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The Earth is Shaking for E-Commerce in India


Is there something really bad happening with e-commerce companies? Recent developments indicate that the space is now going through a massive correction, and a crisis of confidence.

In Trouble

Arindam Bose, founder of has been arrested along with the company’s CEO, Harish Ahluwalia, for supposedly defrauding customers who paid for orders through their credit cards, but didn’t receive goods. The scale of the fraud isn’t very big – just Rs. 82 lakh from one source. (It has appalling English, but you’ll get the point)

The curtains have begun to close on SeventyMM, the online retailer that started off as a movie rental service and ended up selling pretty much everything they could. It’s raised over $21 million till date, but with the lack of further funds, might shut down soon, reports a site.

One of the oldest players in India, Indiaplaza, seems to be in trouble and needs $5 million to stay alive. I used to buy from it over 10 years back when it was called FabMall; and this is not the first time they’ve seen serious signs of trouble. Yet, the funding environment for such startups is weak, so their future depends on their ability to make someone other than customers pay.


In lesser known cases, merged with so they could secure funding – a case, it seems, of either die separate deaths or live to fight another year.

LetsBuy merged with Flipkart, and because they shared common investors (Tiger Global and Accel) the theory was that the investors made them do it.

Naspers-owned Tradus bought Naspers-funded earlier this year, Myntra bought,  FashionAndYou bought and then shut it down. The list is getting larger.

TechCircle even has a list of potential mergers in 2013 based on common investors.

A larger single player is better in a capital intensive model like online retail, so no matter what you might say of investors calling the shots, the idea of a merger is sound. In a time of crisis, it’s better to concentrate your bets and focus on being the last man standing. In good times, you can spray and pray.

Another big challenge is regulation. With foreign investment in multi-brand retail e-commerce being illegal, companies have created complex mechanisms to skirt the law. Some act purely as marketplaces, not actually selling goods but just handling customer acquisition and payment intermediation. Others put the foreign investment into a wholesale company which then sells to a “retailer” that is only a shell company in the Indian promoters’ name – which then sells the goods to the end-users. All these are quasi-legal, and attempt to stymie regulation.

My Thoughts

The fear of fraud – that is, a company taking your money and then not delivering the goods – is now more real than ever. Trust is essential to e-commerce. E-Bay’s India portal even offers to keep money in escrow until you receive your goods. Retailers fear that customers will order and not-pay – that’s one of the biggest problems with the “cash-on-delivery” model – you incur the cost, but goods get returned. However this two-way-fear is what will hinder even the biggest of companies in the space.

The fear of fraud is greater in India: recovery can take years. And, if court cases drag out that long, it will also mean that founders and other directors will have cases on them for that much time as well – something e-commerce VC funds (who put directors on e-com company boards) will want to consider (Imagine checking a box saying you’re facing a criminal case in India in your visa application).

E-Com players have started to cut discounts, and most think they have brand loyalty because of “convenience” or some such thing. While availability helps because you can’t get goods from local retailers that you can online, that assumptions is largely theoretical because I’ve recently looked for a number of different things from toys to mobile phone to bake-dishes to swimming caps, and in all cases, offline retailers seem to have the variety.

Price beats the crap out of convenience for the masses, in my opinion. There are only two exceptions – where service is exceptionally fast (like your kirana store for buying one or two small items) or where the difference in cost is marginal. E-Commerce shops by definition have a huge service disadvantage compared to offline shops, and in my opinion they haven’t really tried to arm twist manufacturers into letting them discount products much more. Unfortunately, their bloated cost structures and continued mad-growth focus doesn’t allow them to get that much more efficient, which is key to making any profit in this business.

Regulation arbitrage is stupid. All of these players want to be either India’s next or get acquired by it. Yet, once regulation eases up, these companies will set up their own portals since they have way better supply chain capability.

With the Indian government banning FDI in e-Commerce specifically, companies like Flipkart are getting investigated. (which resulted in their selling off the promoter owned front-end retail company to an outsider so they can comply with the rules) Investors are worried because the negative impact of the investigation means they are toast, and the positive is only that they can continue being what they are – the downside is huge, the upside is very small. Given this, the expected action is to tighten the purse strings and say “later”, exactly when the capital intensive business needs continued money to last out a long-drawn battle.

If there is an e-com crash – no, “when” there is one – the impact to jobs will be felt, but remain small. While many have large numbers of technical staff, the biggest numbers of hires is in things like delivery, or elsewhere in the supply chain. However, while this might sound very big to the media, it pales in comparison with losses in, say, the textile export sector a few years back.

While there is a large market in India, I think there have been simply too many e-commerce companies, and this is just the start of the end-game. Eventually the landscape will change, new companies will arrive and the old ones will die. I believe the situation was “bubbly” – I had called the Indian internet a bubble in 2011, when Flipkart was supposedly valued at $1 bn. More thoughts on that meme after being on a TV panel last year. We’re now getting to see the real picture; what are your horror stories in the e-com landscape?


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