Three key drivers of e-commerce growth in India

Chennai: The founder and COO of online shopping mall IndiaPlaza.in (formerly Fabmall.com), K. Vaitheeswaran, says his is ‘a small but ambitious’ company. Over the next three years, he is looking at making the company amongst the top 3 book retailers (including physical retailers) across the country. In July 2007, when the 7th Harry Potter book was launched worldwide, he says IndiaPlaza was the largest retailer in India for this book, surpassing all physical chains and has since repeated this feat in a few more titles.

The company recently announced the IndiaPlaza Golden Quill Book Awards, offering two cash awards worth Rs one lakh each, as a likely annual feature.

In this interview with Business Line, Vaitheeswaran shares his thoughts on the industry and is confident that the slowdown will not impact the plans of his company as it looks ahead into the next phase of growth.

There were doubts about the eCommerce market potential in India, especially in light of the dot com bust. Looking back, what’s your view on the progress made on the eCommerce (industry) front in India. Are there still drawbacks and challenges in this system that need sorting out?

One of the myths that emerged out of the dot com bust is that the Internet had failed. The reality was that the Internet expanded rapidly and steadily till it has reached where it is today – an important part of the lives of over 40 million people in India in the way they work, play and shop – and these are still early days. What really happened was that several new web-based businesses with no real revenue streams went bust and this had nothing to do with the Internet itself. A whole lot of companies folded up because they were not capitalised enough.

I am happy with the progress that e-commerce has made today – what we saw in the early days as a big opportunity is now being chased by large industrial groups entering into the space. This is a big success parameter for green field entrepreneurs – the vindication of passion driven by the mind and not by hard data. I only wish the speed could have been faster.

Low penetration of always-on broadband connections in homes has been a key issue that has prevented faster growth of e-commerce. As this grows rapidly, we will see true scaling of e-commerce. There are other challenges like security concerns and a reliable cash-on-delivery system. But all these will change, if only broadband homes can treble every quarter!

What are going to be the drivers for eCommerce growth in India?

Broadband, a fair sales tax law that provides at least a level playing field for Internet retailers, and a reliable transportation system are three key drivers for e-commerce in India.

What’s your view on the current slowdown?

I feel that slowdowns take a few quarters to build up and similarly a few quarters to go away. So, I do not see things improving anytime soon. I would say we would see things back on track in full flow in the Oct-Dec 2009 quarter.

Do you expect the slowdown and the inflation to impact your business this year?

Our business scale is still not large enough to be affected significantly by macro-economic factors. But we do expect to encounter some reluctance amongst customers to shell out money on stuff that can be postponed by a few months.

Are you on track with your revenue projection?

Absolutely, we are on course to meet our 2009 revenue targets of $70m. I believe this could be just the opportunity for us – scale real fast online, while physical retailers grapple with rising real estate costs, dropping sales, lower margins and high store attrition.

Which of the product lines have been the dominant contributors to your revenue growth?

Clearly, books have been the key driver of our growth. We have always seen our competition to be physical stores and our challenge has been to offer customers strong reasons to shop online – reasons that physical stores cannot replicate easily. The largest bookstores in India carry around 75,000 titles. Given that there are over 12 million books published and over 7 million in print in English alone worldwide, this is a poor offering. But with restrictions of shelf space, that’s all they can do.

Indiaplaza today offers around 4 million books online and we expect to increase this to 5 million in a few months time. This is a humungous advantage and something that will be unmatched by competition. We backed our efforts to get the selection and supply chain in place, with aggressive pricing. Over 95 per cent of our books at any time are cheaper than competition. These two factors helped us establish a dominant position in online sales of books. Our strategy has been clear – acquire customers through a strong suite (books) and then retail other product lines to them.

In recent months, we have seen a surge in customers shopping high value electronics, digital cameras, mobile phones online and these lines have also helped our growth.

What has the acquisition (IndiaPlaza.com) brought to you in the last 18 months?

We wanted to establish ourselves as the online shopping destination of choice for Indians worldwide and, for this, we needed to establish a presence and operations in countries outside India. Indiaplaza.com had some choice assets that were attractive to us and that was the reason we acquired the company – a strong brand image amongst NRIs, an office and a warehousing operation in the US.

The NRI gifting to India market is unorganised and currently served by a whole set of small players who wake up between Rakhi and Diwali every year and then retract to other businesses thereafter. We felt that we could establish a strong, organised and branded play in this market. We are already seeing some benefits of this acquisition. Last year, during the Rakhi festival, we shipped out over 15,000 Rakhis in a single week.

Is this a good time for another acquisition? Are you looking down that path now?

Yes, this could be a good time for acquisitions. Our problem is that since we are the only pure-play Internet retailer in India with some scale, there is hardly anyone to acquire here. But we are always looking out for some nifty web or mobile technology companies that can help us in our business or product companies that can help us build a global business over the web serving Indians or customers looking for Indian products – say companies in handicrafts, yoga products, and Indian apparel space.

Is there potential for business from the much talked about tier 2 and tier 3 towns?

Earlier, around 80 per cent of our sales originated from the top 8 cities. Today, this is down to around 60 per cent – the rest are from tier II and tier III towns. We have shipped out items to over 3,500 different locations across India.

Interestingly, disposable income levels in tier II and tier III towns are higher than metros (where they pale in comparison is just in the absolute numbers). We see a bigger opportunity in smaller towns. Unlike customers in large cities who have the choice of shopping in large malls and stores, those in smaller towns still shop in small stores with limited selection and inventory. Such customers have always been served poorly as compared to their cousins in large metros. Web stores like Indiaplaza remove this differentiation and suddenly you find the customer in a small town is as empowered as a customer in a large metro. Hence we are seeing the surge in interest and growth from smaller towns.

What are your plans to target overseas markets? Is that likely to be affected by the slowdown?

Cross border gifting is a big opportunity for us. We are already the largest website with cross border gifting business and we will continue to focus on this. Our vision is to establish similar operations (like the US) in other geographies like UK, South Africa and Australia which have growing and vibrant Indian communities. We are talking here of people overseas sending gifts to their parents, brothers, sisters, relatives and friends back home. Strong family emotions on occasions like Rakhi, Diwali, birthdays, anniversaries will always win over temporary slowdowns.

What’s the next big milestone for the company?

I am focused on three key milestones – 5 million SKUs, 5 million customers and $100 million sales.

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