Ecommerce Marketplaces in India : Crawford Market Vs Bigbazaar?
“It is much easier for a marketplace to move into horizontal than an etailer. Given the electronics only focus we had, we realized that we are missing out on a huge opportunity when there is consumer appetite for other categories”.
Indian e-commerce is changing. And is changing fast. Though not new to India, a different approach called the marketplace model in industry parlance is gaining traction. In India, since mid 2011, at least half a dozen online marketplaces including Shopclues, Ladyblush, SellonSnapDeal and Nethaat.com have been launched and it is rumored that biggies like Flipkart and Jabong are planning to launch marketplaces.
Online marketplaces are similar to offline mandis. While companies like Flipkart and Amazon are online equivalents brick and mortar supermarkets like Bigbazaar or Spar, online marketplaces are like the Crawford market in Mumbai or Russel Market in Bangalore (bit more organised perhaps). In the mandi model, people who own the marketplace do not keep any inventory but let their premises be used by third party vendors. In the online world, the marketplace takes care of the marketing, logistics, customer support and payment while sellers take care of manufacturing inventory online.
The marketplace model, pioneered by companies like eBay India is likely to be adopted by Rocket Internet backed Jabong.com, according to industry sources. If sources are to be believed, Flipkart is also thinking of launching a marketplace model. This is a big shift from the traditional approach Indian startups and businesses have taken to e-commerce as opposed to the inventory model which was in fashion until recently.
The model has been highly successful globally. Except Amazon in US, in most other countries, a marketplace model has ultimately become the market leader. For example, Taobao in China, Mercado Libre in Latin America, Gmarket in South Korea. As of now, each of these newly launched marketplaces target a different audience. For instance, Shopclues sell everything that is allowed to be sold online and can be practically shipped, whereas, Ladyblush is a marketplace exclusively for women. On other hand, Nethaat connects sellers and buyers of handicrafts, designer handmade items and eco-friendly products.
Who else is joining the league?
Joining the marketplace league almost a fortnight back, Snapdeal launched a platform Sellonsnapdeal that enables small and local businesses to leverage Snapdeal’s 17 million registered consumer base. Tradus, a sister concern of ibibo (MIH) has also entered into marketplace space. In July, 2011 Tradus moved from .in to .com for better recognition as an online company.
Recently, Buytheprice repositioned itself as a marketplace from etailing, and when asked the thought-process behind marketplace approach, Ranjith Boyanapalli, founder, Buytheprice answers “It is much easier for a marketplace to move into horizontal than an etailer. Given the electronics only focus we had, we realized that we are missing out on a huge opportunity when there is consumer appetite for other categories”.
So, why have founders of these companies chosen the marketplace model over other formats of e-commerce? In fact, most of these companies see the marketplace as a platform solving the e-commerce pain points in India with minimal investments.
In their view, an inventory model (which e-tailers follow) gets more complex as the business scales and as one introduces new product categories. Sandeep Aggarwal, Founder & CEO, ShopClues says, “Given, how fragmented Indian retail is, how challenging it is to hold inventory, almost impossible to predict the consumer demand at stock unit level. A marketplace is the right answer to this peculiar structure of India’s e-commerce industry”.
Although, the marketplace as a model is difficult to start but over time, it is easy to ramp up and scale. “It is highly scaleable once you are able to fine-tune the processes and put right systems in place to be able to maintain marketplace hygiene” says, Rahul Sethi, co-founder, Ladyblush. In addition to that, Nethaat believes, in India the marketplace model can be a successful venture in almost any product type. With so many sellers having their businesses offline, they can use the marketplace to sell their wares online.
Boyanapalli of Buytheprice points out that the capital needs for etailing are way high over the marketplace model, and it might further extend the timeline for operational breakeven. According to Boyanapalli, marketplace model helps for quicker launch of new categories and greater customer engagement as when you are able to sell more of what consumer uses, you are increasing the engagement levels.
Margins are higher, burn rate lower
Unlike etailing where gross margin vary from 15 to 30 percent depending on category, marketplace model usually charge nearly 10 percent as selling fee. While etailer usually makes net profit of around 5-7 percent after incurring expenses such as logistics, payment gateway etc., marketplace manages net profit anywhere between 3-5 percent. Although, Buytheprice did not disclose the exact shift in revenue post marketplace model as they moved to this space very recently. But Ranjith says that the trend is certainly positive.
“Buytheprice in electronics etailing was just positive at unit economics, but now the marketplace is able to generate cash. I expect to see a 2% to 5% jump in revenues purely due to shift of the model” adds Ranjith.
Online marketplaces seem to be growing well too. Shopclues had become available in beta in January this year and within 7 months of its public debut it comfortably falls in top 10 e-commerce sites if we go by Alexa ranking. Currently it ships around 2500-2700 orders everyday. Over 2,500 merchants who have signed-up with ShopClues since its launch.
Launched in February this year, Ladyblush initially started with categories such as cosmetics, lingerie and sarees; it has forayed into clothing, home decor , kitchen and toiletries. The marketplace is growing 60 to 80 % month on month across categories with lingerie leading the show, says Sethi.
At present, Ladyblush has more than 120 sellers from across the country. One of the strong focuses at Ladyblush has been unit economics as Sethi says “We ensure that we make money on every transaction that we do. Our gross margins are healthy considering that we focus on fashion and lifestyle category, marketplace as the model, private labels – smaller and lesser known brands as the sellers”.
Sandeep Komaravelly, VP (Marketing), Snapdeal did not reveal the numbers of sellers currently active on Sellonsnapdeal. “We have launched this platform two weeks back and at this stage it would be premature to make any comment”, mentions Sandeep.
Sethi of Ladyblush says that the company wants to grow slowly but steadily. “Our target is to surpass run-rate of Rs 1crore a month by the end of this financial year”. Meanwhile, Shopclues is confident that it will “become the first ecommerce Company in India to achieve profitability,” by the fourth quarter of 2013. It is also under the belief that it will have the largest catalogue of products for any e-commerce company in India by mid next year. With most of the system and services in place, Nethaat intends to put its efforts into increasing the product range, market the brand more aggressively and generate consumer confidence.
With verticalization of marketplaces, are there enough opportunities to accommodate existing as well as new players? The answer is probably yes, as this model has been only evangelized by few players and we do not think that an inventory led ecommerce business model can offer product selection and price advantage to customers similar to a marketplace.
As e-tail stores rely heavily on capital, debuts of more marketplaces could be well expected. However, the road for creating marketplace is not all smooth and it poses dependency on every aspects of business on third parties or outsourcing right from supply chains to payment and logistics. Out of which cracking supply chain is most complex and this is where Flipkart can score over other players as it has been ramping up its own supply chain processes.
eBay India was one of the first to pioneer the marketplace model. Currently, it boasts over 4 million registered users including 30,000 sellers every year. Ebay India gets approximately 80 % of its business by selling new fixed price products such as camera, mobiles, laptops and flat panel televisions. However, it is trying hard to move consumers towards high margin categories like apparels rather than electronic, gadgets and books.
We do not know which of these models will ultimately triumph in India, but the jury is out and many e-tailers are on a very short leash.
What are your thoughts?