A quick search of ‘ShopClues’ yesterday would have pointed the ecommerce firm as a potential acquisition target for Alibaba. News outlets such as Tech in Asia and Times of India have reported on the rumors of the Chinese ecommerce giant acquiring India’s newest unicorn.
Will Alibaba enter India? The story so far
Alibaba indeed has its eyes on India, but it will not enter through buying a stake in ShopClues, or its rival, Flipkart, contrary to the rumors of late.
According to Tech in Asia, a company spokesperson denied the rumors in an email.
We are not currently preparing any investment into ShopClues or Flipkart. India is an important emerging market with a great potential and we are committed to developing this market for the long term.
Alibaba Group views India as a ‘natural progression’ of its strategy to expand globally. No further comment was provided regarding the ecommrce giant’s future plans for India.
Earlier this year, Alibaba Group President J Michael Evans has acknowledged that the company has been ‘exploring ecommerce opportunities’ in the country, but again, no details were given.
According to Tech in Asia, the Chinese company’s entry into India is inevitable, and it has already held talks with various possible partners, according to multiple sources from the media site.
What is ShopClues?
ShopClues is India’s top online marketplace that sells mobile phones, laptops, home appliances, fashion, home products. The company was founded in California’s Silicon Valley in 2011.
What would this mean for India’s ecommerce landscape?
Local media has been buzzing with news of a possible stake purchase in India’s leading ecommerce company, Flipkart. However, that rumor has too been shut down.
India’s ecommerce landscape is peppered with local players such as Flipkart and Snapdeal, and of course, Amazon. The global giant has been making strong pushes in the country, most recently launching Amazon Prime for Indian shoppers and setting up six new fulfillment centers across the country in July.
India is currently in a two-way race between home leader Flipkart and Amazon, with Snapdeal coming in third place. According to Tech in Asia, the top five ecommerce companies in India hold about 80% of the market, with Flipkart owning 50% of the market share. It seems that India’s ecomemrce landscape is heading towards a new level of growth, with only the big players making strides and battling each other.
If, and when Alibaba does make a play for India, it will put the ecommerce company directly head to head with Amazon. But as of now, more speculations of possible buyouts and acquisitions will indeed run rampant.
Amazon just had its greatest quarter ever. Revenues hit $29.1 billion versus the projected $27.99 billion, citing a 28% year-on-year growth. More importantly, it marked Amazon’s fourth consecutive profitable quarter, reporting $513 million in net income, the highest ever in the company’s history.
As a result, Amazon’s stock price peaked at a record $767.74. Over the last two years, Amazon’s stock has more than doubled while those of its traditional retail peers like Macy’s have remained flat or even declined. And this is just the beginning of Amazon’s growing success and decay of the traditional retail model.
A colleague asked me a few weeks ago which stocks I would invest in. “One, Tesla, and two, Amazon,” is what I answered. Little did I know he had regrettably sold his Amazon shares a few years back expecting it to decrease in value.
Why would someone want to invest in Amazon stock at such a peak price? Very simple. Amazon’s dominance and stock value will only keep increasing with the ongoing global structural shift from offline retail towards ecommerce. Ecommerce penetration in the US today is “only” 7.7%.
Can you imagine Amazon’s stock price when this number hits 50%? Never mind economic recessions impacting people’s purchasing power, America’s consumers – Amazon’s home field audience – will keep on buying even if that means borrowing more money from the Chinese.
Short-term, traditional metrics impede long-term strategic vision for traditional retailers
When speaking to traditional retailers across Southeast Asia about doing ecommerce, the question that always comes up in one way or another is, “What’s the Cost of Sales (CoS) for investing into and growing my ecommerce business?”. In ecommerce and the tech space, many of us are familiar with using metrics like customer acquisition cost (CAC), customer lifetime value (CLV), and return on investment (ROI).
However, the metric that resonates most with offline retailers is cost of sales, which is essentially marketing investment divided by revenues. It’s the percentage of revenues that traditional retailers allocate for marketing spend in their annual budgeting.
CoS for traditional retailers often hovers around the 5% mark, driven by legacy organic offline traffic and brand awareness. For ecommerce, especially during the first few years and depending on how aggressively the business acquires customers to grab market share, this number can be somewhere between 50-150%. Obviously, this is much higher than the number traditional retailers are accustomed to and, as a result, is often a major deal breaker for offline businesses thinking of moving into ecommerce.
Fortunately, CoS goes down when the number of SKUs online increase, leading to more organic traffic, higher basket size, and more frequent repeat purchases. In the long run, as ecommerce businesses are able to build up their customer database and find multiple ways to monetize it (more on this later), CoS will decrease and potentially be comparable to comfortable offline retail channel values. aCommerce internal data shows an example of a multi-category online retailer in Thailand starting at approximately 25% CoS and trending down to 5-10% at the end of year one and 5-8% by end of year two.
Unfortunately, most of the traditional retailers in Southeast Asia fail to adopt a long-term vision and never make the initial jump into ecommerce. The lack of talent in the region exacerbates the issue as many retailers have no choice but to put offline retail people into ecommerce positions whose mindsets aren’t wired to think beyond the next holiday season.
Controlling the last-mile: It isn’t about selling more physical products, it’s about who owns the customer
Traditional retailers often see ecommerce as just another store but online. This legacy mindset prevents them from seeing the grand scheme of things.
Unilever didn’t buy Dollar Shave Club (DSC) for $1 billion for better razors, it bought the direct relationship DSC has with more than 3 million male dominant members and the potential to sell them adjacent products and services. Rather than going through retailers like Walmart, Unilever can now go direct to its consumers with all the benefits including higher margins and deeper customer insight.
Alibaba didn’t buy Lazada as a distribution channel for more Chinese products, it bought the direct customer relationships and distribution power to bring in higher margin products and services such as payments and insurance.
It’s only a matter of time before Jack Ma brings his trojan horse Ant Finance and all its associated products such as Alipay (third-party payment platform) and Yu’e Bao (online mutual fund) into Southeast Asia. Alibaba’s foray into insurance through Zhongan and its recently announced partnership with AXA shows us a future where Alibaba can increase its average revenues per user through selling non-physical products online.
Xiaomi pretty much gives away its smartphones for free by selling it at close to bill-of-material prices. Their goal is to amass a huge user base and monetize through selling them peripheral products, plush toys, software, and online and mobile advertising. With over 170 million users as of 2016, Xiaomi has more users than Snapchat (70+ million) and is catching up to LINE (220 million).
Pure-play, Internet first retailers are bringing their game to traditional offline retailers
Traditional retailers still believe they have one unique advantage over pure-play retailers: their physical stores. All the hype and buzz about omnichannel retailing has been a ray of hope for the Macy’s and Walmarts of our world. Even as Macy’s shuts physical stores, it has been ramping up its omnichannel game by transforming the surviving ones into show rooms and mini-fulfillment centres for in-store pickup of online orders.
Today, the company no longer breaks out online sales in its investor reporting, arguing the lines have blurred between website and stores. Walmart, having missed the ecommerce boat, has doubled down on omnichannel as well, expanding its ‘buy online and pick-up in store’ initiatives to around 30 markets in the US.
Unfortunately, even that advantage is slowly being eroded as pure-players are quickly moving offline, not so much for distribution but more as an extension of their online brand.
“By opening stores, brands have increased consumer awareness and subsequent site traffic. These disruptors saw the Internet as a way to establish a proof-of-concept and access cheap capital before making the leap to retail.” — L2 Inc
Warby Parker has 12 retail locations across the US, with plans to open seven more. The same applies to Birchbox, the online subscription beauty retailer, which has a flagship store in SoHo in New York and is planning to open at least two more by end of 2016. Even Amazon launched its first physical store in Seattle in late 2015 with a second one planned for Southern California.
Contrary to traditional retail merchandising strategies, these stores typically go beyond the “big head” of products and focus on displaying as many product variations as possible, including “long tail” SKUs. The objective isn’t to sell in the store; the goal is to get customers to experience the brand and the products so they’re more likely to buy online.
“These stores carry little physical inventory onsite and are instead designed to help customers zero in on their ideal sizes and fits. This approach echoes that of the company’s website, giving every single item its own opportunity to shine.” — Erin Ersenkal, Chief Revenue Officer of Bonobos.com
It’s not hard to imagine Alibaba and Lazada opening offline stores across Southeast Asia to serve as marketing and branding channels. With the shortage of online and offline customer acquisition channels and increasing cost-per-clicks in emerging Southeast Asian markets like Thailand, Indonesia, and Vietnam, having your own proprietary offline channels provides a strong competitive edge over traditional retailers as well as online peers.
The role of ecommerce for traditional retailers
Traditional, offline retailers are left with two choices when it comes to ecommerce adoption:
1. Ecommerce as another store branch
Treat the online store as another physical store and benchmark it based on the same cost of sales metrics (Eg. 5%), or in Jack Ma’s terms, “Ecommerce as a dessert, not the main course.” Don’t expect hypergrowth with this approach due to short-term metrics ruling out any big, upfront investment. The long-term threat here is that brands being sold by the retailer will cut the retailer out and go direct to consumer themselves as they get the upside of higher margins, customer data, and transparency. Unilever’s move to buy Dollar Shave Club is to do just that, and razors are just the beginning.
2. Ecommerce as the channel to own customers
Use ecommerce as a scalable and cost-efficient channel in the long term to acquire and own direct customer relationships. Later, use these relationships to sell more products, both physical and non-physical, especially higher-margin products like financial services (insurance, loans) and advertising. By owning more customers, retailers increase their bargaining power vis-à-vis brands that increasingly take the option to cut out retailers and go direct.
Not all retailers in Southeast Asia are settling for ecommerce as just another store branch. Lippo Group’s MatahariMall is one example. With top-down support and a long-term outlook from John Riady, heir to the Lippo empire, MatahariMall.com is quickly becoming the number one competitor to Lazada in Indonesia. Moving beyond only retail, MatahariMall is also going into payments and financial services through a partnership with Grab. In Thailand, Central Group is stepping up its ecommerce game with the recent acquisition of Zalora Thailand and Vietnam, and Cdiscount Vietnam.
It’s evident that in order to survive, traditional offline retailers like Matahari, Central Group, or The Mall Group need to successfully reinvent themselves to take on the foreseeable onslaught of pure-play, Internet-only retailers like Lazada moving into their territory.
Traditional retailers also need to worry about online brands cutting them out entirely and adopting a direct to consumer model, something already bubbling in the works for brands like Nike. However, the best bet is on the smart retailers who can carve their own ecosystem, own customer relationships – most of which are increasingly digital, and monetize through a multitude of ways (eg. insurance, advertising, services) and not by peddling products at increasingly low margins. Then, and only then, will the traditional retailer as a distributor survive the disintermediation brought upon them thanks to technology.
By Sheji Ho
Share your feedback to @ecomIQ and @sheji_acommerce
Adjusted earnings per share came in at $1.78, when Wall Street was forecasting $1.11, reports Tech Crunch. Amazon shattered expectations when it reported second quarter earnings after the bell on Thursday.
The company saw a significant increase in sales and profit from the same period last year. Net sales were up 31% and net income was $857 million, a very large jump from last year’s $92 million.
Amazon stock is also up 43% in the past year.
The company has also been aggressively expanding in India, touting it as a key emerging market, most recently with the launch of Amazon Prime there:
The team in India is inventing at a torrid pace, and we’re very grateful to our Indian customers for their welcoming response. – Jeff Bezos, Amazon CEO.
The company announced that it expects its revenue for Q3 to be between $31 billion and $33.5 billion.
Amazon has built up a successful ‘Prime’ business, where users pay annual subscriptions to get faster shipping and access to content like movies and music. It also created its own discount holiday last year called Prime Day. The sales day generated significant traction this year and will be included in Q3’s earnings.
Going forward, the company is betting that drone deliveries will cut down on costs and improve efficiency. Amazon is also expanding its grocery business.
Amazon’s earnings this quarter, coupled with various innovative push into markets from the US to India further cements its position as an industry mainstay.
A version of this appeared in Tech Crunch on July 28. Read the full version here.
In a major shift for online commerce, Amazon has quietly dropped any mention of a list price, changing how it entices people to buy. There is just one price. Take it or leave it.
The retailer built a reputation and hit $100 billion in annual revenue by offering deals. The first thing a potential customer saw was a bargain: how much an item was reduced from its list price.
For example, Amazon originally promoted the Rave Turbo Chute as being discounted by 36%. Then, all mention of a discount was dropped and the 60-foot water slide was simply listed at $1,573.58, with an explanation that it used to be $1,573.59 — one penny more. Then, it dropped the old/new price comparison. Then, it dropped the price to $1,532.01 and put the comparison back.
Larry Compeau, a Clarkson University professor of consumer studies, comments
“When Amazon began 21 years ago, the strategy was to lose on every sale but make it up on volume. It was building for the future, and the future has arrived. Amazon doesn’t have to seduce customers with a deal because they’re going to buy anyway.”
That is why stores love big discounts: they work. In studies by Mr. Compeau and others, the perception of a deal is often what makes the purchase happen.
Big brands slapped with fake-discount suits
J.Crew, Macy’s have been slapped with law suits for displaying bargains online and offline that are not real bargains and are breeding “fake-discounts suits”, much of it using a tough California law against deceptive advertising. Amazon itself was the target of a fake-discounts suit — an unexpected development, because all Amazon customers agree to go to arbitration instead of court. A judge dismissed the complaint but the plaintiffs are now appealing, saying the arbitration clause is “unconscionable” and should be invalidated. Amazon declined to comment on the suit.
In Amazon’s third decade, with its complete domination of the ecommerce landscape, there are signs it is beginning to emphasize the value each customer brings. Amazon also appears to have stepped up its monitoring of a vendor system that allowed some sellers to insert data that listed their products as 99% or even 100% off.
Mr. Kovarik of Rout said his analysis indicated that Amazon was regularly eliminating more list prices. “In early May, about 29% of the products we saw were missing list prices, but now the number is up to about 70%,” he said.
As Amazon prepares to enter Indonesia, it is vital the ecommerce behemoth takes the necessary steps to sway Southeast Asian shoppers who have recorded one of the lowest interpersonal trust indexes in the world.
A version of this appeared in New York Times on June 29. Read the full article here.