Add to c@rt… briskly

Bangalore-based Sreenivas Gowda hops on his motorcycle at eight every morning. His first halt is at his office in Madiwala. Before the end of the day he will make 20-25 more stops, delivering parcels across the city. His employer, DotZot, delivers to customers who shop online from retailers such as Snapdeal, Jabong and Myntra among others.

Before winding up for the day, Sreenivas heads to an online retailer’s warehouse to collect parcels that DotZot will deliver within the city and outside.

His workload has increased considerably in the past six months. “Earlier, I used to deliver about five parcels a day. Now, it is 25 and sometimes, even 30,” he says. But far from complaining, he has recommended the job to three of his friends. DotZot was set up by leading distribution company DTDC to cater exclusively to e-commerce companies. Thanks to the surge in electronic retailing (e-tailing) in India, DotZot has witnessed exponential growth in the nine months it has been in the business.

“I see a huge potential in e-retail, where doorstep delivery is a necessity. We are at the cusp of a take-off,” says Sanjiv Kathuria, co-founder and CEO of DotZot.

Indian e-tailers are seeing a rapid growth in revenues. Advisory firm Technopak estimates e-tailing will grow from $1 billion in 2013 (0.2 per cent of the retail market) to $56 billion, or 6.5 per cent of the total market, by 2023.

Factors driving this growth include the proliferation of smartphones, customers strapped for time and tempting online discount deals.

From young mothers like Madhurima Choudhury, who finds it difficult to go out shopping with her newborn to busy professionals and even tech-savvy college-goers, e-tailing is finding a steadily growing following.

But surprisingly, while revenues are soaring, profits remain elusive for e-tailers, including the big names. This, however, has hardly deterred private equity firms, which are investing eagerly in the hope of exiting later at higher valuations. Accel, Tiger Global and PremjiInvest are among the dozens of investing firms that believe in the e-tail business.

“I think the profitability equation needs to be looked at differently (in the case of e-tailers). What matters to us are the high contribution margins — is the company making money on every transaction after meeting costs? If yes, then we encourage entrepreneurs to invest in backend and warehouse,” says Alok Mittal, managing director of Canaan Partners, an early-stage venture capital fund that has invested in Naaptol.com, among others.

Myntra founder Mukesh Bansal believes greatly in the potential of online business, viewing it as far more efficient than brick-and-mortar stores. “Profitability is just a matter of time. If you can have one website from which the entire country can shop, then it is any day better than replicating the same inventory in stores across the country,” he says.

It is early days yet, as e-tailers continue to explore the form they want to take — to be a vertical player specialising in one category, or a horizontal player that offers a wide catalogue. Snapdeal has chosen the latter to become an online marketplace that brings together buyers and sellers.

“On every transaction, we have a commission on the selling price. This margin is determined between us and the seller,” says Sandeep Komaravelly, vice president of marketing. The company’s revenue also comes from its logistics infrastructure, which sellers use to route their inventory for a fee.

Komaravelly is confident profits are around the corner. “We are not giving discounts. We are getting our commission. If a seller has the appetite to extend high discounts to the end-customer, then it does not impact our model,” he adds. Reaching out to more than 4,000 towns with over four million products, the four-year-old firm already boasts 20 million-plus subscribers.

With such figures to back him, Komaravelly is quick to dismiss all worries over e-commerce firms bleeding in the future too. “It is a false notion that we won’t be profitable. The amount of money being invested in the sector is testimony to its future potential,” he says.

DotZot’s Kathuria concurs: “Today’s e-commerce ventures are much more solid, well-funded and started by people who understand the medium well (unlike in the dotcom bust). This gives us huge confidence that e-commerce will grow.”

Canaan’s Mittal would agree. After all, he realised the need for early investment in e-commerce firms after he had to sell his own start-up, jobsahead.com , to monster.com in 2004. He sure wants to ensure that history does not repeat itself.

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