TC Debate: Which e-com format— marketplace or inventory-led—will lead to profitability first?

We are back with the second edition of our new section TC Debate, and this time we have picked the most sought after sector of Indian internet industry- ecommerce. The tussle for supremacy between marketplace and inventory-led business model has been going on for a long time now, and while some experts argue that inventory-led model has no chance of scaling up in a market like India, others feel marketplaces won't sustain.

To get a definitive answer about the same, we posed a question 'Which e-commerce format—marketplace or inventory-led—will lead to profitability first?' to a few industry veterans. Here is what we found:

Vikas Ahuja, CMO, Myntra (inventory-led model will rule the roost)

For a market like India where customers have very low faith in shopping online, the first thing to be ensured is customer satisfaction. There is an immense need to build customer trust right now in order to create repeat customers. This trust can only be built by excellent customer service, which in turn is best taken care of when you have control over the inventory. Only with inventory-led model we can ensure speedier delivers, quality checks, and an overall better customer experience.

Whether investors support one model or the other is a case-to-case dependent question. It majorly depends on the category that particular e-tailer is functioning in. If you were to look at books, investors probably won't be too concerned about the model, but if you look at the fashion and accessories category, there they are sensitive to the fact that these are all high involvement purchases.

Coming to scale, yes, there is a lot of talk about the fact that the inventory-led model is difficult to scale but I think we (Myntra.com) are already proving that wrong. If we look at our internal numbers and the level of customer satisfaction, we see a path to profitability in the next 18-24 months. And while we are open to the idea of experimenting with a managed marketplace, for the larger part we are convinced we already have the right model.

We are also seeing and hearing many incidents of not so good customer experiences from many other marketplaces. The challenge is, when you build up these marketplaces, you are compromising on quality of products. The marketplace model also has the challenge of integrating things well with technology. In the long run, you will find some players that will find success in one model and the other, but I will reiterate that in my view, inventory-led model will lead to profitability first.

Sandeep Komaravelly, VP-marketing, Snapdeal (marketplace model is best suited for Indian market)

There is no debating the point that customer service is most important. There are a few very important points to be noted here. Firstly, we are not sure how by having inventory anyone can ensure superior quality. Secondly, even though we don't store inventory with us we have aligned each and every partner that we work with to ensure timely deliveries (there are a chunk of products on our site that are shipped within three-four hours of the order being placed); we have made systems efficient that there is no loss of time just because we don't have inventory with us.

We are seeing even many other inventory-led players trying out a managed marketplace on their portals; though they are finding it difficult to scale that, it does speak about the merit of this model. Sure, others can argue that at times customers complain of wrong products being delivered or bad quality products reaching them. To respond to that we would just say that we have multiple levels of quality checks to ensure the correct and premium quality product is shipped to our buyers. Still, should there be a case where a wrong product has been delivered; we have various customer friendly policies in place for a return or exchange, which again is to ensure best customer service.

Even from an investor point of view this model makes more sense. Logically thinking, this model is very scalable with relatively less capital consumption and more assortments for buyers. Coming to reaching profitability, scaling profitability depends on a lot of things. For a high growth company like ours there are various things we like to keep investing in. The way we look at it, in next 12-18 months we would be touching profitability.

The main advantages that marketplace has over an inventory-led ecommerce players are the assortment that you can have on your platform. We have thousands and thousands of sellers and that has been possible only because of our model. And of course the fact that it is not as capital intensive adds to the benefits. We don't have to worry about cost of warehousing, purchasing inventory beforehand and so on. We firmly believe in our business model and it is best suited for a market like India.

That is all for this week's TC Debate. We now throw the topic open to our readers. What is your take on today's question—do you feel marketplace model makes sense? Can one see companies following it reaching profitability before inventory-led players?

(Edited by Joby Puthuparampil Johnson)