Will Online Stores Overtake Retailers

“When a person comes into our retail store, we hand him over a camera and a person to assist him with the features. That’s it. Consider the camera sold.” A high ranking official of a leading camera company had made this statement at a point of time. He was laying emphasis on the experience that a customer can have when he walks into a store vis-a-vis when he shops online. Here is a person who is strongly vouching for offline retail store experience for his customers.

In the wake of the booming online stores, the story of the offline stores has taken a back seat. With the online business in India all set to touch about USD 34.2 billion by 2015, will people still prefer the traditional method of offline shopping is a question on everyone’s mind.

The raining discounts online

If we take the case of hand-sets, as per CMR – a market tracker, 10 to 15 percent handsets are sold online in India. If this continues to be the case, then will offline stores, which are already feeling the heat from online business, suffer further?
But before that let us see what attracts people to online stores and how it is hurting the offline sales.

Alok Bharadwaj, executive president of Canon India, in a recent interview, had managed to answer this query in a very simple manner. He said that people come to his retail store to experience the product, but go online to have the experience of buying it. This product versus buying experience is acting as a disruptive force and murdering the experience of buying cameras first hand from the stores.

Retailers like Bharadwaj who had initially viewed e-commerce as a platform where product awareness could be created is surprised to find the trend reversing. People are checking out product in traditional stores but buying them online. There were even advertisements playing up to this sentiment.

Why do people prefer to buy online?

Because of the competitive prices and attractive schemes that are available online. Let us take the case of electronic goods. Here, the offline distributors may list the products on the online stores at manufacturer-recommended prices or at prices with lower price margin. This when coupled with heavy discounts, like cash back or gift coupons or free goodies, tend to make shopping for the product more attractive online.

Currently, there are no laws to check the maximum amount of discount that can be offered on online stores. Hence, if offline stores are unable to match the online competition, it directly has an impact on their earnings. Of late, the manufacturers, especially of electronic goods, have been bearing the brunt because of the wide gap between the pricing on the online stores as compared to offline stores.

In addition, offline retailers feel that the quality of customer experience is getting compromised. A traditional store would work better any day for products like camera, because a customer has to get a first-hand feel of the products.

Fighting back online discounts, protecting retail stores

Many companies dealing in electronic and mobile phones are looking at giving a boost to their retail stores. These brands have realised that they need to identify and form a relationship with companies that have similar pricing and sales strategy as theirs. This then can earn retail stores the profit margin that is now being gobbled up by the online stores.

Leading electronic brands like Panasonic, Samsung, Canon, Lenovo and Sony have issued directives banning their stores from selling the products online or indirectly through online portals. They have even issued threats to cut off supply of the products.

Lenovo is in touch with popular online stores to devise a strategy where the offline retailers are not exposed too much to risks from the online business. They have also defined geographical territories for retailers to sell.

Taking the online competition head on, The Mobile Store, owned by Essar Group, has announced huge discount, cash back schemes and free goodies to all its customers who would come and shop from their retail stores.

The offline experience

Meanwhile, Canon plans to have around 300 retail stores by the year 2015. They are looking at a positioning where they want to say that it is only in offline stores that one can have a first-hand experience of buying a camera.

In the coming festive season, one many see different brands coming together and offering discounts and attractive schemes to the customers. The brands also recognise that online shopping is restricted mainly to bigger cities and are eyeing at wooing the customers in two-tier and three-tier cities to promote their retail sales.
Well, the offline stores are definitely getting some cushion there.

Having said this, these brands are not writing off online stores completely. While some companies are entering into unsaid agreement with online stores not to sell products below a certain price level, others are maintaining same prices both on the online and offline domain. Apart from this, there are other companies who are ready to use the online platform vigorously to sell products that are soon going to be out of the market.