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HOW ONLINE MARKETPLACES ARE EMPOWERING SMALL AND HOME
BUSINESSES
For
some small businesses, it’s a platform where they can compete on equal
terms with big players. For others, it’s a new distribution channel that is
opening many new possibilities. Online marketplaces are dismantling
barriers of who can do business and how, and are poised for a giant leap
For nearly 25 years, Dinesh Chopra lived with a
locational handicap. Chopra sells computer parts, electronic gadgets and
accessories from his outlet in Nehru Place—an assembly of several
four-storey buildings. Although Asia’s largest computer market registers
thousands of footfalls every day, only a fraction brave the filth and
dilapidation to climb up. “I’m on the first floor and that’s my weakness,”
says Chopra, director, Softek Surya. “I don’t get regular walkin
customers.”
But Chopra does not mind anymore. “Now, they land on my shop via online
marketplaces,” he smiles. Softek is a registered seller on five online
marketplaces, including eBay and Flipkart. “About 35% of my marketplace
buyers are from South India, who have never seen my shop,” he says. His
annual sales have rocketed from Rs 14 crore in 2010-11 to Rs 60 crore now;
and 70% of it is from online marketplaces, which are adding “muscle to
business”.
Chopra is a prime example of online marketplaces—branded e-tailers who host
sellers, and connect them to buyers for a commission—empowering a small
business to scale up. An example of another kind of empowerment they are
enabling is India Trend, which is in business only because of online
marketplaces.
Seven years ago, Parul Arora Mittal and her mother “tried their luck” by
putting 20 pieces of jewellery on eBay. All were sold in a week. Today,
Mittal’s small operation exports handmade, alloy-metal jewellery, via eBay.
“We never had the resources to set up a physical store,” says the
30-year-old. Now, she has no reason to. “Since then, I have never even
thought of a physical store. The online marketplace is my business place.”
And their numbers are increasing.
Amazon is the latest, launching its online marketplace in India in June.
Globally, the world’s largest retailer earns 40% of its 2012 revenues of
$61 billion (Rs 3,66,000 crore) by selling other people’s goods. Sensing
the groundswell and business
logic, this April, even Flipkart, India’s largest online retailer, started
selling goods of other sellers—the online marketplace model—along with its
own goods. “It’s the right time as we have now built the Flipkart brand,”
says its co-founder & CEO Sachin Bansal, adding the online marketplace
is the “right model for India”.
Such moves by e-commerce players is opening up a world of possibilities for
small entrepreneurs like Chopra and Mittal. If it wasn’t for online
marketplaces, says Rahul Khanna, managing director of Canaan Partners, a
venture fund, “smaller retailers would never be discovered. They don’t have
the brand pull, but it’s easy to ride on a marketplace brand like an eBay
or an Amazon.” The consumer audience an India Trend or a Softek Surya is
able to reach via online marketplaces is phenomenal. According to eBay, it
has five million registered users. Flipkart says one million users visit it
everyday. “Online marketplaces come with a ready customer base and provide
a level-playing field for small and large retailers,” says Pragya Singh,
associate director, retail, Technopak Advisors, a retail consultancy. “The
reach for all is egalitarian,” adds Kunal Bahl, CEO of Snapdeal, which
expects to sell goods worth Rs 2,500 crore on its online marketplace in
2013-14.
Growth Unlimited
The groundwork is being laid for an explosion in business by online
marketplaces in India, in tandem with Internet adoption and on the
trajectory that mature markets have already travelled. Sanjeev Aggarwal,
managing director of Helion Venture Partners, a venture fund, believes
that, today, 10% of India’s Internet population of 120 million shops
online. In three years, he expects the user base to triple and about 35-40
million people to be buying from online marketplaces. Globally, the numbers
being recorded by marketplaces are huge. According to Forrester Research,
US company eBay saw goods worth $75 billion being transacted—termed gross
merchandising volume (GMV)—on it in 2012. In China, Taobao (a
consumer-to-consumer marketplace) and Tmall (a business-to-consumer
marketplace)—both owned by the Alibaba Group—posted a combined GMV in
2012-13 of $163 billion. Elsewhere, Rakuten, Japan’s largest online
marketplace, had a GMV of $15 billion in 2012. MercadoLibre Marketplace,
the biggest in Latin America, had a GMV of $6 billion in 2012. In India,
the whole of e-commerce (including travel, ticketing and e-tailing) is
about $11 billion. But it’s expected to sprout wings, especially e-tailing,
of which online marketplaces are a part. Technopak estimates e-tailing in
India to increase from $1.3 billion in 2012 to $76 billion in 2021—a
compounded annual growth of 57%. And, in doing so, attract new sellers like
30-year-old Kumar Sangamesh. This Bangalore-based software engineer quit
his job at Cisco Systems to turn entrepreneur. His start-up, Brandznext,
distributes health and body-care products of Khadi Cosmetics and Lively
Bamboo. For two years, he sold via three outlets in Bangalore. This July,
he registered on Flipkart, and is seeing one-fifth of his Rs 4 lakh monthly
sales come from this marketplace. “That’s growing 40% a month,” he adds.
Sangamesh feels reputed marketplaces are a solid launch pad for small
brands like Lively Bamboo, a Pondicherry-based company. “Buyers are buying
not only the product but have a brand premium attached to a marketplace
where it’s being bought at. That helps push the product,” he says.
How It Works
It’s a mutual relationship: a bigger pool of sellers also helps the
marketplace. “More sellers bring more choices and add depth to each
category,” says Bansal of Flipkart. For example, till it added the
marketplace model, Flipkart was stocking only black and white iPhone
covers. “Since then, the choice has expanded to other colours and designs
like pink, green, red, floral prints, etc.”
There are, broadly speaking, three kinds of marketplace models, depending
on how much control an e-tailer wants over a transaction. The first model
is where a buyer deals with the marketplace and not the seller. When an
order is placed on Jabong and Yebhi, for example, they order from the
seller and are responsible for delivery. “We want to ensure a good customer
experience,” explains Mukul Basana, co-founder, Jabong. But this means
keeping inventory in its warehouses and running the risk of it staying
unsold. The second model is where the marketplace is mostly a hosting
platform, and buyers deal directly with sellers. As eBay does—it carries no
inventory. “We don’t compete with sellers and don’t have a conflict of
interest with them,” says Latif Nathani, managing director of eBay India.
Lastly, there is the hybrid model, which Amazon follows in India. It offers
buyers the option to deal directly with sellers or to enable their
transaction. Anyone can be a seller on marketplaces, after being vetted by
it for legitimacy, ability and customer orientation. Most marketplaces
don’t charge any listing fee, but take a commission, of 1% to 15% of the
sale price of a good. According to Nikhil Rungta, chief business officer of
Yebhi, both large and small sellers use marketplaces as it helps them
“maximise distribution”. Following his expanded presence on marketplaces,
Chopra’s 400 sq ft shop in Nehru Place now resembles a small call centre.
Some of his staff, of 40 people, is hunched over computers, posting orders
on, and tracking from, marketplaces. “If the customer is happy [product
availability and timely delivery], he will come again,” he says. “I have no
overheads or air-conditioned showrooms to pay for or expensive real estate
to invest in,” adds Mittal of India Trends. She has a staff of nine: two
taking pictures and uploading them on the marketplace, two describing the
item with keywords (like bridal necklace, measuring 16 cm, set in surgical
steel), and five doing packaging and handling inventory. “I myself do the
design and ship about 30 packages daily,” says Mittal, declining to share
India Trend’s revenues.
Pulse Of The Market
Most sellers say such closeness, both with their operations and the
customer, gives them an edge over large, multi-product brands. “We are able
to react much faster to market changes,” says Satish Bathija, director of
Mumbai-based MX Information System, which sells gadgets under the brand
Compushop on four marketplaces.
Compushop has an offline presence too: 14 shop-in-shops and one standalone
retail outlet. “Between 2005 and 2010, less than 10% of our sales were
online,” says Bathija, expecting that figure to increase to 35% this
fiscal. Bathija says a presence on marketplaces has helped him counter the
onslaught of brick-and-mortar chains. “Large retailers have several layers
and larger brick-andmortar presence,” he says. “Online marketplaces may not
be their priority.”
Jitender Miglani of Forrester Research says online marketplaces offer a
space for niches, which small businesses and sellers should capitalise on.
“It is difficult for small retailers to compete with big players for
high-demand products. Big players can capitalise on economies of scale to
offer cheaper prices,” says Miglani, an analyst with Forrester. “So, small
retailers should target niche segments.”
Softek, for instance, stocks 8GB and 16GB memory vaults. Unlike the
standard pen drives, where the quality of data deteriorates (loss of
resolution, yellowing of images) in about 10 years, memory vaults maintain
quality for 100 years. “A store will keep only fast-moving pen drives on
its shelves, while we stock everything,” says Chopra. “We are like tailors
online. Since buyers buy readymade products, tailoring has gone out of
fashion. Yet, tailors exist for that odd customer or a unique fit.”
Such a mindset, ably backed by a sales platform, is empowering the likes of
Aavriti R Jain and Siddharth Daspan to launch businesses. After finishing
their postgraduation in fashion in 2012 from the Institute of Marangoni,
Milan, they started making handcrafted jewellery under the brand Dhora.
They had been selling via concept stores like The Second Floor Studio,
Cottons and Twist in Delhi and Jaipur. A fortnight ago, they took Dhora to
Amazon. “It meant “taking our one-year-old start-up national,” says 23-yearold
Jain, who designs silver and costume jewellery, and has a team of 10 based
in Jaipur.
Business Issues
Amazon and Flipkart are new marketplaces. More discerning in their
choice of sellers, they have about 500 apiece. By comparison, eBay, which
has been around in India for 11 years now, has 45,000 sellers, of which
15,000 have sold goods outside India.
Although the size of marketplaces is increasing and the pool of players is
enlarging, both at a brisk place, regulation is a bottleneck. At the heart
of online marketplaces is free movement of goods across state borders—think
Chopra, sitting in Nehru Place in Delhi, shipping a pen drive to Hyderabad.
But different states have different taxes, tax rates, documentation and
requirements. “I need to have a warehouse in UP and West Bengal to ship
products that cost more than Rs 5,000 to buyers there,” says Bathija of MX
Information. “If shipped from outside, a buyer has to procure a road permit
from the local sales tax office to receive a product, discouraging
purchases.”
Elsewhere, Rajasthan levies an entry tax of 3%. Shipments to Andhra Pradesh
require one form and those to Assam another, along with signature of
shipper and dealer, and attested by the sales tax department. “Such
complicated regulation hampers sales. We expect things to smooth out once
GST (goods and service tax, or a single, uniform tax) is in place,” says a
marketplace operator, not wanting to be named.
Some sellers are also struggling to find their comfort level with
marketplaces. One of them is Noida-based Pooja Kapila, who worked in
Fabindia for nine years before starting Erato, a women’s wear brand. “I
find both eBay and Amazon too complicated, with lot of paperwork and
conditions,” says the 36-year-old. ‘I find Snapdeal easier to do business
on.”
Chopra of Softek says some marketplaces take 45 days to release payments.
“That doesn’t suit small retailers who have to manage cash flows on a daily
basis,” he says. For Bathija, the fear is competing with the online
marketplace itself one day. “In future, for most planned purchases, online
sales will be greater than offline sales,” he says. “But when Amazon
becomes a seller [rules don’t allow it presently], we will have to compete
with Amazon, which has our data on what products are selling and what are
not.” For now, though, everybody’s a winner.
The Marketplace Models
In how they connect sellers with buyers, there are, broadly speaking,
three kinds of online marketplaces
Managed Marketplace
Examples: Jabong, Yebhi Connection: Buyer deals with marketplace How it
works: Marketplace stocks products at its warehouse. So, when a buyer
places an order, the marketplace either pulls it out of its warehouse or
sources it from a seller, and is solely responsible for delivery too
Pure Marketplace
Examples: eBay, Snapdeal, Flipkart Connection: Buyer deals with seller
How it works: Marketplace is a hosting platform for sellers. While placing
an order, a buyer can see the seller, who is also responsible for delivery
Hybrid Marketplace
Example: Amazon Connection: Buyer has two options: deal with seller or
deal with Amazon How it works: In the former, the responsibility for
delivery is that of the seller. In the latter, it is Amazon’s: the seller
ships the goods to an Amazon warehouse, which completes delivery
The Seller Checklist
Registration
Anyone can be a seller. Just apply to a marketplace, which will vet you
for genuineness and ability: is your business legal and running, can you
stock and ship products, return policy and so on
Listing fee
Nil on most marketplaces
Transaction fee
Up to 15% of sale price. Typically: 1%: mobiles, pen drives, memory
cards 5%: LCD TVs, home appliances like toasters 7%: shoes, footwear,
perfumes 12-15%: garments
SATISH BATHIJA MX INFORMATION
SYSTEM
DISTRIBUTES COMPUTER PARTS, GADGETS AND ACCESSORIES Has 14
shop-in-shops and one standalone outlet. Joined online marketplaces in
2002, and is now on four of them. “Between 2005 and 2010, less than 10% of
our sales were online,” he says. “This fiscal, we expect 35% of our
business coming from marketplaces.”
PARUL ARORA MITTAL, INDIA TRENDS
SELLS HANDMADE, ALLOY-METAL JEWELLERY Seven years ago, she “tried
their luck” by putting 20 pieces of jewellery on eBay. All were sold in a
week. Today, she and her staff of nine export jewellery, via eBay. “We
never had the recourse to set up a physical store,” she says old. “Since
then, I have never even thought of one. The online marketplace is my
business place.”
DINESH CHOPRA SOFTEK SURYA
DISTRIBUTES COMPUTER PARTS, GADGETS AND ACCESSORIES Has had a shop
in Nehru Place, in New Delhi, since 1986. But, he says, “I’m on the first
floor and I don’t get regular walk-in customers.” After joining four
marketplaces, his revenues have spiked fourfold since 2010-11 to Rs 60 crore.
“Now, they land in my shop via online marketplaces.”
POOJA KAPILA, ERATO
SELLS WOMEN’S WEAR Noida-based Kapila started Erato after working in
Fabindia for nine years. She is still finding her feet with marketplaces.
She finds eBay and Amazon “too complicated, with lot of paperwork and
conditions”, and Snapdeal “far more easy to do business on”.
Shelley
Singh ET131015
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