Preface
Last fortnight my smartphone got corrupt. Despite rooting and reinstallation of its operating system several times, it became useless with something wrong with its hardware. Thus far it resisted a lot of hard times; falling from heights and into the water – value for money! However, this time the cost of repair seemed to be over and above its price; hence I decided to go for a new one.
At first, I casually inquired with my friends, relatives, and well-wishers about new cellphone choices. Along with their recommendations for particular models, they urged to buy online and to search the Internet for reviews. Though I am there on the Internet 24×7, I have been reluctant to shop online all this time. Window shopping and shopping after gazing through the in-shop displays of the brick and mortar shops, particularly during a discount sale, is my favorite shopping habit, whether it be electronic items, clothes, or groceries. So this time based upon the recommendations from my well-wishers, I searched the Internet for cellphone reviews to finalize a make/model. In this regard, to physically feel the phones, I visited a few major cellphone retail stores in my city a couple of times and that is when I noticed an interesting trend as an investor.
The truth about physical retailing
The showrooms were not as crowded as they used to be earlier. The footfall seemed far less now than a couple of years ago; the showrooms are almost barren now. Furthermore to my surprise, the models that had very good reviews online were not at all available in any of the showrooms that I visited. In lieu, the salesmen at the showrooms were encouraging to buy models that would fetch them good sales incentives. Another interesting fact that I noticed is that the retailers are pushing low-end models to customers who are either illiterate or those who do not have the know-how to access the Internet. I don’t think they can do this to customers forever. People are becoming more and more aware and crazy about touch phones and smartphones these days.
Whereas on the Internet, I found endless models on umpteen online stores. These stores were competing with each other with attractive prices and mind-boggling offers. I had the option to choose from a variety of brands, models, and specifications in my value-for-money lookout. I witnessed a few flash sales in a couple of Chinese models, Xiaomi Mi 3 is one such. Buyers picked up thousands and thousands of handsets merely in 2 to 3 seconds. Wow! That shows a paradigm shift in retailing.
Shopping modes and sales channels have changed for the good of the customer. Teleshopping and Internet shopping to name a few. Footfalls at the brick and mortar shops are definitely going down, especially for electronic items like the cellphone. Though some cellphone makers reveal the online sales to be a mere 10% of their total sales now and predict the online sales to grow to 25% in the next two years, I believe the numbers are staggering.
The future of e-tailing
With shopping from the comfort of home or office, Internet shopping has become a boon for many, to the homemakers, to the office goers who are unable to find time to go to the shopping centers, and to the people in the remote places, etc. While Amazon and eBay have made disruptions in traditional retailing worldwide, e-commerce sites like Flipkart and SnapDeal are doing their share in India. In fact, the Indian e-commerce sites have gone one step ahead with the cash-on-delivery model to woo the confidence of the customers.
It wouldn’t take much time for this evolving retailing landscape to further expand. Groceries, FMCG, and other daily necessities are other lucrative arenas, as it is happening in the developed countries. More and more people are starting using smartphones, tablets, and the Internet. As they start shopping online safely at the comfort of their homes, e-commerce is going to grow exponentially. You just Google out for cheap prices on anything you want to buy, go to the site, add to the cart, pay and sit back relaxedly. The item reaches your home in a couple of days. Given that cellphone and Internet penetration in emerging economies is still minuscule, there is a huge potential lying out there.
Advantages of e-tailing
The advantages of e-retailing or e-tailing are a lot. A brick-and-mortar-retail shop has a finite market to cater to, just the neighborhood of the store. Whereas, the market an e-retail shop can cater to is the whole country. Perhaps even cross borders. Moreover, e-retailing is nothing but efficient logistics management. The operating expenses are low. Since there is ample time between order and delivery, inventories should also remain definitely low. Furthermore, if the website is going to be just a marketplace, the inventories are just zero. The entry barrier too is very low. Any businessman with some advertising budget and Internet marketing know-how can enter into it. So there are going to be more and more e-retailing sites coming into the foray as well.
What’s in it for me as an investor?
And if you are lucky enough to identify one such budding, prospective, e-commerce business and able to invest in it, you have a multi-bagger in your portfolio. Businesses that apparently fail to foresee and act accordingly to this seismic technological change are either going to lose or wither out in the longer run. The key point that we have as an investor here is that, if we are unable to foresee this shift in trend in retailing affecting businesses in which we have invested, we too are going to lose out in the long term! It’s no surprise that Internet retailing has instilled fear in the minds of even stalwarts!
I think the new technology is going to be very disruptive. Retailing in particular is facing major threats.
-Charlie Munger
As far as high end purchases including cellphones, washing machines, motorcycles, cars, etc. are concerned I too am a strong believer in ‘window shopping and shopping after gazing through the in-shop displays of the brick and mortar shops, particularly during a discount sale,’ unless I can assess the features from somebody who has them.
Take the case of Google’s Android One Smartphones launched in India through three Indian mobile phone makers – Micromax, Karbonn, and Spice for around Rs6500 (around $100) each. Media is giving them untoward publicity as a result they are going off the inventory as fast as they are produced. Of the three Indian mobile phone makers, only Karbonn has an export market, but then one needs to buy its make of accessories only, other make of accessories like charger will not work. These are hardly ‘Made in India’ phones. At best they are ‘Assembled in India’ phones as all its parts are from China. They are affordable to the Indian masses. But there quality is questionable. They are flimsy made of re-processed plastic, not even rubber, and easily damageable. The specs demanded by Google from these ‘Assemblers’ are not groundbreaking. However, the media is going out of the way to publicize them just because of the low price tag and then that they will have latest version of Google Android Kitkat 4.4.4 with auto updates for the next two years.
Look at their weaknesses. To use them one would need Airtel SIMs only. That is not fair. I, myself, via mobile number portability switched over from Airtel to Voda as the signal strength of Airtel does not penetrate inside the house or the basement. Even if there is bad weather elements present outside one needs to step outside to be able to use your phone if it has Airtel SIM. Again, with just 1GB of internal memory along with MediaTek chip one cannot take and save images unless one has a micro-SD card. They comprise of 4.5-inch FWVGA capacitive touchscreen with a low resolution of 480 x 854 pixels and the display glass can easily get smudged. All these specs matter to a buyer including the feel of the phone which cannot be ascertained by just watching images of these phones at Flipkart and Snapdragon.
The media maybe making Samsung, a very popular name in India, jittery towards share in low-end smartphones. Samsung’s aluminum build quality is far superior than these ‘Assembled in India’ phones. But, of course, the sound clarity and quality is best seen in Sony phones, but then they are not affordable. All these one comes to know on hearing the sound, build quality on holding the phone, and not by images at Flipkart and Snapdragon.
You are right Raj! Brick and mortar cell phone retail shops are the first ones to be walloped by online retailers! There is an article in Indian Express also today about this. Read it here: http://goo.gl/wUfTqq
Though bigger e-commerce companies have their own logistics services, it is interesting to note here that courier companies/logistics service providers should also benefit with this e-commerce trend/boom, as and when the e-commerce companies start looking at expansion and top-line growth and start outsourcing logistics.
Gartner, a foremost American consulting firm based in Connecticut says that Indian eCommerce market will reach $6 billion in 2015, a 70 percent increase over 2014 revenue of $3.5 billion. Not a figure to ignore by any keen investor.
However, I think this is not the right time to invest in any of the e-tailers as they are consistently making losses competing against each other and in acquiring customers. See how much losses they made in 2013-14 here: http://goo.gl/fULf8f