E-COMMERCE KILLING BRICK AND MORTAR RETAILING !! IS IT REALLY HAPPENING !

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.

OMNICHANNEL RETAILING / CROSS CHANNEL RETAILING

What is Omnichannel retailing , to understand this we need to first understand the various channels in retail industry :
1. Brick and Mortar stores (BNM)
2. E-Commerce
3. Catalogue Stores


1. BRICK and MORTAR STORES

These are the regular retail stores where we walk in, pick our products, bill them and leave. Though they are customer friendly, it is becoming more and more expensive for retailers to maintain physical stores in today's retail environment. With retailers working on wafer thin margins in grocery and FMCG, it is getting difficult to maintain profits by running a physical store. Moreover brick and mortar stores have high overheads such as Monthly Bills, Repair and maintenance, store sales staffs, management staffs, housekeeping and security expenses, rentals, CAM charges, etc. To dilute the expenses, retailers have moved on to open bigger Hypermarkets and reduce the number of departmental and supermarkets in their chains. Exclusive brand outlets are fading off and multi-brand outlets are gaining popularity in value retailing. In this growing trend small retailers and entrepreneurs find it difficult to penetrate the market and fight alongside with big time retailers. This is also one of the main reasons FDI in Multi Brand Retailing is opposed in India. Types of Brick and Mortar stores are :
- Chain Stores
- Department Stores
- Category Killers
- Store on Wheels
- Dark Store


2. E-COMMERCE

The latest mantra of every retailer. Reduced operating expense, better offers for customers, more number of products to offer, etc, are the benefits of E-commerce retailing. The best example is FLIPKART, which started of an online book store with a total face value of just 4,00,000 and has grown into a muti billion dollar company over a short time span of less than 10 years
(60.8 billion in revenue for FY 2013-14)
Flipkart is an e-commerce company founded in 2007, by Sachin and Binny Bansal. It is registered in Singapore, and owned by a Singapore-based holding company;. It operates in India, where it is headquartered in Bangalore, Karnataka (Credits : Wikipedia)
Online stores also offers customers a wide range of products, one stop shopping and home delivery options. Competition in Online retailing has further pushed the online retailers to offer various modes of payment from online payments to cash of Delivery. E-commerce is also helping the customers to save time in today's fast paced life. A few online retailers have taken the technology to new levels, one such retailer is RAYBAN who offers customer to try their sunglasses in a virtual environment.
You can try it if you haven't through the below link :


RAYBAN VIRTUAL MIRROR : http://www.ray-ban.com/usa/virtual-mirror

3. CATALOG STORES

Catalog stores , also known as catalog merchant. In this case the merchant sells his product to his customer through catalogues. Once the customer fianlises his/her selection then the merchant picks the product from the back warehouse and bills it for the customer. This is cost effective but with Online stores gaining market, catalog stores are fading off.


OMNICHANNEL RETAILING

Now that we have understood the above channels of retailing, we can proceed to Omnichannel Retailing. Omnichannel was preceded by multichannel retailing where in the retailer had presence in both Brick and Mortar and in E-commerce channel of retailing. Slowly multichannel retailing gave way for Omnichannel retailing where in retailers have one database serving all their products to both the customers online and offline. Customers can surf online and buy from a BNM store or see the physical product in a BNM store and buy online. This has also taken shopping experience to a all new level where in when a particular product is out of stock in a BNM store, sales staff can assist customer purchasing the product online and pay for the same at the BNM store or take a cash of delivery. Omnichannel retailing has picked pace and will be the future of retail industry. In near future, retailers will have fewer stores, either exclusive or cash and carry format stores and the rest will be Hubs spread across geographic locations for distribution of products purchased online. Customer loyalty programs will play a big part is retaining customers, we will discuss the same in my future blog. BNM and E-Commerce are closely interlinked in this format and with mobile technology revolutionising the way we browse, retailers are releasing apps in various platforms of mobile OS.
Thus making their presence in Mobile, social media and PCs through E-commerce and through BNM stores in tangible format for customers to choose from. Pricing strategy and category mix is usually maintained the same across all platforms thereby ensuring hassle free shopping for customers.
Dark Stores also known as dotcom centre, these are retail outlets or distribution centres that caters exclusively for online shoppers of that particular retailer. Its a large warehouse that can either be used to facilitate a "click-and-collect" service whereby a customer collects an item they have ordered online, or as an order fulfilment platform for online sales.
There is a new format of retailing which is also gaining popularity which is CLICK and COLLECT stores. Click and Collect model enables the patrons to avail a personalised, one-to-one service and experience the brand first hand. Unlike the conventional retail shops, these stores are also equipped with iPads that give access to the online portal as well aid the customers to place an order instantly in case of non-availability of a product. These facilities are transforming the whole process of purchasing products into a gen-next experience.
LENSKART , an Indian Eye-wear retailer has introduced this format of retailing in India recently


Happy Shopping :)