This has been the year of online shopping, with a slew of new entrants in categories such as furniture, pet care, organic foods, cosmetics and more. Fifty two companies raised around $700 million of venture capital in 2012. While it is probably the best time to be a buyer, being an e-commerce company is not that easy, even with all the money flowing into the sector. There are questions being raised about their constant need to raise funds, path to profitability and the money spent on customer acquisition. The customer now has a galaxy of options, thus reducing their loyalty to any particular online shop. Though there are concerns regarding FDI norms violations in many cases, it is in no way on a downward spiral. Many investors are of the view that e-commerce companies need to be given at least a 6-7 year window to reach profitability.
Here are certain trends that were visible in the sector in 2012:
1. Deals sites smartly pivot to e-commerce: Deal sites, especially those following the group buying model, have just not been able to gain traction among Indian consumers. There are many examples for this particular market trend, but the most well-known is that of Snapdeal. From deals site to e-commerce to a marketplace, Snapdeal has not shied away from changing models or pivoting on public demand. However small or big, pivoting seems to be a trend in e-commerce. Another potent example is that of group buying site Koovs.com, launched in December 2009. Koovs, one of the earliest players in the sector, transformed to a pure play women's fashion e-store. As per a report by Allegro, 25 per cent of total companies that were funded pivoted from their original business model. Most of them pivoted to either a horizontal marketplace model or to accessories and apparel etailers. The top reason for it was to increase basket size and to move to high-margin categories.
2. Moving to hybrid models for deeper reach: Just online is not enough it seems. While earlier it was offline brands like ShopperStop and Titan, the trend of trying to get best of both worlds seems to be catching the other way round. Online brands like Firstcry and FabFurnish have gone offline with franchise or partner store models. One of the most common reasons for this move seems to capture the offline segment of buyers and the people who are yet to transact online. Another reason is to reap benefits of a brand that has been built well online, offline.
Another path taken to increase reach and interaction with customers has been the use of social media. E-commerce has gone social in a big way in the past year and social shopping sites or e-commerce via social media sites has also been a huge trend witnessed this year.
3. Take a marketplace approach to stay lean: A marketplace model wherein promoters don't have to worry about managing the inventory is catching up. Snapdeal pivoted to it on demand and currently adds hundreds of merchants every day. It has become a way of connecting with more merchants and offering more range of products to the consumers. There is eBay which functions on a marketplace model and Amazon took the marketplace model to enter India with Junglee.com. There is also talk that Flipkart is taking the marketplace route as well. Ranjith Boyanapalli, co-founder and CEO, BuyThePrice, which pivoted from e-commerce to marketplace said inventory-led ecommerce is a tricky play today with all players spending thousands on customer acquisition. The return of that investment on customers takes years to come along. According to Sandeep Agarwal, founder, Shopclues, an online marketplace, inventory-led ecommerce will never flourish in India since earnings on per SKU sold is always less than the money spent on the operating costs.
4. Merging to emerge: It probably started with Letsbuy's purchase by Flipkart, the biggest acquisition of the year. Since then the trend has caught on. E-com acquisitions are probably the biggest trend of the year, with Fashion and You acquiring UrbanTouch and SnapDeal snapping up eSportsbuy. Bigger players gulping the niche ones as a trend is expected to continue into the next year as well. In some cases it was the common investors trying to salvage their investments via the consolidation while in others the aim was to acquire a potent competition. Certain acquisitions were driven by the skills of the team of the target company. The underlying fact remains that niche verticals are finding it hard to survive, which makes an option of acquisition the most logical one. There was even an example like Shopveg, online vegetables and groceries seller, which had to shut shop due to lack of funds and probably buyers. Most of the deals happen due to the lack of funds of the acquired company. Some other deals that happened include Accel-funded Myntra's acquisition of Exclusively.in, Yebhi.com's acquisition of Stylishyou and Blume-funded SportsNest's merger with close competitor Playgroundonline.com.
5. Series A nonexistent, drought in Series B deals: While there was no dearth of investments in seed stage, there was definitely lack of Series A or B rounds. As per the Allegro study, only 30 per cent of the funded companies actually managed to raise a Series B round. The issue of suspected FDI norms violations is making investors wary. While a lot of incubators and accelerators are coming in India to support the startups, there is a very visible dearth of VCs writing bigger cheques. As per data by VCCEdge, the database platform of VCCircle, there was a 130 per cent increase in angel/seed level deals across sectors whereas VC deals across Series A and Series B slipped by 23 per cent.
(Edited by Prem Udayabhanu)