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Flipkart, Amazon And The Online Retail Shopping Industry

Monday, September 01, 2014
By Raghu Kumar

Raghu Kumar is Cofounder, RKSV

As an NRI who made a permanent move to India six  years ago, I must confess something that most NRI's would probably not admit to:  I am a terrible bargainer when it comes to bargaining on the streets. For example, while roaming the streets of Paharganj during my last visit to Delhi, it became apparent to my local, Delhi-based friend that vendors were screening me out from the hundreds of other shoppers around me. I didn't even need to utter a word; from the way I walked to my clothes, they knew I was no Delhi-ite.

They all knew the well-known rule: An NRI cannot bargain successfully. Therefore, the vendors preyed upon the NRI with the same sort of viciousness as a shark preys upon its kill. Ruthlessness.

Alas, while I might complain of not getting the best deals when dealing with these vendors, it's becoming more and more apparent that these same, local family owned stores will slowly, but surely, get wiped out of business over the next couple decades. Here's a quick question for you: can you name one tangible item that cannot be purchased online in India? If it takes you more than 5 seconds to answer that question, you know where this article is headed.

Flipkart, Amazon, Snapdeal. The big three online retail websites that are making headlines on a daily basis due to the incredible amount of money being pumped into them. One day after Flipkart raised 1 billion USD, Amazon raised 2 billion USD. And while all three are technically still not operationally profitable, you can bet that they will be within a few years. It took Amazon 6 years in the USA to break even, and so it's no wonder that while remaining unprofitable, they are raising enormous amounts of funds due to the fact that they are are here to stay.

The greatest/scariest component behind all of this is that online shopping hasn't even taken off in India. As of 2013, online shopping made up only $2.3 billion out of India's $431 billion retail market, and is projected to make up $8.3 billion by 2016 through a projected 50% year on year online sales growth. It doesn't take a rocket scientist to figure out that when one is buying something online, somebody else is unable to sell the product offline.

And yet, one cannot help but wonder how this will impact the economy. Walk down any street in India and you will come across small, local markets filled with every type of store imaginable. What will happen to these stores, which are mostly family owned, when their cut of the pie is taken away by the online world?

Some will argue that both can co-exist; that an electronics store that exclusively sells electronics goods will be able to compete with online retailers. While this might be true in theory, practicality tells us that, especially in the major metropolitan cities, middle class households are going to opt for the online shopping model more and more. There is no argument one can make that shows that this trend will change.

And like any other market, the more buyers and sellers you have, the better the rates will be for the products being sold. And so, if the argument is that the local electronics shop will offer the same good for a cheaper rate, that argument will become obsolete once enough orders are being placed online.

Two months ago, I happened to move into a new flat and ended up purchasing some furniture. Now, looking back, I realize that I purchased all the furniture online. I cannot remember the last time I purchased a relatively expensive electronics goods from a local store.

This past week, I purchased some groceries online and needless to say, was not disappointed at all. I will be the first to admit: when everything can be purchased through the Internet through a few clicks of the mouse, it's a pretty amazing feat.

My only wonder is whether, perhaps 100 years from now, Indians will talk about the ancient art of "street-wala bargaining"; how people actually walked down streets, purchased vegetables and fruits by hand, and hand selected the best out of the lot and haggled with the vendor on the price.

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