In India we have been taught or made to believe that large stores can’t sell products at a lower price because they have to bear huge operational costs like having an AC showroom in a high end mall or having an English speaking sales force. This makes sense, so we know if we buy from high end shops we are not supposed to bargain on MRP or expect any cheaper price.
The e-commerce is a game changer. It drastically cuts the cost of operations. Compare running a large store in a centrally AC mall vs. maintaining a website. There are other costs associated with e-commerce but with proper inventory/distribution management the cost of running an online business can be reduced to a fraction of operating through stores and dealer network.
Logically an online business should be able to sell a product at price lower than a brick and mortar business. In India we are having trouble to put this logic in place.
Take the case of FlipKart.com which is the most popular Indian e-commerce website right now. It started by selling only books and offered the best price in the market. Later it expanded the range and included electronics, computers, clothes and what not. In 2012 when it acquired LetsBuy.com everyone was hopeful that Flipkart will be able to provide same kind of discounted prices which LetsBuy was known for but looks like it was just an act to shut up a competitor.
Recently Flipkart has changed its business model by allowing other sellers to use its platform. It gets slightly more complicated as WS retail which was looking after the front-end operation has been divested by FlipKart. We can say that Flipkart is becoming more like ebay.in which only provides a platform to sellers and buyers.
To give you an idea where Flipkart is heading, I would like to highlight a recent example. I usually go first to FlipKart and if I find the price comparable or even slightly higher to other websites then I buy it from Flipkart. I was looking for a decent 2.1 speakers and shortlisted Creative Inspire T3130. The price quoted on Flipkart was Rs 2917 while I got the same from Nehru place (Delhi computer wholesale market) with VAT paid bill for Rs 2125.
Flipkart is selling at a whopping 37% extra margin to that Nehru place seller who also would be keeping some margin for himself. The icing on the cake is that the seller on Flipkart is WS Retail which is (or shall I say was?) their in-house setup.
The reviews for other sellers on Flipkart are also not vey good so I think they are losing on service front too.
Looks like either Flipkart is getting too greedy or it’s under huge pressure to meet the ends, in both cases the buyers are going to suffer.
I hope Flipkart get its act straight before someone else come up and knock them out.