Thought for the day
"There is nothing so strong or safe in an emergency of
life as the simple truth."
-
Charles Dickens (English, 1812-1870)
Word for the day
Sinecure (n)
An office or position that requires or involves little or
no responsibility, work, or active service.
(Source: Dictionary.com)
Teaser for the day
For those who are overexcited about Delhi results - please note
that BJP did not get simple majority on his own in Maharashtra, Jharkhand and
J&K.
So what's the big deal!
Flipping the kart
While assessing the political mood of Delhi post exit polls I
had a chance to meet group of traders in Delhi. Though mostly in their 30s and
40s, almost all these traders belonged to families which have been engaged in
trading business for more than two generations.
Though the subject of discussion was Delhi politics, it somehow
took a turn towards the existential threat this group perceives from the
phenomenal growth recorded by e-retailing business in India.
All the members of the group felt that the core of the
e-retailing business in India lies is the ability to sell cheaper than
traditional retail. Convenience, more choice and greater accessibility are
supporting factor, but "price" remains the key factor. Nonetheless,
most of them have joined the bandwagon as supplier.
I am no expert of retail business in the country. But if the
views of these experienced traders are any indication - e-retailing is fast
turning India into a traders' and arbitrageur's economy. This is not congruous
with the objective of the government to promote manufacturing in the country.
From my little knowledge I understand that e-market places would
continue to need huge capital for investing in technology and delivery
infrastructure. Given their business model of negative operating cash flows for
a considerable period of time, debt may not be a viable option. So these
ventures will obviously be high equity and low RoE models. Moreover, the
business model is also shifting towards independent logistic support and
non-exclusive suppliers, lowering the entry barriers.
The current trends suggest that initial investors may have
multiplied their investments already, but eventual investor might be stuck with
a business that (a) yields less than bank fixed deposit; (b) has low or no
entry barrier; (c) owns little in terms of tangible assets; and (d) remains
capital intensive forever.
Stretching the logic a little further - as a high volume but low
(presently negative) margin business e-retailing shall keep the manufacturers
margin under stress. Unless we have huge factories that can produce good
quality stuff at really low cost (an advantage enjoyed by Alibaba in China)
e-market places would continue to burn cash and keep economy under pressure.
I am trying to understand the "consumer is winner"
notion of e-retailing also. If this business model subsidizes the "product
prices" through lower wages, rentals, return on equity, quality of product,
& traders' margin, with consistently higher viability risk, on the whole
consumer may not be a winner.
Though not strictly comparable, we have seen this in power
sector. Unviable price bidding for power projects has not benefitted consumers
eventually.
I guess, the business so far has grown in a very localized way,
without any holistic planning. This is a brilliant tool to handle the problems
of accessibility, congestion, competiveness, logistic inadequacies, supply
chain optimization etc. But unless it is fully integrated with town planning,
manufacturing, Exim trade policy and taxation regime - the outcome may not be
optimum.
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