Don’t hang around for the next e-commerce wave

I recently visited Dubai to research the market’s software needs. We met with senior folks from major retail houses including Landmark, Grand Stores and Rivoli, and also met with e-commerce companies like Namshi, Wadi and Talabat, etc. Across the board, we heard some common themes.

People were speaking about how sales were slow in January; how they are behind the Indian ecosystem by a couple of years in terms of evolution of e-commerce; how offline retail is likely to remain huge for the long term and e-commerce is not likely to take off in their view; and how they capture some data. But a lot of it is still nebulous.

Simultaneously, in early March, news emerged that Tiger Global had invested $275 million (Dh1 billion) in Souq.com days after Wadi.com raised $67 million from Saudi Arabia-based Al Tayyar Travel Group and other investors. That’s a collective $342 million going into the e-commerce in a matter of weeks. Even by Dubai standards, that’s a significant number.

When that kind of capital goes into something riding on a powerful customer behaviour change, it will lead to profound changes in the market. I thought whether looking at the Indian ecosystem might provide some insights. Let’s look at the funding history of Flipkart, India’s largest e-commerce company with a valuation of $15 billion. They achieved this in a short span of eight — nine years.

Around August 2012, they raised their first big round of $150 million. A very rough approximation (adjusted for inflation and cost of doing business in India, etc.) would put that round to be equivalent of the current $275 million round of Souq.com. With Tiger tasting success in India by betting big on the market leader, it may end up doing the same with Souq.com

Now, back in August 2012, it was still early days of e-commerce in India and offline retailers were still sceptical of the impact of online retail. People used to say: “Why will I buy a mobile phone online? I want to touch the product, hold it, play around with it and then buy.” People said the exact same thing for apparel, shoes, etc.

Cut to three years later, in October 2015, during the five-day Big Billion Days (think of it like a shorter version of Dubai Shopping Festival), Flipkart sold 1 million mobile phones in just 10 hours. In total, they clocked sales of $300 million.

Customers who experienced this are most likely not going back. A common behaviour that has emerged in India is that now people go to stores such as Reliance Digital or Croma to look at mobile phones and then simply order online. Store managers under pressure have started giving discounts and keeping a check on online prices themselves.

The key thing with internet and mobile is that they are behaviour-changing technologies. For years, everyone read physical newspapers, but the day you get used to reading your news online, it’s very difficult to go back. Similarly, if you have bought a railway ticket online on IRCTC in India, you are never going back to standing in queues — no matter what.

These changes are slow at first and then suddenly so undeniable that it’s usually too late. But when the future is uncertain, how do you make choices that are not path dependent?

In other words, what things do you have to do in any case, irrespective of how the future turns out? No, simply building a mobile app will not change anything (except cost you thousands of dollars to make and market).

While players like Sharaf DG and Jumbo Electronics have decent online e-commerce presence, to really tackle online commerce, here are some of the following things that retailers really need to focus on:

1. Take a long view of the market and focus on consumer trends in your industry. Imagine doomsday scenarios of obliterated sales and margins and do scenario planning.

2. Adopt aspects of typical e-commerce companies — create teams which are young and ambitious, usually have a technology/computer science background and give them tough problems to solve with lots of freedom.

3. Respect data like these young “kids” — traditionally retailers have been lazy and not creative about both collecting data and using it to their advantage. Simply relying on an agency to take point-of-sale data and tell you three to four things is not the answer.

4. Allocate a large budget for online — it’s like building a power plant. You need capital upfront but once people get used to using your electricity, they will be hooked (yes, in theory). But if you don’t take a gamble on this, you risk becoming irrelevant. Remember, you are competing with $275 million of Souq.

The Middle East is not as different from India as it is made out to be. Time spent by Middle East users on internet is 26 hours per week. TV comes a distant second with 19 hours a week as per a Pan Arab Research Centre report.

While the top tier (top 10 per cent) customer segment is price insensitive, in most of the region, a discount-led approach might shift a reasonable number of people from offline to online.

Conclusion

For retailers who believe that e-commerce is not going to touch them, think again. Change first comes in trickles and then in waves, then it becomes a flood.

— he writer is Co-founder of OneDirect, a customer experience management company, backed by Sequoia Capital.