopping, especially in areas where internet penetration is still low, is also a requirement.
Also, we believe e-commerce is a long term play and requires persistence and solid investment to make it work. Leading e-commerce brands in the West have taken 8+ years to start making profits, so it may be premature to use profit as a benchmark for success so soon in India.
Although the E- Commerce space surely looks exciting from the outside, there are definite challenges. What are the major hurdles you have faced in the last 5 years of your operations?
Setting up operations was by itself a challenge for us. Everything, from setting up bank accounts, to convincing suppliers to list their inventory with us was an uphill task. Once we started operations, we had to understand and address problems peculiar to the domestic market.
Setting up a robust supply-chain system was essential. Depending on third-party couriers for deliveries for example, was really hampering our time lines. This is the reason we set up exclusive last-mile delivery partners to get rid of this bottleneck. Customers were also apprehensive about using their card details for shopping online; in fact in some cases they did not even possess cards. This when our COD feature came into use – helping us reach out to a wider audience successfully. The questions about product quality were addressed through our promise of original warranties and our 30 day replacement policy.
Books have always accounted for a major share of your sales but with heavy discounts offered on books resulting in ever shrinking margins, is it not affecting your profitability?
While Flipkart did start operating as an online book store, we always intended to become a comprehensive e-commerce store that sold everything that a consumer might need. Today we have products across 15 categories ranging from books, music, movies, computers, mobiles, perfumes, toys, home and kitchen appliances, television and home-theatre systems and so on.
Today, our consumer electronics category is performing extremely well. They contribute more in terms of value as compared to books. The contribution of newer categories to our revenue is also going up steadily.
Flipkart has recently launched Flyte- your digital music download service and you hit more than 600,000 downloads in less than 6 months. Do you see a lot of scope in the digital music download space? With lots of websites offering free pirated music downloads, how does Flipkart plan to make it big in this space?
We believe consumers are willing to pay for music – they just need convenient and legal channels to do so. With Flyte, consumers in India are able to purchase and download a wide range of music legally, and at an extremely reasonable price. With music available across 55 languages and 700 genres and sub-genres, this is a service that should appeal to all age groups and music lovers. We believe no one has the kind of range that Flyte offers – whether it comes to other streaming services or physical stores. Online purchases are also more convenient as compared to physical music purchase.
We constantly keep adding to our features – and have introduced a number of features for the ease and delight of the customer. Our mobile apps, as well as the wallet, which lets customers purchase songs without having to key in their card/bank details every time, is a huge boost. We are also focusing on expanding our offerings. We are working with NH7 to bring indie music to the customers. We recently got the entire Magnasound collection on Flyte – a sure attraction for those who loved the Indian pop scene of the 80s’s and 90’s.
Was the acquisition of Letsbuy.com more out of pressure from your existing investors rather than a decision of choice? Has it proved to be of any strategic gain?
The acquisition fit into our strategy of building dominant shares in all categories we operate in. We were already leaders in the books and media verticals. Given that we had managed to build a leadership position in consumer electronics as well since its launch in early 2011, it made sense for us to consolidate when we saw this opportunity. The acquisition opportunity came at a very attractive price for us and the timing was also ideal. The synergies have allowed us to accelerate our growth
Recently, questions were raised on your business model and culture. How do you see yourself evolving in the next 5 years?
Flipkart has a flexible, meritocratic work culture – where we value qualities like independence, ownership and innovation. We have a team of nearly 5,000 across all sectors and some of our key hires include people from Microsoft, Google and the top B-schools and engineering colleges in the country – and we see this trend only growing in the future.
We are building a sustainable organization for the long-term and our stakeholders, including our investors, believe in our business model and growth plans.
What is Flipkart doing differently to increase its market share in the Indian retail market?
Flipkart has been known as the pioneer in the Indian e-commerce scenario. The initial years were spent in creating trust amongst the consumers through emphasis on customer delight and positive word-of-mouth publicity. The recent spate of marketing campaigns has helped the company reach out to a much larger target base.
Launching new categories, increasing the reach to newer markets and looking at acquisitions and partnerships that help the company reach its goal of $1 billion in Gross Merchandise Value (GMV) by 2015 are all part of the roadmap.
Flipkart has been the poster boy of the Indian E- Commerce space. What advice would you want to give to budding entrepreneurs to succeed in an industry like this?
Our suggestion for budding entrepreneurs is to focus on keeping their customers happy. Putting the needs of the customer first and listening to what they have to say is the only route to building a large, loyal customer base.
How is Flipkart dealing with its requirements of Human Capital? Is quality talent readily available? What steps are you taking to train and engage employees?
Flipkart has been able to build a very strong consumer brand in a short period of time. Most employees are our customers and this helps! We showcase our brand through campus outreach programs, tech talks and business talks. Talking about the kind of work we do, that they can be part of, has helped us in attracting top talent from different sectors.
When it comes to students – they consider Flipkart for the kind of work they can do here, the learning that they can get in a short time and the impact they can make. Fresh graduates at Flipkart get an opportunity to work in real business cases, think outside the box and have a lot freedom to structure their work.
Our combination of outstanding work that has a visible impact, hands-on training and competitive compensation is what helps us attract, and retain, key talent in a relatively nascent industry.