India has 3 big e-commerce marketplaces Amazon , Flipkart, and Snapdeal . Apart from these, there are some major marketplaces are like eBay , Paytm , Infibeam .
Amazon and Flipkart have some conflict of interest due to their direct or indirect stake in their top vendor(seller). This is good for buyers and marketplaces because these marketplaces can control quality and prices . But still, faces a lot of issues 🙂 . However , It becomes a disadvantage to other sellers due to this conflict of interest.
Life of sellers is very difficult if they are doing it for living and not having another source of income . They are a candidate for depression pills. So far you might have seen lots of good stories about e-commerce changing the life of some , that is a bright side . But there is a dark side as well . It is not buyers a headache but still want to know about their pain then you must read https://inc42.com/buzz/open-letter-seller/ . However , I don’t agree with all data and fact given.
Amazon generally doesn’t give discount coupons but it gives sellers volume. So due to high volumes , the seller can pass on reduce cost . Generally , I observed fast moving products are cheaper on Amazon but slow moving products other marketplaces can compete with Amazon on prices .
Search algorithms of marketplaces are more or less are same . But , I believe eBay algorithm is far mature and suitable for pure marketplace model . Amazon most of the times shows listing search based on prices while eBay considers lot parameters and give more weightage to sellers reputation . Generally , more than 90% of time buyer purchases from top 3 searches. Amazon will have to modify their search algorithm because in other countries they can hold inventory and sell it . India has a restriction for this model , so it make sense give more weightage to seller reputation/feedback but India is also very price sensitive market . They will have to balance it else reputation of Amazon India will suffer in long run .
SnapDeal Pay Out for Rs 250 product.
Amazon India Charges
If a seller sells a apparel item of weight 1.6 kg at 1000 then his charges will be ,
Referral fee 17% of 1000 = 170
Shipping Charges for 1.6 kg will be charged at 2 Kg = 65+45+45+45 = 200
Services Tax = at around 15% at (170 + 200) = 15% of 370 = 55.5
VAT/CST around 5% = 50
Packing and handling = 10
Total cost will = 170 + 200 + 55.5 + 50 + 10 = 485.5 + If any fulfilment charges .
So if is one unit price is 450 then he can make only Rs 50 if he sells at 1000 and top of that again sellers need to pay income tax(direct tax) on whatever profit he made .
This Rs 50 profit is also not guaranteed because if items are returned by buyers then applicable charges under return policy will eat this tiny profit . However , if cash on the delivery item is not accepted by buyers then most of the marketplaces don’t charge anything to the seller but It is returned then they charge mostly. Sometimes marketplaces offer discount coupon of 5% , 10% etc from their Referral fee . This Referral fee varies on the category of item . It is also around 5% on electronic storage devices and FNFG products like grocery . If interested you can check the rate at https://services.amazon.in/services/sell-on-amazon/pricing.html
or you can get approximate figures of all major marketplaces at http://browntape.com/ecommerce-seller-fees-calculator/ . Some rates are old and shipping charges are considered at local(lower) instead of national level. More than 90% times shipping turn out to be national level .
On another hand, offline sellers can sell it at rs 750 and make the handsome return and avoid all headache of return ,while he will have to spend charges for shop rent and employee and other associated expenditures.
E-Commerce is not only making happy customers but also increasing Govt revenue. But , so far I have not seen anything special Govt is doing for Online sellers .
So , one cannot sell all the products on e-commerce and make the profit . The thumb rule is to sell products which are light weight but this category is very crowded . Marketplaces earn the commission but either they pass on as discount coupons or spend on acquiring new customers , or invest for future . Not making any profit for now.
There is another challenge to manage annoying buyers which give negative feedback without sellers fault.Some sellers make a small and unpredictable profit but there might be some smart sellers are making the regular good profit .
My point is it very easy to become a seller on marketplaces but very difficult to do business. To become successful seller one need to choose the category ,product, weight etc. wisely .Most of the small sellers don’t even last 1 year . There is very high attrition rate among Online sellers .
My Blog reader Satya has asked “When people buy products then do they think about who the seller! They think more of Amazon, Flipkart, etc.
So, without brand visibility, anyone can come with cheaper service and replace it. Amazon may see if he is going to benefit or not above thinking about sellers profitability.”
I had answered it
“You will surprise but answer for brand visibility is up to some extend “yes” , and it going to improve from current status . I am going to cover this aspect in next article . But , let me brief you on the current scenario .
The buyer first chooses product brand and then MarkePlace depend on pricing . If the prices are similar at two marketplaces , then buyer choose his preferred one marketplace , that is the brand value of that marketplace . Almost 100% buyers will do this .
Now , if buyers preferred marketplace price is little more than other then still 30-40% buyers will choose preferred marketplace.
If the difference is much more than comfort level then almost all 95-98% will ditch even preferred marketplace .
The third level brand is a seller , which 85% of Indians buyer right not even aware .They think MarketPlaces is itself seller . Don’t check the track record of the seller , and most of the fraud (like duplicate items, late delivery ) happens . But there are already 15-20% buyers who check track records of sellers and take a decision , and ready to pay a little premium to reputed seller.But slowly this awareness among buyers is increasing .Most of this buyers , once satisfied gives repeat order for frequently consumable items . They don’t easily change even seller if there is some price difference .
One of my friends recently bought HP laptop around 25000 thousand from eBay .He reviewed the track record of the eBay sellers and paid around Rs 500 extra to top rated “Top-rated seller” seller on eBay with around 99% positive feedback . Hope most of us will do the same thing .”
Most of us worried, how a seller can make sure repeat purchase ? Already out of 15% seller aware buyers there are 4-5% buyers who buy repeat from same sellers if they require same consumable product at some interval (monthly) .
There is another concept at Amazon India called “Subscribe & Save” http://www.amazon.in/b?ie=UTF8&node=5728645031 . This makes sure seller get repeat order upfront . This is helpful for sellers like Olympia which operate more in the frequently consumable category .
ECommerce Fraud : Fraudster person can sometimes wear the hat of a seller and sometimes a buyer . As Fraudster seller he can ship damaged , duplicate or something else .
But, when he wears the hat of fraudster buyer then use return policy to make fraud. If the seller delivers a faulty product, then the buyer has the right to return the product within a given time limit. One might switch a fake or stolen item to the seller, retaining the original. One might use the product and put it through wear and tear before returning it (what is basically known as free renting.) One might switch invoices, receipts or prices to defraud the seller.
One of the comments , I have mentioned Cloudtail is 12x of Olympia Industry Ltd . But , in fact, it around 25X . Because Cloudtail seller is listed on Amazon India with two names .
Cloudtail : https://www.amazon.in/gp/aag/main?ie=UTF8&asin=&isAmazonFulfilled=1&isCBA=&marketplaceID=A21TJRUUN4KGV&orderID=&protocol=current&seller=A14UQ4H17XUX90&sshmPath=
It looks like due to 25% cap on a seller, they are now reducing “Cloudtail India” sales . It can be observed by reduced 3 months and 1 months feedback count of “Cloudtail India”.
Currently, expert predicts Cloudtail contribution to Amazon India GMV is 40% . So , Olympia might be contributing around 40/25 = 1.6 % . If Olympia gets require finance and able to make more lightweight business model , then at even 1% share they can have sales of 1000 crores once Amazon reaches 1 lakh crores GMV in next few years . But , I believe they will do much better because of the following reason .
1) Cloudtail will have 25% cap of Amazon India sell , which not visibly implemented till last quarter.
2) Olympia is wisely choosing some products where Cloudtail doesn’t have the high presence.
3) Olympia has better ratings .
4) Somewhere down the line, even Cloudtail will have to stop making losses.
5) Amazon India invested minority shares 49% in Cloudtail which a lot of people feels the violation of FDI rule . If something adverse happens on this front , then It will be an advantage to Olympia.
6) GST will help overall e-commerce industry . Easy indirect taxation and expand to some states like U.P. where e-commerce is virtually not allowed by the current nonpractical process for buyers.
7) Slowly “Amazon Prime” will get popular , Olympia Industries has all products eligible for “Amazon Prime” which will be added advantage over nonprime sellers.
8) Foreign companies were interested in inventory based e-commerce marketplaces model due to high consumption demand in India . If Olympia Industries able to scale up then who knows , FII may also like invest in it .
9) More than 85% buyers don’t know the concept of the seller on the marketplace(Online website) , slowly seller brand awareness will help Olympia Industries Ltd.
10) If they are able to start the business on another marketplace websites then it will be added advantage .
11) Right now if the buyer orders 10 different FNFG items then Amazon ships them separately . That does not create good buying experience to order at one go and receive 10 different product by 10 different time or days . Sooner or later Amazon will have to address this issue by fulfilling all FNFG products in one go .
I don’t expect much growth this year but in the long term, they will grow . If one’s time horizon is around 1 year then it is better to avoid Olympia Industries Ltd.
As per KPMG, only 0.1% SME has Online presence , lot more to go . They have choices to go Online them self or outsource to some sellers like Olympia , Intrasoft ( once they enters in India) .
BPL Story :
Some of you might have already bought shares of BPL Ltd in one of the high probable turnaround story . This is a pure power of e-commerce . Some of the categories like electronics there is a natural advantage toward e-commerce . Please read BPL turnaround story at https://yourstory.com/2016/03/bpl-returns-on-flipkart/ .
When a big brand wants to go Online route then they have catch 22 situation , It will damage their off-line chain but if they don’t go then they loose emerging category buyers .
So , some of the existing big brands don’t give after sales support for Online purchases and ready to sacrifice online category .
Flipkart has very wisely chosen BPL Ltd because they were not going to lose anything by going Online while BPL brand was still strong even though they were out of this market from last so many years.
Urban ladder :
Urban ladder has also chosen to become an Online vendor at Amazon to get the large pool of Amazon India customer .
Once , Intrasoft enters in India they will have existing strong competitor . Last year Urban Ladder has a gross merchandise value of around Rs 300 crore and posted losses of Rs 58.51. The company is understood to be valued at Rs 1500 to 2000 crores. Urban Ladder is backed by Ratan Tata . Aiming at a business size of at least $5 billion (Rs 32,000 crore) over the next four to five years .
E-commerce is full of opportunity for sellers, it is not suitable for all products and sellers temperaments . If one choose wisely then can make most of this opportunity .
P.S. ( 3 Oct 2016 )
What impression I am getting from reader that they don’t see anything special in Olympia Industries and they are under impression that they can start with little capital by selling no profit , no loss they can reach 200 crores in 3-4 years . Anyone with 1 crore capital will become seller on Amazon India and easily take away business from Olympia Industries Ltd in 3-4 years by reaching 200 crores GMV company . Earlier , I have explained by volume size advantage (some can call moat ) that it is hard to beat which is enjoyed by Olympia or any existing big player but now understand from capital point of view .
Now let take example person A has 50 lakhs and raised 50 lakh capital from friends and family on interest free. So, total capital is 1 crore with debt and equity ratio of 1 : 1 .
Person A puts 70 lakhs into inventory and rest 30 lakhs into non inventory expenditures like ( Computer , furniture , employee salary , transportation cost and so many other stuff needed to run business) . So , it has inventory of 70 lakhs . Olympia is having Inventory turnover ratio 6.37 7.27 5.30 from last 3 years . So , we can assume that even Person A can also have Inventory turnover ratio of 6 but it is selling on no profit and no loss then it can have even better ratio of 8 instead of 6 .
So whole year It can have GMV of 0.70 * 8 = 5.6 Crores of GMV . Great ! , it had made GMV of 5.6 from one crore initial capital . One now may say one year 5.6, second year 5.6 * 5.6 and like this . Soon , we will surpass Olympia .
Are you with me till this point ?
But reality is different from capital point of view . First year inventory was 70 lakh , second year it need to be increase then only GMV will increase provided Inventory turnover ratio remains constant at 8 .
Inventory can be increased by four ways
1. Get more inventory on credit from distributor or companies ( Tarde Payable) but It depend on Person A ‘s relationship and scale of operation . If is good at convincing skill then he may get 10-15 lakhs credit .
2. Raise Debt , but person A ‘s debt/equity ratio is already 1:1 , he will get disappointment here and even if get it then it will be very for no profit no loss company to afford interest burden .
3. Raise capital , but who will invest in person A’s business . Already investors are not putting money on Olympia which is trading at reasonably low valuation 🙂 .Person A is not going to make any profit in next 3-4 years . person A is very small , new player and nonprofit making player , not many will put their capital.
4. By retained profit , free cash flow , internal accruals but company is not making any profit. For Person A this is not the option .
So, if person A can’t increase its inventory next year then it will again make same GMV of 5.6 crores in second year of operation. If we even assume that person A gets 10 lakhs credit from supplier / distributors then it can make 0.80 * 8 = 6.4 crores .
Growth will be slow down if person A is not able to increase inventory and choose to do operation with no profit and no loss with constant Inventory turnover ratio .
On another hand , Olympia has scaled up from 6 crores to 190 crores GMV in 2 years . It is remarkable achievement but not many acknowledge it . They don’t see anything special in it.
Now let’s assume a company B has 200-500 crores cash . They want to enter spend that on entry of new business . Will they become seller on Amazon ? Is it attractive opportunity to put cash in thin margin business with lot of headaches ?
Answer is No
I don’t see much threat from small player or new entry of players . I see threat from Cloudtail if they don’t expands to other market places because objective of Cloudtail is not to make any profit and they get continues capital inflow from their parents .
Threat of Cloudtail can be neutralized if they enters in Marketplaces like SnapDeal , Paytm , EBay India , Shopclues , infibeam etc