Sanchit Vir Gogia, CEO, Greyhound Research, gives us five reasons why the e-tailers’ predatory pricing can’t last forever
While there is no doubt that certain well-funded e-commerce power-houses have eaten into the domestic IT channel market, we have reasons to believe that the channels need not be unduly worried.
- Nevertheless, IT channels need to realize that major change is taking place out there, and that they need to take corrective steps to stay profitable.There is no bottomless pit of funds available for market acquisition. But there is tremendous pressure on e-tailers to show some profits. I would expect this mayhem to continue for another couple of years.
- The IT industry is a great entry-point for e-commerce retailers considering the overall IT-savviness of the customer segment buying computers. However, this is an industry where margins are already in the single digits, so after building a base, we expect e-commerce retailers to shift focus to high-margin segments.
- Across all retailers, the amount of returns is phenomenally high, and it is impossible to sustain such a model for long if you are already working on wafer-thin or negative margins.
- IT is still a very complex business, and e-commerce retailers can at best sell to consumers. So far no models have emerged for delivering services. Many serious resellers have already moved away from selling to consumers.
- The overall consumer market in large cities has been de-growing or is reaching a saturation point. Currently we see that e-commerce retail penetration is still largely limited to class-A and -B cities. Real PC growth is expected from class-C, -D and -E towns where an IT reseller is required.
A couple of tips: Focusing on class -A and -B cities will not be a great idea if you are into consumer retail. These markets have matured, and would find it easier to browse online, figure out what they want, and buy. Smart retailers will move their business into upcountry locations just as some LFRs are planning to.
Price cannot be your USP in an e-connected world because some e-tailer will beat it some day. Patience will be a key for survival. A few years from now, e-tailers will not be a challenge. The real challenge for a brick-and-mortar store would be spiraling real estate and people costs.
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