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Why India’s top business houses keep flunking the e-commerce test

27 September, 2017

While launching online fashion portal Abof.com in 2015, Aditya Birla Group chief Kumar Mangalam Birla said he saw the potential to build another billion-dollar business. But there was an admission as well—the venture was a “journey into the unknown world”.

Two years later, the apprehension has come true. The conglomerate announced last week it was pulling down the shutters on Abof.com after failing to compete against the deep discounting-led model of rivals Flipkart and Amazon.

Abof is not the first online venture from a major Indian conglomerate to have a dismal run. In February 2015, Godrej Group bought online grocer EkStop to shore up its offline gourmet food retail chain Nature’s Basket, only to shut it down in less than a month. Then there are Reliance Industries’ Ajio and TataCLiQ.com, which are yet to make a dent and continue to operate on the forgettable end of the e-commerce spectrum.

These are anticlimactic bends in India’s e-commerce story, for many would have wagered on these formidable business houses dipping into their war chests and experience to upset the status quo. Nothing of that sort has happened, and the Flipkarts and Amazons of the world seem to leave all but crumbs for competition.

What’s preventing these well-entrenched, decades-old businesses from capturing a slice of the digital pie? Is it because of an uncompromising fixation with profitability, a flawed understanding of the market, or plain complacency?

Obsession with profits?
Arvind Internet, the e-commerce arm of textile firm Arvind Ltd, runs an omni-channel venture named NNNow.com and also owns customised clothing e-commerce platform Creyate.com. Textile and apparel maker Raymond Ltd operates e-commerce platform RaymondNext.com. Unwilling to join the discounting race, some of these ventures find themselves at the brink of oblivion.

“Titan and Bluestone are surviving because Amazon has not started subsidising gold. Croma is still surviving because it is a manufacturer,” says Jessie Paul, founder and chief executive of Paul Writer Strategic Advisory.

Paul says it’s simple—customers flock to businesses that offer attractive discounts.

“I don’t think Westside wants to see good traction on their site. I also don’t know where Ajio is headed. Even the struggling Snapdeal is giving me huge discounts… why would I go anywhere else?” she asks.

It’s not that these e-commerce ventures from traditional business houses have not woken up and smelled the coffee. They realise it’s an ambitious task to win over discount-crazy customers with a slew of private labels. In fact, Abof.com, which initially said it won’t offer any discounts, did tweak its strategy. In less than a year of its launch, about 70% products on the site were being sold on discount.

Not that it made a difference.

Wavering focus
“If you look at e-tailing business the world over, all the successful ones were marketed as e-commerce businesses. They were never viewed as an extension of existing businesses. The people at the helm were passionate about it,” says Ankur Bisen, senior vice president of retail and consumer products division at Technopak Advisors. “It’s not just about the group’s ability to fund it but also the group’s view on it,” he adds.

Management consultancy AT Kearney had warned, in a report last year, that Indian conglomerates should not see digital as just a way to acquire more customers—rather, they need to create a strategy to succeed against nimbler startups.

Clearly, that hasn’t happened.

There have also been instances of offline and hybrid players trying to enter e-commerce either through acquisitions or by creating separate verticals. In 2015, auto-to-software conglomerate Mahindra & Mahindra, which runs offline chain for baby and infant products Mom & Me, had acquired babycare business Babyoye.com. In October 2016, it sold Babyoye to online baby products retailer FirstCry and infused more funds into the new entity to own part of FirstCry.

Anand Mahindra, chairman and managing director of Mahindra Group, had then said the future belonged to ‘click and brick’ businesses and consolidation was the way to thrive and establish industry leadership.

Risk aversion
“Traditional players don’t have venture capital. These are large conglomerates with alternative use of their profits. Venture capital and private equity guys are, by definition, risk takers,” says Anup Jain, managing partner at consumer and retail consulting firm Redback Advisory.

“When you have old money or wealth, you may not be ready to put it in risky ventures. So it is prudent to cut your losses and focus on your core businesses,” Jain explains.

The same risk-taking ability, aka the willingness to burn cash, seems to be paying off for Flipkart and Amazon for now. These e-tailers may still be far from breaking even, but their high gross merchandise volumes seem to be preparing the launch pad for future.

The recently held festive sales paint a promising picture. According to data from research firm RedSeer Consulting, Indian e-commerce firms posted their best-ever performance during the period, clocking a combined Rs 9,000 crore ($1.5 billion) in sales.

“The marketplace model already has established players like Amazon, Flipkart and Paytm Mall. The consumer does not need a replica of the other three. Second, vertical players focusing on fashion, like Myntra and Jabong, have already been acquired. Consumers are preferring horizontal portals and marketplaces where they can search for everything,” Jain says.

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Why India’s top business houses keep flunking the e-commerce test

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