(This Part-1 of the article discusses feasibility of ecommerce for small retailers (who are not manufacturers, distributors) of branded electronic products, branded apparel brands etc.
Every other Indian business in retail is coming up with an eShop. Here is what I strongly feel when it comes to eShop started by small retailers (who are not manufacturers, distributors) of branded electronic products, branded apparel brands etc –
Such retail shops work on thin margin of 10-15% if branded products are traded. Now, if such retailer starts the eShop, his minimum investment in getting the eShop developed will be around Rs. 1,00,000 and payment gateway charges will be 20,000. And he needs a person to manage and promote eShop. Plus his online advertising / SEO / SEM / SMM budget to promote the website on internet.
So, if we distribute his initial investment of Rs. 1,20,000 over 2 years, the monthly component comes out to be Rs. 5000. Lets add Rs. 10,000 against managing the website (trust me, managing ecommerce website involves hell lot of activities; I can surely tell you this because we are handling more than 15 ecommerce websites of different sizes). And another Rs. 10,000 for promoting the website, online and offline. If you avoid spending on promoting the website, you won’t get traffic on your website, so you just can’t avoid it if you are serious about e-business. So, coming back to our calculations, the average monthly expense is approximately Rs. 25,000 for a retailer to run an eShop.
Now, the crux is that even though your margins are around 15%, you need to bare payment gateway charges of 3%. So, your margin is lowered by 3%. Again, if you are considering Free deliveries, you further lose around 2%. So, you are sitting at 10% margin.
Considering that your margin is 10%, to reach to the break-even, you need to make a sell of Rs. 2,50,000 in a month through ecommerce website. If average order value is Rs. 5000, you need to have 50 orders in a month. Or approximately 3 orders per two days. This seems achievable; but actually it isn’t. There are many aggregator ecommerce websites (like ebay, flipcart, yebhi, naptool…. etc etc) which are selling same products at discounted price. How can they afford to sell same products at discounted rates? That’s because, on such sites, either products are sold by distributors or manufacturers directly or such companies do business on break-even just to increase the revenue and hence company valuation. Want to validate my stand? Go to www.buytimexwatches.in and check the prices of watches put by an online retailer. Then go to www.watchkart.com and check the price of the same watch. You will find it at discounted price on watchkart.com.
So, if the online retailer fails to match the price offered by aggregator ecommerce player like eBay, who will buy the product from online retailer? For instance, consider that the online retailer matches the price offered by eBay; even in that case, he needs to spend massively on advertising to let the world know that “X” product is available at “cheapest” price on his eShop. Such advertising needs huge budgets which ultimately hampers bottom-line.
I am not discouraging retailers from going online. But they need to understand these facts before they jump into ecommerce.
In my next blog post, I will discuss about feasibility of ecommerce for manufacturers.