Why is everybody in love with Flipkart?
I cannot resist the temptation to declare that I am amused and surprised with the success of Flipkart in raising tons of money from the investors. Seeing their story over and over again in the news, when almost always the content is repeating itself. So much that lot of mbas - friends and I wonder that why are is everybody madly in love with Flipkart?
Well, if I had the chance I will like to know following from the bansal clan:
1. Why do you think that you are going to achieve stickiness of customer one day? We have been told that Walmart is best store to visit because it is multi-category retail and there is a cost associated with going from one retail to other. So customers save money in going to just one physical location to buy everything they need. However, same funda is not applicable to websites. This is one of the key assumptions for Flipkart.
2. What is the differentiation for such websites? If I am sitting in Delhi or Lucknow, snapdeal and Flipkart both are selling to me the same LG phone and similar dress and same eyeliner, why should I buy only from Flipkart? Give me a reason better than discount. Also, can you tell how many items people buy on an average per purchase from the website. I dont think people club stuff.
3. Flipkart vs. offline retailers: In few categories I really need to go offline. Please acknowledge the fact that God has given us sensory organs so we can enjoy shopping.
4. The extra value that online retail offers to its customers is that we don't have to step out to do shopping. But indeed, we want to step out to shop. Instead, we don't want to go anywhere to buy groceries, chappals, dustbins, and all such nonsense commodities. That's precisely you do not offer. Even if you offer, you will not make money on those.
5. Your model is similar to a modern retail minus "land", which helps you scale up faster. So lets compare your costs to shopper stop style model:
Say for a target revenue of $ 1 Billion, you will need at least 20 mm sq ft retail space.
Rentals varies between Rs 30- 100 / sq ft/month. So, Total rental cost will be 80 Cr/m and Rs 5 - 10 Cr/m for salary of employees on floor.
Now compare this to delivery model.
Approx door delivery costs are Rs 80-150 / delivery (depending on location). The capacity is 5 million transactions / m. So cost is Rs 60 Cr.
This difference is what you can give as discount. But then your profit should be approx 5-10%. But this is not what is happening currently. You are not making any money.
My guess on why: In a multi brand retail store, they can keep few common items at discount and few strategic items at premium so that they can make profit overall. But you have to give discount on each and every item, because you compete for each item's purchase vs. other sites. There is nothing like : " ab aa hi gaye ho yaha toh sab le hi lo, even if that means paying more on few items". Again, issue is people do not club online purchases. (I think the solution is obvious for this, but bansals are too smart to figure that out)
Frankly I don't see any profit coming to them in future. But who cares, they are poised to become $100 billion company. They can change business model then. Wow!
Well, if I had the chance I will like to know following from the bansal clan:
1. Why do you think that you are going to achieve stickiness of customer one day? We have been told that Walmart is best store to visit because it is multi-category retail and there is a cost associated with going from one retail to other. So customers save money in going to just one physical location to buy everything they need. However, same funda is not applicable to websites. This is one of the key assumptions for Flipkart.
2. What is the differentiation for such websites? If I am sitting in Delhi or Lucknow, snapdeal and Flipkart both are selling to me the same LG phone and similar dress and same eyeliner, why should I buy only from Flipkart? Give me a reason better than discount. Also, can you tell how many items people buy on an average per purchase from the website. I dont think people club stuff.
3. Flipkart vs. offline retailers: In few categories I really need to go offline. Please acknowledge the fact that God has given us sensory organs so we can enjoy shopping.
4. The extra value that online retail offers to its customers is that we don't have to step out to do shopping. But indeed, we want to step out to shop. Instead, we don't want to go anywhere to buy groceries, chappals, dustbins, and all such nonsense commodities. That's precisely you do not offer. Even if you offer, you will not make money on those.
5. Your model is similar to a modern retail minus "land", which helps you scale up faster. So lets compare your costs to shopper stop style model:
Say for a target revenue of $ 1 Billion, you will need at least 20 mm sq ft retail space.
Rentals varies between Rs 30- 100 / sq ft/month. So, Total rental cost will be 80 Cr/m and Rs 5 - 10 Cr/m for salary of employees on floor.
Now compare this to delivery model.
Approx door delivery costs are Rs 80-150 / delivery (depending on location). The capacity is 5 million transactions / m. So cost is Rs 60 Cr.
This difference is what you can give as discount. But then your profit should be approx 5-10%. But this is not what is happening currently. You are not making any money.
My guess on why: In a multi brand retail store, they can keep few common items at discount and few strategic items at premium so that they can make profit overall. But you have to give discount on each and every item, because you compete for each item's purchase vs. other sites. There is nothing like : " ab aa hi gaye ho yaha toh sab le hi lo, even if that means paying more on few items". Again, issue is people do not club online purchases. (I think the solution is obvious for this, but bansals are too smart to figure that out)
Frankly I don't see any profit coming to them in future. But who cares, they are poised to become $100 billion company. They can change business model then. Wow!
Comments
Post a Comment