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BW Businessworld

The Intruders

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Neena Joshi (name changed), a frequent shopper on e-tailing websites, orders nearly 50 pen drives a month and tens of SD cards. She is the kind of customer e-tailing websites seek to block from shopping on their portals. For Joshi does not buy products for her use, but to re-sell them from a home-run shop in Uttam Nagar in West Delhi. She has about 10 email IDs and an equal number of phone numbers that she uses to order products.

Heavy discounts, offers on first-time registration, and cash-back vouchers floating on the web are pulling retailers, like Joshi, to shop online with the motive to resell. E-tailers, already marred by negative gross margins, are taking a further hit. Retailers buying online eat into e-tailers' margins and, despite offering huge discounts, these e-sellers do not get the loyal customer they have been looking to cater to.

"The discounts we offer are not for retailers to make money on. They are not our target customers," says Ranjith Boyanapalli, CEO of Buytheprice.com, an online electronics store. When the company saw individual customers  purchasing 20-30 low-end phones and 30-50 pen drives in one go, it was forced to introduce a  "three orders per person" clause. According to Boyanapalli, such cases mostly involve low-ticket items, but still, bulk purchases ride on  the marketing and sales budgets of e-tailers.

Merry-Go-Around
With more than 300 e-tailing websites already operational and many more expected to set shop, acquisition of customers has got fiercer and companies are wooing them with discounts and deals. But when small retailers play off discounts to make extra money, it seriously jeopardises e-tailers' customer-acquisition strategy.











"We discourage bulk buyers but with multiple IDs it is tough"
Ishita Swarup, CEO, 99labels.com
(BW Pic By Bivash Banerjee)

Electronics, with its thin margins, is the most adversely affected segment — though the fashion and apparel category, which has better margins, is not far behind. Industry sources believe that most e-tailers that sell a lot of electronics generate about 20-40 per cent of their sales from resellers. However, most electronics players claim it is less than 5 per cent. With companies such as Jabong, 99labels, Freecultr, Timtara, etc., offering discounts ranging from Rs 500 to Rs 4,500 to shoppers, retailers find it convenient to create multiple profiles to avail the discount. They also get the product shipped to their doorstep for free in 3-4 days and then sell them at significantly higher margins.

"E-commerce players are in a hurry to attract customers. Most of the sites today are discounting way beyond what can be offered, but if this does not reach our customers the purpose is not met," says Ishita Swarup, CEO of 99labels.com. "We try to discourage bulk-buyers, but with people using five to six IDs it becomes difficult," she adds. According to Amanpreet Bajaj, co-founder of Letsbuy.com, this phenomenon was seen by his company only in times of high discounts. Otherwise, "there were very few cases as we were vigilant and discouraged bulk buying," he says. Electronics portal Letsbuy was acquired by Flipkart early this year.

But there is no dearth of exploiters: a man from Jaisalmer bought products from Letsbuy.com and sold them on ebay at a higher price. Understandably, he was barred from buying on Letsbuy. "I used to buy hard drives from Letsbuy.com as they were Rs 500 cheaper than the distributor's price. Surprisingly, Letsbuy and I had the same distributor," claims a reseller in New Delhi's Nehru Place market — he laments that several e-tailers have barred him.

While many retailers shop online to avail heavy discounts, there are also serious buyers in tier-2 and -3 cities who shop online to solve their supply-chain issues and to access products and brands otherwise unavailable in such places. "It's the problem of accessibility that is driving retailers to shop online more than the lure of discounts," says Sandeep Komaravelly, VP, Marketing at Snapdeal.com. "We have a strict process to prevent abuse of promotional campaigns," he adds.

If You Can't Beat Them...
While many websites discourage retailers buying online, for some companies such retailers help sustain the business — initially. According to Subho Ray, president of Internet and Mobile Association of India, this is another layer of retailing and most of the e-tailing websites today have some amount of B2B sales. "Sites that tie up with specific brands will have a B2B side also. And sometimes selling to a retailer is also used by e-commerce sites for sustenance till the time they start getting meaningful consumers," says Ray.

Portals such as Yebhi.com have realised the opportunity in the B2B area. It diverts retailers to their wholesale cash-and-carry portal Bigshoebazaar.net. The two-year old portal has about 14 categories and nearly 50,000 SKUs (Stock Keeping Units). Yebhi gets 30 per cent of its total sales from the B2B business and caters to some 10,000 retailers.

"Websites offer deals and discounts to attract repeat orders, but if retailers start buying we would not know our real customer traction," says Manmohan Agarwal, CEO of Big Shoe Bazaar India. "This is why we developed our two businesses separately," he adds. Big Shoe Bazaar is an online wholesale cash-and-carry company. It is the owner/licensor of Yebhi.com.

Yebhiwholesale.com offers retailers better  deals than what it offers on yebhi.com. People from places such as Dimapur in the north-east order from the website. "It is convenient to order online rather than aggregate products from multiple vendors," says K. Azao, who runs a footwear shop, Neesa. For Azao, Yebhiwholesale not only solves the problem of supply but also offers a broader product catalogue to pick  from. "Distributors who came to us had limited products to offer, and they pushed brands where they had better margins. But now I shop as per my customer demands," Azao adds.

99labels and Buytheprice are also considering B2B as a separate business since they get many requests from vendors in places such as Tripura, Manipur and other remote areas.

But opportunists abound.  Pulkit Sharma, an apparel retailer in Kurukshetra, buys 70 per cent of his goods online. Even after Yebhi diverted him to its wholesale portal, he still logs on to their website to avail promotional offers. "I order from various websites to avail the promotional coupons," says Sharma. He does not shy away from accepting that he has created multiple IDs in his family and friends' names. "Mujhe to apna  store chalana hai madam (I have to run my store)," he says.

shrutika(dot)verma (at)abp (dot)in

(This story was published in Businessworld Issue Dated 23-07-2012)