Why All Is Not Well At Flipkart – And How To Save It

FlipKart, India’s homegrown eCommerce success story (/work in progress?) was valued at $15B last year.

Recently though it was in the news for the wrong reasons, after a trio of small funds cut their private valuations for it by up to 23% – blaming, primarily, the fact that it was spending a lot more than it was making, in its quest for marketshare, with no end in sight to its profitless days.

Amazon of course famously did that for a long time, but not having profits is not the same as not having enough operating/free cash flow, so that’s a different story.

Coming back to FlipKart, I recently read a longish post on what ails FlipKart by Haresh Chawla, a partner at an Indian PE firm, that contains many illuminating observations and advice, about FlipKart, unit economics and about startups in India.

One of the stranger things from the post is about FlipKart driving saves revenue (or GMV = Gross Merchandising Volume) by becoming the number one destination for smartphones – to the exclusion of everything else:

So Flipkart sells smartphones by funding such deep discounts that even neighbourhood mobile shops buy from them as against sourcing them directly from the manufacturer. For example, Flipkart funds a 20% discount beyond the wholesale price in the case of Micromax. Now, if you have a valuation round coming up, sign up a few exclusive smartphone deals, pump in discounts and sell a few million smartphones. And you can claim that you will hit $10 billion faster than anyone else. Incidentally, Flipkart fell short of that number by just $5 billion, as Mint reported in this roundup of missed targets by e-commerce firms.

Given the number of marquee global VCs backing FlipKart, it’s weird that no one thought to question tactics like this one that guarantee a loss on each sale without the upside of loyalty, repeat purchases or even a loss-leader strategy. Especially in a market where (a) price trumps everything and (b) fierce competitors like Amazon can afford to bleed them out for as long as it takes.

You can read the full thing here.

 

Retail Manipulation

As I’ve wrote here in the past, though we think that we are mostly rational beings that carefully weigh any number of things before acting one way or the other, in reality, we are extremely susceptible to all kinds of external stimuli. 

Retailers, among others, know this of course, and employ every tool there is in their psychological arsenal to lighten our wallets. So how bad is it?

Consider this excerpt from an article that appeared in The Economist all the way back in 2008:

In the Sainsbury’s in Hatch Warren, Basingstoke, south-west of London, it takes a while for the mind to get into a shopping mode. This is why the area immediately inside the entrance of a supermarket is known as the “decompression zone”. People need to slow down and take stock of the surroundings, even if they are regulars. In sales terms this area is a bit of a loss, so it tends to be used more for promotion. Even the multi-packs of beer piled up here are designed more to hint at bargains within than to be lugged round the aisles. Wal-Mart, the world’s biggest retailer, famously employs “greeters” at the entrance to its stores. Whether or not they boost sales, a friendly welcome is said to cut shoplifting. It is harder to steal from nice people.

Immediately to the left in Sainsbury’s is another familiar sight: a “chill zone” for browsing magazines, books and DVDs, tempting impromptu purchases and slowing customers down. But those on a serious mission will keep walking ahead—and the first thing they come to is the fresh fruit and vegetables section.

For shoppers, this makes no sense. Fruit and vegetables can be easily damaged, so they should be bought at the end, not the beginning, of a shopping trip. But psychology is at work here: selecting good wholesome fresh food is an uplifting way to start shopping, and it makes people feel less guilty about reaching for the stodgy stuff later on.

And that’s just the beginning.

The rest of the piece goes into more detail about the many other ways in which shoppers are…influenced (sounds better than “manipulated”, no?), as they walk through the other aisles.

Bookstores In The Age of Amazon

Shopping for real books in a “real” store was supposed to go the way of the dodo, as anyone not hiding under a rock these past few years knows. 

But interestingly, writes Michael Rosenwald in The WaPo, some bookstores – “indies” no less – are making a comeback of sorts.

Independent bookstores are not dead. In fact, in some of the country’s most urbane and educated communities, they are making a comeback.

In an e-tailing world, their resurgence is driven by e-book growth that has leveled off, dyed-in-the-wool print lovers who won’t (or can’t) abandon page flipping, a new category of hybrid reader (the latest mystery, digital; the latest John Irving, print) and savvy retailers such as the Englands, positioning their stores squarely in the buy-local movement and as a respite from screens.

The American Booksellers Association, which represents independent bookstores, says its membership — it hit a low of 1,600 in 2008 — has grown 6.4 percent in 2013, to 2,022. Sales were up 8 percent in 2012, and those gains have held this year.

Still, as the rest of the article says, their long-term success is far from assured, because of demographics and continuing shifts in consumer behavior. 

So what can book and bookstore lovers such as this writer do, to ward off the (eventual?) demise of bookstores everywhere? Vote with their wallets. 

Retail Customer Service, As A Competitive Differentiator

How do you compete with “Earth’s Most Customer-Centric Company”?

By going well above, and beyond, the call of duty, as Elizabeth Holmes highlights in a WSJ piece today:

“We spend a lot of time, money and energy attracting new customers,” says Richard Baker, chief executive of Hudson’s Bay, Co., owner of Saks Fifth Avenue and Lord & Taylor. “The last thing we want to do is, after all that work, lose a customer over a bad experience.”

That is why Andrea Robins spent several hours on a recent weekday hunting for a handbag. Ms. Robins is Saks’s senior director of customer service, who solves problems that escalate from any of the retailer’s 113 full-price stores and outlets. A customer at a Saks Fifth Avenue store in Florida had bought a $1,850 Gucci bag to be shipped to her daughter in Washington state. The store mistakenly sent it via ground, not air, and the bag wasn’t going to make it in time for the daughter’s birthday.

“It’s not acceptable to say, ‘We’re human and a mistake was made,’ ” Ms. Robins says. “The commitment to service says, ‘Now what are we going to do to fix it?’ “

Ms. Robins and her team first tried to reroute the package to a faster shipping method—but that wouldn’t be fast enough. They considered placing a new order for the handbag with quicker shipping, but it was out of stock. Finally, they called up a Gucci store in Seattle, bought the bag from the retailer and had it sent to the daughter—just in time.

At the “low end” – which probably means anyone buying bags $200 and under – I guess the best bet then is to temper expectations. Or shop at Amazon.

Who Are The Losers In The Amazon vs Walmart Battle?

Consumers are winning the retail wars (a post that I wrote exactly a year ago!). That, we know. 

But who’s losing?

A longish article on this subject at Knowledge@Wharton says that other retailers, both large and small, are suffering from collateral damage:

But with two, not just one, behemoths now cutting into profit margins in a race for market share, what are the consequences for the rest of retail? “If those two keep getting better, it’s going to be rough news for other people,” says Wharton marketing professor Stephen J. Hoch.

Retail futurist Doug Stephens also sees “huge” potential for collateral damage to other retailers. “I think we are already seeing it,” he notes. “Target issued a letter, though it was more of a directive, to its vendors a year and a half ago that said if you sell us anything we later find on Amazon, you run the risk of being delisted as a vendor. This is very serious for every retailer — be careful of the shrapnel flying around as Amazon expands into other categories.”

The rest of the article, which veers off into how these two giants are remaking (re-building, actually) retail from a big picture perspective, makes for a good read. 

Lessons in Supplier Power: Amazon’s Gazelle Project

One of things in business is to be careful with those that supply you with what you need, to make what you make, to sell to those that buy. 

That’s because, if they (the suppliers) become powerful – they can cut you off lest you give them what they want, which is almost always more margin. Soon, you find that you can’t live with them – yet can’t live without them. This is the uncomfortable truism behind Porter’s Supplier Power. 

And from the company that has so much to teach us all about business, by way of an article by David Streitfeld in The NYT, comes another lesson on this topic:

In negotiations with larger publishers, Mr. Stone writes, Amazon kept demanding more as it got bigger: steeper discounts, longer periods to pay and better shipping. Mr. Bezos, Amazon’s chief executive, then turned up the heat on the most vulnerable publishers — those most dependent on Amazon.

The company’s relationship with those publishers was called the Gazelle Project after Mr. Bezos said Amazon “should approach these small publishers the way a cheetah would pursue a sickly gazelle.” A joke, perhaps, but such an aggressive one that Amazon’s lawyers demanded the Gazelle Project be renamed the Small Publishers Negotiation Program.

Mr. Stone writes that Randy Miller, an Amazon executive in charge of a similar program in Europe, “took an almost sadistic delight in pressuring book publishers to give Amazon more favorable financial terms.” Mr. Miller would move their books to full price, take them off the recommendation engine or promote competing titles until he got better terms out of them, the book says.

And that was before Amazon launched its own imprint of course…

[Really looking forward to reading Brad Stone’s book on Amazon that this article was based on…should I buy it on Amazon though?]

PS: Yes, Supplier Power typically refers to those that supply you with raw materials…but in retail, I think that distributors are suppliers of sorts because they supply you with the channel to sell what you make to end customers. As such, Amazon’s website becomes yet another thing you are supplied with, to sell your wares. No?

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