Can B2B E-commerce Thrive in India, Despite The Lack of aStreamlined Supply Chain?
A streamlined delivery system is the key to business success, and in a country like India, one of the major obstacles for small businesses has been creating a dependable delivery mechanism.
In the sporting goods market, this challenge is even more acute because sporting equipment is manufactured across a wide range of locations throughout India. For example, most cricketing equipment comes from Jalandhar, while most sporting apparel originates from Tirupur or Ludhiana, and other major sporting goods are produced in Meerut.
Sporting goods comprise of 0.2% of the retail market in India, which translates to nearly $2 billion. Currently, the market is growing at 30% to 40% year-over-year and is estimated to reach about $4 billion by 2015. The market is scattered, but the opportunities presented are enormous.
“We are seeing a very new trend in which small shops are now starting in remote towns depending on our supply chain,” said Sanjay Rao, co-founder of Sportsnest Retail India, which runs the e-commerce platform Sportsnest.com. Around 15 days ago, a new store opened in Hebri (60 kms from Mangalore) and another one opened in Shimoga, both of which procured goods from Sportsnest.com.According to Sanjay, “Since the stores opened, the one at Hebri has already had a turnover of INR 1.5 lakhs and the store at Shimoga has done business worth INR 3.5 lakhs,” She further mentioned that “It is not apparent that there would be such high demand in a place like Hebri, but upon closer inspection we saw that there are more than 20 schools in that area.”
Quickly delivering goods to remote locations has always been a problem and it is the main reason why tier 2 and tier 3 cities have not been able to thrive. “These stores got in touch with us and expressed interest in procuring our goods, but only if we delivered fast. Now, the stores either place an online order, or call the customer care, and within a day the goods are shipped from our end,” said Sanjay.
Soumitra Sharma of IDG Ventures believes that small businesses and mom-and-pop stores are still not internet savvy enough. According to him, “It could work with larger companies, but then it becomes like a standard e-procurement model.”
The store in Hebri
The stores in Hebri and Shimoga only display the sample products; the products are not actually sent to them until the customer order is placed. Sportsnest is currently negotiating with other stores in Mysore, Mandya, and Mangalore to strike similar deals. They are planning to open a franchise outlet in Manipal because of the high demand for luxury sporting goods there. A store in Himachal Pradesh has also been in touch with them to procure hiking equipment in bulk.
Speaking about the potential of the sporting goods market in India, Sanjay said, “Since we launched the site about four months back, we have already done business worth INR 60 lakhs with schools alone. The B2B market potential is huge and now that more stores are associating with us, we can reach out to a larger audience.”
On the flip side, Soumitra said, “The typical drivers of e-commerce value proposition, like convenience, lack of availability in offline retail, and increased choice will not be as widespread in B2B as compared to the consumer facing side. It might make sense only for specific customer categories.”
So although sporting equipment is one sector in which this trend might flourish, the same can’t be said for the B2B e-commerce market as a whole.
“In consumer e-commerce, pricing is typically more elastic and therefore companies can play arbitrage between the price at which they buy from the brand and the price they charge customers. In B2B, margins are typically very thin, and by introducing a layer between the manufacturer and the customer, the margins would get squeezed even further, leading to a “trading house” like scenario. Of course this might still work in specific categories with extraordinarily high margins,” added Soumitra.
Within Karnataka, Sportsnest.com utilizes an in-house delivery network. They are working on creating a pan-India logistics network that will help them strike similar deals throughout India.
YourStory.in will be following the developments in the B2B e-commerce space keenly.
Keep watching this space for updates about the B2B e-commerce space in India.