Having grown to great proportions presently, the world of ecommerce is showing great promise as an alternative buying channel vis-a-vis the traditional brick and mortar model. More and more retailers are looking at ways to maintain online stores and even increase sales by going online.
For example, in India, e-tail is expected to account for 3% of the total retail according to PwC. Furthermore, according to PWC, orders per million are expected to more than double. From five million in 2013 these will grow to 12 million in 2016, which means that there will be more opportunities for consumers as well as e-tail companies. Furthermore, according to e-Tailing India, the e-commerce market in India is set to hit $ 76 billion by 2021 from $ 13.6 billion in 2014. In this scenario, big retailers are also going online and are launching apps so that they can attract Indian mobile consumers.
Now, the increased growth of online sales and ecommerce have now led to the growth of two models – the marketplace model versus the inventory model. Let us discuss what the marketplace model is and how is it different from the inventory model. Let us also discuss whether more and more companies are shifting from the inventory model to the marketplace model or not.
Let us examine this phenomenon by first understanding the concept of marketplaces. A market place is a platform that allows a large yet scattered group of buyers as well as sellers to come together on common ground and engage in successful transactions. Whereas, the inventory based model of ecommerce requires a capital intensive inventory of almost all the products the ecommerce website sells. The aim of a marketplace model is to increase the capital efficiency while reducing the logistical complexity to the minimum. There is yet another ecommerce model which is hybrid model that lies somewhere between the marketplace model and pure inventory model.
eCommerce Models in India
When it comes to choosing the ecommerce model for a complex market such India, the situation becomes quite difficult. The market initially embraced the inventory model, but now due to current Indian FDI laws, Flipkart and Amazon are moving towards the Hybrid model and the managed market place model. The managed market place is being viewed as a sure way to profitability as there is there is less capital need. It provides the right level of control towards customer experience. Experienced analysts who have been witnessing the ecommerce market in India and have also keeping a tab on the foreign ecommerce marketplace model, deduce that ecommerce business in India is gradually shifting to the marketplace-led model from the inventory-led model.
With reference to India, a significant majority of the population has very low faith in buying online, the inventory based model entails very high expenses. For a market place model or a managed marketplace model, the inventory-based model is proving to be very expensive and cumbersome to manage. These inventory-based ecommerce models embrace characteristics that are similar to traditional brick and mortar models with typical characteristics such as Exposure risk to inventory, warehousing, and sourcing. Large-scale merchandise as well as high profitability don’t seem to go together according to the industry. For example, for a 30% gross margin business, the operating expenses amount to around 45-50%.
Due to the several reasons, of which some are stated above, several marketplace leaders such as Amazon, Myntra, and Flipkart are now operating in the marketplace space for additional shoppers and increased profits and lesser inventory-based glitches. Some industry pundits are divided in their opinion about the marketplace model, the overall sentiment is in favor of this model, given the complex social and legal structures that exist in the country.
Looking at the current ecommerce scenario in India, you to can set up a ecommerce marketplace with the help of RocketBazaar. If you are looking forward to set up a market place, why not contact us!