Many have argued and even a few are convinced that Online shopping revolution will kill E-Commerce but it has so far not happened. Yes people are vastly shifting from Brick and Mortar to Online to buy products but how many people are satisfied with their online shopping experience is a big question mark.
The answer lies in the reality we see around us, if customers shopping online are satisfied with the experience then why do we still have a huge crowd walking into shopping malls and department stores ! E-commerce will increase the customer's spending because of products made easily available but it will not kill BNM (brick and mortar) due to the follow reasons :
1. WE ARE SOCIAL BEINGS
2. DELIVERY COMPLICATION
3. SECURITY
4. EXCHANGES
5. SUSTAINABILITY
6. COMPETITIVE RIVALRY
7. SUPPLIER BARGAINING POWER
1. WE ARE SOCIAL BEINGS
We human like to socialise, meet people and have a new experience. All that we own and the importance they carry depends on the experience that we have got out of them. With that being said, how much do we enjoy shopping online in front of a computer. To be frank we don't enjoy or get an experience of shopping from it. We just buy online because we get better discounts or choices. In India we have got into the new practise of physically checking out an electronic product like TV or a mobile in a shop and then compare the prices online. Later we end up buying online since we get a better deal. But online retailers cannot sustain forever through discounts which we will discuss under sustainability. The top selling products of online retailers in India is electronics, in particular mobiles. This means we are still attached to buying our daily needs form Brick and Mortar stores. And people still prefer to buy product such as clothing, health and beauty, furniture and grocery from brick and mortar stores.
2. DELIVERY COMPLICATION
This is one key factor that causes a lot of discomfort to buy from online. We end up giving our office address to receive products from online retailers because we cannot make ourself available at the house awaiting a delivery. At the same time, we don't have the privilege of replacing a product then and there when received damaged and incorrect. And when the product is found faulty after a few days of use, we again need to wait for the pick up of the product and the replacement. Reverse logistics is a very expensive process for an online retailer and it directly takes a toll on their margin, so on a long run this will be discouraged by online retailers causing a lot of discomfort to the customers. Also for a country as big as India, online retailers will end up investing heavily on their Hubs and distribution centres increasing their logistics expenses.
3. SECURITY
Though this area has had a drastic improvement over the recent past, it is still open to hacks and insecurity. Online purchases of larger amounts are still not preferred by consumers and are also not encouraged by banks in India causing a huge hurdle.
4. EXCHANGES
As discussed in delivery complications, exchanges are still a complicated process while shopping online for both the retailer and the customer. It causes a lot of inconvenience and involves a lot of time and money. Taking back a faulty product or a wrongly delivered product from customer's place is highly unprofitable for an online retailer leading to unsustainable business model with respect to reverse logistics.
5. SUSTAINABILITY
This is an area yet to be unearthed. Currently online retailers are attracting customers through elusive discounts and better choices. But how long will an online retailer be able to sustain the customer base through promotions is a big question because this involves high compromise on operating margins. So far none of the Indian online retailer has attained break even or even come closer to attaining the same. This means the current business strategy is unsustainable because investments will not pour in without returns to share holders. An unprofitable business model cannot be a sustainable business model.
6. COMPETITOR RIVALRY
Unlike Brick and Mortar stores where the rivalry is restricted to a catchment or area, the rivalry for
online is has a wider bandwidth due to all the competitors having complete and easy access to the entire market or country. This triggers red ocean business strategy to be adopted by rivals to kill one another for market share. Exactly what happened and is continuing to happen between Amazon and Flipkart in India. Such rivalry is usually fought through heavy discounts causing an unsustainable business model which will force small players to quit the business model and it can also lead to Monopoly is smaller markets which is unhealthy for the market and the consumers. This will make sustainability of the players in the market difficult in long term and could lead to customer dissatisfaction and breach of trust.
7. VENDOR BARGAINING POWER
Currently the online market is on a peak growth phase in India and entering maturity phase in a few
developed nations. This ensures that the vendor bargaining power is low and online retailers/ market place have an upper hand. This enables better fund flow and relaxed payment options for retailers thereby enabling higher discounts that are specifically given by online retailers on top of vendor discounts, there by reducing the price even when turnover is low. But when E-commerce market matures similar to Brick and Mortar market then the vendors will have better bargaining power or will come on par with that of online retailer's there by tightening the free flow of fund and stabilizing market price of their products there by reducing discounts. This may lead to exit of online retailers who rely on discounts for sales push.
CONCLUSION
Below is the statistics of E-Commerce contribution to retail industry in USA from 2011 to 2015 and it is no way closer to the current market fear that E-commerce will kill Brick and Mortar. The fact is that Brick and Mortar stores are closing down because of inept management of business operational, market saturation, fund crunch and ballooning costs that need to be cut to retain profitability. Brick and Mortar model of retail is very much a viable business which will be profitable when managed efficiently over the years to come, even with the launch of new technologies like augmented reality and virtual reality.
Source : www.internetretailer.com
Eventually Retail Industry will emerge to be OMNICHANNEL where free movement of customers is encouraged between multiple channels during their shopping phase before finalizing their purchase. Hence E-commerce will only help retailers to improve their turnover and maintain competitive edge but it will not kill Brick and Mortar business model of retail, Never, Ever - DOT.
The answer lies in the reality we see around us, if customers shopping online are satisfied with the experience then why do we still have a huge crowd walking into shopping malls and department stores ! E-commerce will increase the customer's spending because of products made easily available but it will not kill BNM (brick and mortar) due to the follow reasons :
1. WE ARE SOCIAL BEINGS
2. DELIVERY COMPLICATION
3. SECURITY
4. EXCHANGES
5. SUSTAINABILITY
6. COMPETITIVE RIVALRY
7. SUPPLIER BARGAINING POWER
1. WE ARE SOCIAL BEINGS
We human like to socialise, meet people and have a new experience. All that we own and the importance they carry depends on the experience that we have got out of them. With that being said, how much do we enjoy shopping online in front of a computer. To be frank we don't enjoy or get an experience of shopping from it. We just buy online because we get better discounts or choices. In India we have got into the new practise of physically checking out an electronic product like TV or a mobile in a shop and then compare the prices online. Later we end up buying online since we get a better deal. But online retailers cannot sustain forever through discounts which we will discuss under sustainability. The top selling products of online retailers in India is electronics, in particular mobiles. This means we are still attached to buying our daily needs form Brick and Mortar stores. And people still prefer to buy product such as clothing, health and beauty, furniture and grocery from brick and mortar stores.
2. DELIVERY COMPLICATION
This is one key factor that causes a lot of discomfort to buy from online. We end up giving our office address to receive products from online retailers because we cannot make ourself available at the house awaiting a delivery. At the same time, we don't have the privilege of replacing a product then and there when received damaged and incorrect. And when the product is found faulty after a few days of use, we again need to wait for the pick up of the product and the replacement. Reverse logistics is a very expensive process for an online retailer and it directly takes a toll on their margin, so on a long run this will be discouraged by online retailers causing a lot of discomfort to the customers. Also for a country as big as India, online retailers will end up investing heavily on their Hubs and distribution centres increasing their logistics expenses.
3. SECURITY
4. EXCHANGES
As discussed in delivery complications, exchanges are still a complicated process while shopping online for both the retailer and the customer. It causes a lot of inconvenience and involves a lot of time and money. Taking back a faulty product or a wrongly delivered product from customer's place is highly unprofitable for an online retailer leading to unsustainable business model with respect to reverse logistics.
5. SUSTAINABILITY
This is an area yet to be unearthed. Currently online retailers are attracting customers through elusive discounts and better choices. But how long will an online retailer be able to sustain the customer base through promotions is a big question because this involves high compromise on operating margins. So far none of the Indian online retailer has attained break even or even come closer to attaining the same. This means the current business strategy is unsustainable because investments will not pour in without returns to share holders. An unprofitable business model cannot be a sustainable business model.
6. COMPETITOR RIVALRY
Unlike Brick and Mortar stores where the rivalry is restricted to a catchment or area, the rivalry for
7. VENDOR BARGAINING POWER
Currently the online market is on a peak growth phase in India and entering maturity phase in a few
CONCLUSION
Below is the statistics of E-Commerce contribution to retail industry in USA from 2011 to 2015 and it is no way closer to the current market fear that E-commerce will kill Brick and Mortar. The fact is that Brick and Mortar stores are closing down because of inept management of business operational, market saturation, fund crunch and ballooning costs that need to be cut to retain profitability. Brick and Mortar model of retail is very much a viable business which will be profitable when managed efficiently over the years to come, even with the launch of new technologies like augmented reality and virtual reality.
Source : www.internetretailer.com
Eventually Retail Industry will emerge to be OMNICHANNEL where free movement of customers is encouraged between multiple channels during their shopping phase before finalizing their purchase. Hence E-commerce will only help retailers to improve their turnover and maintain competitive edge but it will not kill Brick and Mortar business model of retail, Never, Ever - DOT.
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