Ready To Script A New Story

If you love books and are comfortable with e-commerce, chances are that you have already bought something on flipkart.com. Or at the very least, you are familiar with its name. With over seven million titles in its inventory and over six million visitors every month, flipkart.com, founded in September 2007 by ex-IIT, Delhi graduates Sachin and Binny Bansal, is one of the most prominent online book retailers in India.

It all started in mid-2007 when the Bansal duo — they are not brothers — who both worked for Amazon for a while as software engineers decided to do something on their own. Amazon was the obvious inspiration and online retailing of books became the natural choice since as a startup with ambitions in the online trade, the Bansals had to choose a category that could facilitate getting started quickly and cheaply. Says Sachin: "It was easy to start off with books as the inventory management is far easier than any other product. The cost is lower."

Today, Flipkart is writing a new chapter in its saga. From being an exclusive books retailer, it is moving to other verticals such as music, movies, games and cellphones. With the e-commerce market growing significantly (at about 50-75 per cent for home shopping), the Bansals want a bigger share of the pie.

But this is unchartered territory, and retail of cellphones, especially, is full of pitfalls. Competition is tougher with nearly every online retailer selling them and inventory management is more challenging. The Bansals have a tough road ahead, and it will take them considerable time to perfect the model. Today, only about 15-20 per cent of Flipkart's revenues come from cellphones and accessories, while books, movies, music, etc. form the big chunk. Even in volumes, cellphones form a single digit percentage.

But the Bansals are scripting success. Flipkart has been growing exponentially and expects sales to cross Rs 100 crore this fiscal, from just Rs 5 crore in 2008-09 and Rs 20 crore in 2009-10. In comparison, Rediff does about Rs 60 crore of home-shopping business. Flipkart is also increasing its investment in infrastructure, and the number of warehouses will increase from the current four to 10 in a couple of years.

Growth At A Flip
Initially, Sachin and Binny, who both come from middle class families in Chandigarh, wanted to set up a comparison-based shopping engine. But evaluating the e-commerce market, they realised there was an opportunity in the books segment as nobody had a customer-centric model. Moreover, the online books business is a growing category. Consulting firm Technopak Advisors values the Indian book market at Rs 7,000 crore, growing at 8-10 per cent per annum. Industry insiders peg it at less than 1 per cent of the entire books market in the country.

The books business is a margins game, with margins between 80 per cent and 100 per cent. Hence, Flipkart, which gets books from publishers at a 25-40 per cent concession and sells them at a discount, is still able to make operating margins of 8-10 per cent after paying for logistics. Besides, it is a relatively risk-free business. Most publishers provide a 100 per cent return policy; if the books do not sell within a stipulated period, they can be returned, provided they are in a good condition. This ensures that the Bansals are not stuck with inventory.

Flipkart is now the undisputed leader in the online books retail category; it sells an average 5,000 titles every day, against a couple of thousand by Infibeam. But the ride has been bumpy. Initially, Binny and Sachin approached 15 publishers, out of which only two agreed to associate with them. It took them 10 days to sell the first book, remembers Sachin. Today, Flipkart has 500 publishers onboard and another 200 publishers are waiting to tie up with them. "It took us one year to get 15-20 publishers to be on our platform, but today we have a huge back-log. Initially, we chased them and now they chase us," exclaims Binny.

Like all other e-commerce websites, Flipkart too suffered due to the Indian customer's fear of buying online. Add to that limited credit card use, and the customer base was much reduced. The Bansals introduced ‘cash-on-delivery' and tied up with several courier companies and even the postal department to overcome that hurdle. They have now started a pilot in Bangalore where they have their own people doing the delivery. "Solving last-mile delivery is the biggest challenge. Now, our staff will deliver the book and pick up the cash. This will ensure delivery either on the same day or maximum within two days," says Binny. Flipkart plans to replicate this model in other metros and also smaller towns.

Another problem faced by Flipkart initially was of funding. Investors were not willing to experiment and fund e-commerce players, and Flipkart was no exception. "E-commerce had not worked in India, so venture capitalists (VC) were apprehensive," says Sachin. Yet, Flipkart clocked robust growth, and became profitable and self-sustainable in six months.

The Auctioneer From America The US e-commerce site entered India in 2004 after it bought Bazee.com. Primarily an auction site, eBay sells everything from home appliances, jewellery, healthcare products to books. eBay competes with the likes of Rediff Shopping and Indiatimes.com. Of late, it has been facing stiff competition from other local players and is losing its forte of offering the cheapest products online. But Ambareesh Murty, eBay's country manager, believes nearly 80 per cent of products listed on the site are competitive and it still offers the lowest prices on all high-interest products. Where eBay scores over competitors is its robust back end that has been perfected thanks to its lineage. Recently, Murty has been trying to localise services through Global Easy Pay, which allows Indians to buy products from eBay in the US and get delivery in India.

Window Shopping Manu Agarwal launched his comparison website Naaptol.com in 2008 with the intention of creating a difference in the online space. "Naaptol is more of a decision place," says Agarwal. Naaptol's unique selling proposition is the product analysis and reviews that are available on the site. So, even if a product is not available for sale on the website, its review is still there helping consumers decide. However, where Naaptol loses out is in its user interface. The webpage is cluttered and navigation is time consuming — definitely not for an impatient buyer. Agarwal admits this is a problem and says the company is working towards getting it right. Naaptol, which earns 40 per cent of its revenues from selling cellphones and camcorders, is planning to get on board offline organised retailers such as Croma, promoted by the Tata Group, to facilitate easier delivery.

That was when the Bansals roped in their first round of funding from Accel Partners. Then, in the first quarter of 2010, they got a second round of funding — about $8-10 million — from Accel and from Tiger Global Management, a New York-based investor. "When we invested, we did not even look at their numbers. The founders had a good background of books as a category," says Subrata Mitra, partner at Accel Partners.

The Indian Bazaar
When Flipkart started in 2007, the online books retail category in India was largely untapped. But today, the space is different. A large number of new players such as Infibeam are also selling books and that too at discounted rates.

However, what distinguishes Flipkart from most other Indian online players is that almost all the other known names are platform-based — websites enabling third-party vendors to sell their goods online. As a result, price and quality are not in the hands of the host site, and it does not maintain an inventory.

On the other hand, a book ordered from Flipkart is sold by them — almost like an online version of a bookstore. Flipkart only sells its own warehoused products and is completely inventory managed. While it stocks books that have a high demand, others are sourced from the supplier only when it receives an order for them. "Flipkart's business model is good and (it) is in a niche. If the market size increases, (other) people will also have to keep inventory," says Ajit Balakrishnan, founder & CEO of Rediff.

Though keeping inventory makes delivery faster, it also exposes Flipkart to high risks of inventory blockage. This wasn't a problem as long as Flipkart was only dealing in books. The ticket size is small, and prices do not fall drastically. The firm will have to now consider inventory blockage, as cellphones are a highly volatile product. Prices fall drastically and inventory management becomes a big issue. But Binny says they have an idea of which mobiles would sell more and stock accordingly.