Why India’s Flipkart should consider physical stores
October 24, 2016 02:32 PM
(Bloomberg Gadfly)—From the annals of Truth Is Stranger Than Fiction comes news that the Indian e-commerce giant Flipkart is considering getting into bricks and mortar. The company that made a name for itself helping shoppers avoid physical stores may end up inviting them in.
It's not as preposterous as it sounds. Nor is it just a copy of Amazon's move to open bookstores in the U.S. This may be a pragmatic step by a company that understands the challenges faced in converting the long tail of India's population into would-be e-commerce customers.
Amazon opened shops to offer the pleasure of physical book browsing and to sell electronic devices such as Echo and Fire TV. Amazon is No. 1 in the Internet Retailer 2016 Top 500 Guide. Flipkart, India's top web retailer and No. 76 in the Internet Retailer 2016 Asia 500, is considering stores to offer "assisted commerce," Mint reported.
With much of the country still not connected to the internet and e-commerce players fighting over an addressable market that's only slowly expanding, it makes sense for innovative companies to seek ways to bring new shoppers into the fold. This is dubbed an online-to-offline strategy, but I actually see it as the opposite: offline to online.
There's no reason to believe rural Indians are any more enamored of bricks-and-mortar shopping than their urban counterparts. What's more likely holding them back is access to a device such as a smartphone, a reliable internet connection, and shopping services in their own language.
Flipkart's strategy could be a winner if it focuses on closing that gap, rather than taking on traditional retail traits like inventory and logistics risk. (Trying to reproduce the department-store experience with tons of on-site inventory would burn cash with minimal benefits from economies of scale.)
And while Amazon failed in its attempt to sell a phone, it's actually quite possible that an e-commerce player like Flipkart could find success by developing a simple, cheap handset offering the basics a smartphone newbie might need, including a shopping app.
Take this a step further and become a mobile virtual network operator and the company will have delivered an entire turnkey solution to ordering goods online. Mobile payments could be incorporated, including security built into the device.
From there, the challenge of delivery could be abridged by making the store a pickup point, even a payment location—with the added benefit of helping shoppers get over the fear of order fulfillment, and losing money. Once affirmed as a customer, they could be gently pushed out of the door with discounts and other inducements to stay online, a method employed by banks that charge for in-branch services.
What would really determine success or failure is whether Flipkart could keep its inventory and asset costs low while boosting its customer base. The exercise should be modeled as a marketing expense.
While the instinct may be to scoff at an e-commerce company going physical, challenging assumptions could pay off for Flipkart.