Flipkart - The Indian Amazon.com?

Flipkart Online Services, is probably India’s most exciting e-commerce company, Flipkart. Founded by Sachin Bansal & Binny Bansal with an initial investment of 4 lakh in 2007, had clocked a turnover of Rs. 25-crore in FY 10 and is expecting around Rs. 75-crore this fiscal. Sachin and Binny are erstwhile Amazon employees and have created a hugely successfully and fast growing e-commerce company in India which we think is the Amazon.com of India.

Bangalore-headquartered Flipkart, the country’s largest online bookstore selling over two-lakh books annually, now plans to extend its product portfolio by launching music, mobiles, consumer electronics and games over the next few months.

 “We aim to be a $1-billion (Rs. 4,500-crore) company over the next 3-years. We are growing at a CAGR of 700% in the last two-years and hope to maintain that. We expect revenue to grow multi-fold on the back of our major expansion plan,” Flipkart’s founder and CEO, Sachin Bansal, told PTI recently.
Flipkart offers around 15-20% discount on every book and hence its revenues are mainly volume-driven. It sells 1.5-lakh books a month and has over 6-million titles listed ranging across all genre of books. It provides the pay on delivery option which is very popular with Indians.

Flipkart has managed to get VC funding. They have taken funding from Accel Partners in 2008. According to reports, the firm had raised its second round of venture funding to the tune of USD 10-million from New York-based investment firm Tiger Global Management.
Flipkart is profitable at the operational level but is still Ebitda-negative and expecting to be PAT-positive soon.

Could Flipkart be the online giant from India that someday rubs shoulders with Amazon and Google?

FDI in Retail- is it all rosy??

FDI in Retail is being touted as something that needs to be done for the good of Indian Farmers, Indian Industry and for the benefit of cunsumers.

Let us take an objective look at the benefits and disadvantages of opening up FDI in Retail for India. Let us look at the arguments made in favour of FDI: One very strong argument for FDI is to get additional investments in the supply chain infrastructure. We loose a substantial percetage of our agriculture growth due to lack of good cold storage chains and food processing units. The additional investment in retail will pump up investments in infrastructure and help remove inefficiencies in the whole supply chain. These benefits will be passed on to the consumers.

Several large industry houses have entered into Retail. As discussed in some earlier articles I believe some of the entrants in the retail were driven by the hope that they would be able to sell their retail chains at a huge premium when FDI came in. With the delay in FDI in retail we see that several of these entrants have been forced out of the retail space due to short term view and lack of committment to stay invested long term in the Retail sector. There is obviously a lot of pressure to get FDI in retail from the industry groups. It seems to be a panacea for all problems in the current economy. Disappointed by the government's decision to put foreign direct investment (FDI) in multi-brand retail on hold, India Inc on Wednesday described the move as "highly regressive". FICCI president Harsh Mariwala said "It (withdrawal of FDI in Retail) is a highly regressive move. For the growth of this vital sector of the economy, which is likely to result in strong linkages with the farm sector and for the economy as a whole, it is imperative that reforms like these should take place," .

Congress has changed the fight for FDI in retail as a conflict of interest between traders/middlemen and farmers. Rahul Gandhi is touring UP challenging that the FDI in retail would have helped the farmers get better prices for thier produce has been stopped by the opposition as they are against farmers. The politics of targeting pockets and creating segments - divide and rule - is in the works. There is a split in the interest of traders and farmers, as per the Congress advocated policy.

Now is this all the clamour true. Let us look at how organized retail has worked in other countries and evaluate the negative aspects of opening up FDI in retail in India.

Big retail in the West and elsewhere functions on a simple business model. Grow bigger and bigger till the market becomes an “oligopsony” — a situation where a small number of buyers exert power over a large number of sellers. The UK food retailing industry, for example, is now dominated by just four supermarket chains who together account for over two-thirds of retail food sales. Likewise, the top five chains in the US account for over 60 per cent of food sales. This results in the retailer exercising enormous control over their suppliers, which includes the farmers.

Farmers in the West have paid a big price, with hundreds of thousands forced to shut down their farms, due to corporatisation of the farming sector, along with corporate concentration on the purchasing side among processors and retailers. According to the US Department of Agriculture's Economic Research Service, in 1990, ranchers and farmers received 60 cents of the retail dollar spent on beef, retailers received 32.5 cents and meat companies 7.5 cents. In 2009, the numbers were reversed — retailers took 49 cents share of each dollar (up 16.5 cents) consumers spent on beef, while ranchers and farmers got 42.5 cents (reduction of 17.5 cents) and meat packers 8.5 cents. In the UK, the Royal Association of British Dairy Farmers has complained vociferously that prices paid to farmers for fresh milk are simply unsustainable, with the average farmer losing money on each litre of milk produced. This has happened even as the supermarkets' margin on fresh milk has increased steadily over the years. While it costs the consumer £1.45 to buy four pints of milk at a supermarket such as Tesco, the farmer receives just 58 pence (40 per cent) of this, causing a loss of 3 pence for every four pints. Small farmers have closed their dairy operations as a result.

The European Union paid direct farmer subsidies of €39 billion ($51 billion) in 2010 alone. Why these subsidies if the big retailers are paying the best prices to the farmers as claimed?

The point that the scenario would be different in developing countries with large populations is also flawed. Mexico signed the North American Free Trade Agreement in 1994. It has since witnessed a virtual takeover by Walmart which has gained nearly a 50 per cent share of the country's retail market. We need to be wary on the FDI we allow into retail and the controls we need to enforce.

The concentration of buying power with a few people is not going to help the economy or the people in the economy in the long term. India has more than 58 million small farmers, 12 million small retailers and 26 million small and micro enterprises representing over 450 million people that would be affected directly by opening retail to FDI.

India should only allow FDI in retail with controls and rules on profit sharing with farmers and manufacturers.

Jobs in Retail Sector

There are currently lot of job opportunities in Retail sector. The organized retail missed the much required boost due to the withdrawal of FDI in retail. However, there are approximately 22 million people currently working in India's retail sector. Experts believe that the current retail boom in India will produce an additional 8-10 million more jobs by 2015.

The jobs in the retail sector are across the spectrum from a large number of roles unique to retail sector to manage the POS machines as cashiers, store management, Store Inventory Mangement, etc. There is also an increase in the requirements for specialized skills required in organized retail such as store planners, stockists, logistics, operations, distribution, marketing, finance, human resources and IT roles.

There has never been a better time for a career in India's retail industry.

Interview Questions for a Retail sector job:: Series - Q#1

Q#1 "Why are you applying to work here?"

Retail industry is challenged by high attrition and high training costs. Retailers want to assure themselves of the objective of the perspective employee to join their chain.

Some possible answers to the question on why you are applying to work are:
•This has been one of my favorite stores for years. When I saw there was an opportunity for employment here, I was very excited at the possibility of becoming part of the team.
•I really enjoy working with people in a retail setting, helping customers, organizing stock, and changing displays.
•This seems like a really interesting place to work, with the variety of items and services that you offer, and I feel that given the opportunity, I could be an asset to the team.
•I have a lot of experience in establishments like this one, and would welcome the opportunity to learn a new business, and share my expertise in selling.

Why did some Retailers fail in India?

The reasons for failure of retailers in India can be categorized as following:

1. Lack of long term strategy: Some bsuiness houses moved into Retail without a long term strategy. They did not have any major differentiation and seemed to be just interested in getting into the hyped retail sector. These retailers never became successful and with FDI in retail being delayed never got sold off sucessfully to a partner who could make changes to the strategy and make them successful. Some retailers I would count in this space are Dabur Retail, Raymond's Be, India Bulls - Pyramid, etc.

2. Lack of proper financing of growth - IPO, Short-Term debt, etc such as Vishal Retail. Vishal Retail after the fist IPO went into a expansion spree by tking short term debt. The stock price took a major beating during the recession and the short term debt soon pulled the company into Corporate Debt Restructuring.

3. Lack of processes and IT systems to support the complex Supply Chain such as Shubhiksha Retail. Subhiksha had the right price points and were omni-present, but thier stores never had the stock that the customers really wanted. Soon they had lost most of thier customers despite the buzz created by national advertisements and exciting price points.

4. Expanding too fast across the country: Subhiksha and Vishal instead of stabilizing and consolidating themselves first in different places and then moving to newer locations, tried to be the first in every town.

5. Trying to cover the complete merchandize space without building on core competencies such as Shubhiksha Retail and Vishal Retail. Vishal retail even went into intriducing private labels in all categories without the maturity to manage so many categories.

The above issues led to huge operating costs due to large inventory (improper processes/IT systems), high rental costs and lack of strong finance options e.g. unsuccessful IPOs, wrong debt structure, etc. This situtation enhanced by the recessionary period led to the downfall of several retailers in India.

Where is Retail Industry headed?

Retail industry is linked closely to the global economy as it is driven by consumers' readiness to spend money.

The global economy has been buffeted by the big bank scams, middle east chaos, tsunami in Japan, the Greece debt crisis and the still struggling US economy on steriods of tax breaks and unstaintable government spending. However the economy has shown amazing resilence. There are pockets of high growth in the globe especially in the emerging markets of China and India. Germany, France and the Nordic countries are also powering the European economy. So there are large expectations that the economy will go on in a similar fashion in 2011 and 2012. This augurs well for retailers as the uncertainty though being poignant is not going to bring down consumer spending drastically. So i do not forecast any major unheavels in the retail space due to the economy in the near future. However retailers will start moving from their restricted areas to the hot spots in the global economy. The demographics and ecosystem of each country is different so retailers will start facing the challenges of globalization.

However, there are other things happening that will accelerate the speed of change. Twitter, Facebook, and other social networking sites are becoming palpable. The channels of marketing are merging. Customers are shooping in stores as they are checking deals and feedback on the Internet and tweeting with friends. There is a new breed of customers who are okay to shop expensive products from home, never stepping into a store. So this is an interesting new area for retailers as the skills acquired in the old world of store operations, supply chain to the stores, etc are replaced with new skills in the world of Amazon and Google. Retailers would need to move from product centric to customer centric retailing.

Retailers will move thier IT systems to the cloud. There is already an explosion of data on customers, preferences, customers, feedbacks, prices across several channels, etc that need to be analyzed to help make business decisions. So retailers will start investing more on data analytics and customer analytics.

Another interesting trend, I had commented about earlier in some other article also, is that the retailers are beginning to look more as manufacturers (private labels are becoming large brands) and manufacturers are becoming retailers (Sony, Apple, etc.). Best selling dog food is "Old Roy" a Sam's private label; President Choice has a higher brand recall than Coca Cola in Canada!!

There are tremendous improvements in data flow and analysis resulting in super efficient supply chains. However Supply Chain will still be a differentiating factor and those retailers that fail to get their Supply Chain in order will fail miserably.

I will keep adding trends as I come across them, please feel free to add your comments and help us understand what you think of how Retailing is going to evolve over the years...