After e-commerce sellers and brick-and-mortar retailers realised that a war between them will be costly, both players decided to join forces and act together.
Some time ago e-commerce companies thought that they can overcome traditional retailers but later appeared that there will be no clear winners in a race that is turning out to be disadvantageous for both sides.
E-commerce players started selling goods below prices that are in physical stores. There were some cases that e-commerce sellers were merchandising their goods even below their cost price to increase their sales. However, it turned out to be unprofitable.
According to Shishir Asthana from Moneycontrol Research, the retailers, who were at the receiving end, had to either take on debts on their books or slow down their expansion plans to absorb the losses caused by e-commerce companies’ aggressive selling.
Badly bruised, both the factions are now calling a truce and embracing what is being termed as omnichannel.
Rather than pitting the two channels against each other, retailers can secure a much larger wallet share by giving consumers the best of both worlds through the adoption and use of new technologies.
In less than a month of Amazon picking up a 5 per cent stake in retailer Shopper’s Stop, there is news of Flipkart looking eyeing a stake in Future Retail. For Future Retail, the development comes soon after its acquisition of retailer Hypercity. For a sector swamped with gloomy news, things appear to be turning around.
E-commerce companies joining hands with the retailers are a marriage of convenience for both the players. The move has largely been necessitated by the fastest growing and biggest sector for both the players being common garments.
Although the sale of clothes has risen for e-commerce companies, the number of rejections was very high. For a business that still needs the cash flow cutting down losses on account of rejections is important. However, having a partnership with brick and mortar helps the customer getting a ‘feel’ of the product. On the other hand, retailers also get many advantages. The e-commerce companies help push their brand to a wider audience.
Major retailer players from both sides are pushing hard to expand their presence both online and in-store. Amazon made a major move in spreading its physical presence with the purchase of Whole Foods, thereby seeking to reinvent the retail customer experience with its supply chain, logistics and customer service prowess.
Walmart is stepping up its efforts in the online world with its announcement of an acquisition of online retailer Bonobos on the heels of its earlier purchase of online women’s apparel retailer ModCloth in March.
While these modifications of retail look perfect for both parties, they are likely to encounter many problems. E-commerce sellers and brick-and-mortar retailers will need to integrate their software and hardware. Also they have to manage logistical coordination of two sets of inventories as well which is hard task to do.
More importantly, pricing the same product at both the front-ends will be an issue and might lead to conflicts going forward. E-commerce players thrive on discount sales and if there is too much of a differential in the prices, offline retailers will only be an outlet for window shopping with customers coming to the store only to test the garment.
The real cost benefit of an omnichannel from the retailer’s point of view is not yet clear. Retailers will need to allocate counters for picking up garments and specialized space and staff to handle rejections.
For the e-commerce companies adding a retailer is like adding another seller on their platform. However, what an e-commerce company will miss is getting into the psyche of a client. E-commerce companies do a lot of data analytics to understand the customer’s preference. This will not be possible when they visit the retail outlet.
Both e-commerce and retailers have been testing various growth models in search of profits. Working together is another experiment that the two types of retailers are working on. Irrespective of the outcome, the very fact that they are working together rather against them improves their chance of success.