In India, e-tailers like Amazon, Flipkart and Snapdeal in recent years have not only made the youngsters below 30 their ardent buyer from their online platform but also have of late been able to net the people in the age group of 30 to 50 as their customers.In the case of below 30 customers, the e-tailers lure them through latest imported offerings under fashion accessories and electronics which the brick & mortar players do not provide with so many optionsFor above 30 customers the value proposition that the e-tailers bring in is not only limited to convenience of buying but also the price discounts compared to physical stores. More and more niche e-tailers entering the consumer segment coupled with increasing penetration of cheaper internet services penetrating to new areas is further giving fillip to the e-retail business gaining more traction from the masses leading to share of online purchase increasing at the cost of physical stores.
Why the Brick & Mortar Players adopted an “Ostrich like attitude” to the e-tailers when the war began between them and e-tailers? Did they really believe that the buying habits of people are hard to change? Did they believe that people used to buying from physical stores would not buckle to the emerging trend purchasing online?Did they believe that the e-tailers do not have a robust business model that can last long? Did they believe more highly about their physical stores model compared to shopping online model? Was it the legacy management style of the Brick& Mortar Players refusing to foresee the technological revolution happening propelled by internet?
In my opinion there is a combination of above factors besides others that led to growth of e-tailers and physical retailers slowly losing market share to e-tailers.
The most notable change that has led to growth in market share of e-tailers is the fast changing technology in the hardware, software and data connectivity options that become widely available and the price of the mobile and data services falling drastically in the last five years. A new breed tech-savvy young entrepreneur began to create software and online marketplace with easy interface between small and medium retailers and buyers in the market place making online transactions a child’s play. The secured payment gateways offered by banks and credit card companies with additional security options by sending PIN for each transaction has also increased the customers confidence to shop online.
[Tweet “Catch -22 for Brick & Mortar Retailer’s–e-retail or not ?#Kreston menon”]
The management of big physical retailers in many cases were often myopic, not to notice the software and communication revolution happening and impact on their sector. If only the top bosses at retail companies had realised that the first victim of the technological and communication revolution were the traditional banking and insurance sector and next would be retail, they could have better prepared themselves to face the onslaught of the e-tailers.
The information technology and internet totally changed the way banking is done today compared to the late 90’s and the early 2000. In the late 90’s it was the India-based new private banks such as HDFC and ICICI besides Citi and HSBC which started the ATMs, online banking in a big way when the traditional government banks scoffed at them.
The traditional banks also patted themselves when online frauds happened at the nascent stages of the e-banking. During the initial years a majority of the customers of the banks also initially were reluctant to deal with their banks through online platform, fearing online fraud. As technological advances made online banking safe, more customers began to bank online and today online banking has sizable share in terms of number of transactions and in terms of value it has surpassed traditional banking at counters.
Banks that avoided automation have now aggressively migrated to online platforms and in many cases such as State-owned State Bank of India has even outgrown the private players in terms of automation and online offering of features and service for its customers.
The management of many Brick & Mortar retailers with more than two to three decades of experience initially ignored the e-tailers and looked at e-tailers with contempt as many of the e-tailers had their CXO’s in early 20’s. The physical retailers had full faith in their ability to brainwash their customer base through print and electronic media about perceived failings of the e-tailers and celebrated the failures of the e-tailers as their success. They totally underestimated the capability and capacity of the e-tailers to bounce back after each failure with greater success and more offerings for the online shoppers.
In many cases the Brick & Mortar stores created failure stories about online players offering inferior product through their platform or lack of after sales support, though the physical stores themselves were never good in providing after sales support. Rather the online players like Amazon and Flipkart with their free 30 days return policy where offering the customers something that the physical stores had never offered to customers in many Asian markets including India for decades
Today the online players are gaining more customers at the expense of physical stores. The primary reasons are the cheaper price of buying same/ similar product compared to physical stores, getting same or net day delivery at home, ability to see the product with three-dimensional view, multiple payment options like debit card, credit card and cash on delivery, wide choice of goods to compare and in some cases like mobile phones exclusive launches of new phones only through online platform.In families where both spouse work, due to high commute time to place of work, shopping online has become a convenient option. With more and more e-tailers offering goods online, almost everything which was exclusively available at physical stores can be now bought via mobile handset.
Also Read : Digital Marketing For Better Demand Generation
For most Brick &Mortar retailers, the shift in the retail ecosystem has negatively impacted revenues. Show-rooming has become a reality— the shopper uses the information provided by the staff at the store but eventually makes the purchase online, sometimes even while he/she is in the premises of the store. Many physical retailers are beginning to understand the power of e-platform and pervasive use of mobile technology by people of all age group which is leading to people experimenting with online purchase and many finally converting to online shopping as their primary mode for many categories such as books, shoes, mobile phones, consumer electronics, gifts, fashion accessories and apparel.
Having made huge investment in real estate by leasing or building physical retail stores the Brick & Mortar players are in a real dilemma. They cannot totally junk their business model and put their business and that of their lenders at risk. At the same time ignoring the e-tailers and not adopting a hybrid model whereby they have their own online shopping platform for their customers is a proposition they can no longer ignore. By having both physical stores and online platform they would end up competing against their own online format of stores, besides competing with other e-tailers. A very complex scenario of business model, where their online formats of stores would have to set a pricing for product that is lower than physical stores to match their competitors online. Such an approach would require them to revisit their physical stores business model and growth strategy and would definitely require junking some of their existing business plan and more importantly their earlier mind-set about online retail format.
The Brick & Mortar players also need to play to their strength when adopting a hybrid model of physical and online retail formats. In case certain category of purchases (e.g. home appliances and white goods and groceries) the shoppers like to touch and feel the product before they commit purchase online. In such scenarios the physical retailers can definitely have more loyalty from their customers by offering them touch and feel option besides attractive pricing.
e-retail is here to stay and Brick & Mortar players can no longer pretend to ignore the e-tailers. They need to revisit their business model that is built on physical stores expansion and identify product categories where they need to offer online platform for customers to shop. They may also need to take the hard decisions of closing many of their physical stores or stop certain products from being offered at physical stores. Brick & Mortar retailers will have to bring in below 30 tech savvy entrepreneurs into their management to successfully leverage the fast changing technology in the online retail space.
