Why e-commerce is eyeing brick-and-mortar

Human behaviour tends to migrate to convenience whether it is a customer buying something or an operator on the shop floor. Is e-commerce more convenient than brick-and-mortar or is it the other way around? What role does ergonomics play in improving productivity on the shop floor?

Amazon opened its first offline store last year in New York. Indian e-commerce players followed the hybrid strategy of Amazon. It started with small players and now native e-retailing giants such as Snapdeal and Flipkart have also announced their plan to sell offline.

As per PwC, Indian e-commerce industry has seen unprecedented growth in the past five years with a CAGR of 34 per cent. But it still accounts for only 0.4 per cent of total retail sales. Even with such growth numbers e-retailers have started talking about offline strategy. They believe that even if e-commerce grows with the current pace, brick-and-mortar would still constitute 80 per cent of the total retail even after five years. The irony is, e-retailers are trying to set up physical stores, i.e., enter the organised retail store industry that has not been profitable for the last 10 years.

Why brick-and-mortar? E-retailing strategists believe the integration of offline and online retail channels will provide a seamless and differentiated shopping experience. Customers will be able to enjoy the convenience of online discovery and ordering along with faster hyper-local fulfilment of brick-and-mortar stores. As online platform is poor at ‘trust, touch & feel’, offline stores can be used for demonstrations, pick-up and returns. Snapdeal has already collaborated with The Mobile Store, Michelin, Luminous and Shoppers Stop for the omni-channel platform.

As mentioned by Snapdeal, 77 per cent of consumers browse stores before making a purchase online and 55 per cent consumers conduct mobile research on the go before making a purchase in-store. These trends clearly indicate that integration of both the channels will create a delightful buying experience for the customer.

For companies such as Flipkart whose customer acquisition cost is ₹1,150-1,200, which is already making losses with the current operations to serve given customer base, very high returns of 25-30 per cent are further eroding their bottom line. Offline stores will make it binding on the customers to check the product before buying, ultimately reducing the returns. They will also serve as pick-up and drop-off locations for customers. For an e-retailer such as Flipkart, 60 per cent of whose total sales depends on mobiles and electronics, the offline strategy would serve as a blessing in disguise.

Every retailer is trying to test the waters with a hybrid strategy. It is necessary to blur the lines between offline and online retail, so that both can act as a gateway to each other. It is only after some time the haze will clear and the winner will be visible.

Alagu Balaraman is Partner and MD India Operations, CGN Global

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