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E-COMMERCE VS BRICK
MORTAR RETAILERS

This Article is taken from our:

ISBN : 9789385846335
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L ast two decades have witnessed a series of changes in the way we

communicate, learn, read, express, consult, buy, sell and run business.
E-commerce has emerged as a totally new concept. Presently, High dependency
on internet and mobile phone usage has revolutionized the way business reach
people.
E-commerce connotes a method of conducting business through
electronic means rather than through physical means. The term takes into
account not just the act of purchasing goods through online platform but
also other activities associated with transaction such as delivery, payment
facilitation and service management. This means it is a ‘click and buy’
method using computers and mobile phones.
With the massive adaptation of common man to technology, the e-commerce
industry continues to evolve and experience high growth in both developed
and developing markets. The largest population within that market segment is
23-year-olds. That means millennials are big consumers of this market. Since,
they have their prime earning years still ahead of them - about 30 of them, those
30 years should make millennials tempting targets for any e-commerce strategy.
The digital commerce market in India has shown remarkable growth
from $4.4 billion in 2010 to $13.6 billion in 2014 whereas the global market
is forecasted to reach $1.5 trillion in 2016. The emanation of non-banking
players in the payments industry and exhilarated emergence of innovative
start-ups mark the expansion of the Indian e-commerce market at a rapid pace.
Nowadays, many people are working for longer hours than before and
more people are entering or re-entering the labour market working part time.
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Lifestyles are changing. And this change has led to increased consumer demand
for a choice of high quality goods and services which can be purchased and
delivered quickly. In recent past, the e-commerce revolution has latched on
to country to the extent that it has taken the shape of recent paradigm which
the physical retailers have to confront. E-commerce or e-tailing is the recent
challenge in the face of retailers and it has left them with no choice but to
adapt to the changing ways of doing business.
Around 75 per cent of retailers have already adopted e-commerce in some
form. Globally, retailing has already graduated to a multi-channel, omni-channel
retail industry. According to a new study, the shopping malls are already
witnessing lesser footfalls, leading to increase in vacancy rate at 25 percent,
along with a 30 percent drop in rentals during the last year. In view of such
developments, over 45 percent of shopping malls are expected to be converted
into non-retail space within next 15 years, as per the reports of Assocham.

Challenges confronted by brick and mortar retail

Flipkart, Snapdeal, Myntra and Jabong are confronting resistance from all
stakeholders of modern retail - from consumer goods makers and distributors
to offline retailers - as they try and grab a larger share of the consumer’s wallet
by swaying deals and discounts to attract customers.
The Assocham -PWC report has concluded the challenges of suburban
sprawl, bad automotive traffic, rising fuel prices and the difficulty of time
management in modern families have made visiting to the malls a difficult
activity. To the contrary, improvement in logistics, broadband and Internet-
ready devices have increased the number of consumers buying online from
40 million to 65 million in 2015.
Similarly, as per the report, while the share of e-tail is expected to plunge
from 2 percent in 2014 to 11 percent in 2019 (more than five times), the share
of brick and mortar modern retail is expected to fall from 17 percent to 13
percent during the same period.

In Billion USD

29% 12.6
32% 9.5
29% 7.0 10-20
37% 5.3
3.8 53% 1.0 57% 1.5 53% 2.3 CAGR
0.4 58% 0.6 40-50%
2009 2010 2011 2012 2013 2017-20 (E)
E-tailing E-Commerce

Source : Crisil IAMAI, PWC analysis and industry experts

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Heavy discounting from festival sales and daily deals, more online loyalty
programs and growing popularity of smartphones and tablet computers among
consumers are the key factors contributing to the growth of e-commerce.
According to Knight Frank India CMD Shishir Baijal, “The e-commerce
industry is booming like never before and this coupled with high disposable
incomes have led to a spurt in the internet culture that aims to change the
dynamics of the brick and mortar modern retail segment.”
Lately E-retailers have been able to attract significant customers to online
buying. These are not just limited to very exclusive categories such as consumer
electronics, apparels, jewellery and lifestyle, books, music and video but also
other categories such as food and beverages, departmental store, household
services, home furnishings, healthcare, home cleaning, maintenance and
office equipments.

Commodity Distribution in E-tailing

Healthcare Baby products

Home
3% 2%
Furnishing
6%
Beauty &
Personal
15% Electronics
34%

Books
15%

Appareis & Accessories

34%

FDI issue
The online retailers are allowed 100 per cent FDI, as most of them are
run on the marketplace model, providing a platform for vendors. Multibrand
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retailers, on the other hand are eligible for 51 per cent FDI, based on the consent
of state. Eminent Physical retailer and other chains argue that their stores should
be regarded as similar in nature as they are also marketplace because some
22,000 small and medium companies sell their products through their stores.
They questioned why (100 %) FDI couldn’t be allowed in their business as
well. The law says FDI is allowed only in B2B (business to business) whether
it’s online or offline, but in case of online business, ecommerce transactions
are happening between business and consumer. This remains an unresolved
issue for physical retailers.
Future of Retailers
Retailers are hampered
with huge physical spaces that
they are bound to pay rents
for. Unlike the e-commerce
players, they aren’t getting
heavy funding from private
equity investors; in any case,
not for their brick-and-mortar
business model. Due to the
excessive discounts in sales offered by the e-commerce channels, the margins
of retailers have been impacted to a great extent. Although, it is expected that
discounting will continue for 12-18 months, the players are moving beyond
discounts and thinking about building customer loyalty. In the light of this
intensified competition and consolidation, retailers are forced to adapt to the
e-commerce opportunity.
The existing scenario portrays future, where India is going to see a model
that is not completely online nor completely offline. The retailers are likely to
function through omni-channel —where they are able to address a customer’s
needs through multiple touch points.