Is Indian e-commerce transitioning to a hybrid marketplace?

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e-commerceThe e-commerce stores that have made shopping extremely easy have a serious business of stocking up behind the e-gateways. The juggle between marketplace and inventory-led business models has been going on for a long time now. E-commerce in India is gradually shifting to the marketplace-led model from the inventory-led business model. How feasible is the hybrid marketplace in India?

“The future lies in the hybrid marketplace-led model where the seller is also selling his own labels as well as provides a platform for merchants and sellers to sell their products. If a seller has to make available large merchandise to his buyers, it has to adopt a marketplace-led model. The real use of internet would be if the small merchandisers get a chance to sell their products to a wider range of audience,” said Vivek Gaur, CEO, Yepme.com

Myntra recently announced its own soon-to-be-launched marketplace within the next few months, thus converting into the hybrid marketplace model. It will provide a platform for merchants and sellers to sell their products through the Myntra website. This strategic move aims at increasing the profit margins and expanding its reach to smaller Indian cities and towns. But in contrast to the shift, a Myntra spokesperson said, “For a market like India where customers have very low faith in shopping online, the first thing to be ensured is customer satisfaction. With inventory-led model we can ensure speedier delivers, quality checks, and an overall better customer experience especially in the fashion and lifestyle segment.” Currently, Myntra operates on an inventory model.

There have been enough reasons for inventory-led model to lose the battle to the new hybrid marketplace. The inventory led e-commerce models have almost the same economic characteristics as the traditional brick-and-mortar model when it comes to inventory risk exposure, warehousing, and sourcing. It is highly unlikely to achieve profitability and extremely large scale merchandise. For a 30 per cent gross margin business, they spend about 45-50 per cent on operating expenses.

“Almost all e-commerce companies operating in India are theoretically based on an inventory-led business model. But, four distinct things that set apart an inventory led e-commerce model from a marketplace model are: the value proposition to a customer for the inventory-led e-commerce models is that whatever a customer is buying from them, they have those items in their inventory stock. Second, there is only one seller for each product sold by these companies and that would be these companies themselves. Third, these companies are merchants of record for the products sold by them. And finally, these companies issue invoices to the customers in their names. On the other hand, all the four distinctions are not applicable on a marketplace model,”said Kiran Khalap, Co-Founder, Chlorophyll Brand &Communications Consultancy.

The size of India’s e-commerce market in 2013 was around $13 billion, according to a joint report of KPMG and Internet and Mobile Association of India (IAMAI). Market leaders like Amazon, Snapdeal, Myntra and Flipkart are now operating in the marketplace space. The shift is majorly to increase profits and reduce inventory-based glitches. But moving from an inventory-led model to marketplace is not an easy transition. It is as good as building from scratch. The biggest challenge faced in adopting this model is customer experience. Companies would need a lot of support from merchants to provide the same customer experience in terms of delivery time, packaging, delivery personnel behaviour, etc.

“The major disadvantage of this model is that the shipping cost is higher because multi-product orders are fragmented across vendors and shipped separately. And this in turn may lead to customer dissonance because a customer won’t receive their entire order at one time. This may also lead to non-compliance of delivery timelines promised; reasons being cross state barriers and non-availability of stock with the vendor, order cancellation, and loss of consumer trust,” says Ankur Warikoo, CEO, Groupon India.

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