In 2015, China saw a surge of rip-offs of popular electronics being sold on popular e-commerce companies. It was difficult to handle. The big e-commerce companies in China had to make difficult decisions. If they cleansed the database of merchants who sold fakes, the number of sellers on the platform would drop drastically. And no one could figure out where in the value chain the fakes crept in.
“Companies tied up with big brands and asked them to start selling their offline products online via a QR code. It meant the original manufacturer or distributor would be making the sale,” says a former executive of TataCLiQ. CLiQ is Tata’s O2O experiment. He asked not to be identified as his current employer doesn’t allow him to talk to the press.
Getting visitors from all over the world
He explains that during his time at TataCLiQ, the company would get visitors from Tmall and Alibaba primarily to swap notes on TataCLiQ’s tricks in execution. TataCLiQ used a similar model to sell its products but without a QR code. It hasn’t been successful so far.
The number of orders has been dropping and so is the average ticket value. Multiple former executives and those in the e-commerce business say that CLiQ does about 20,000 orders a day with an average ticket size of Rs 1,500 ($22.2). (This means that 20,000 people buy online from Tatacliq.com and about 500 people walk into a Tata store and use the Paytm Mall concept to shop.) Compare this to Flipkart, which does over 100,000 orders a day.
When Tmall went online, there was a specific plan in mind. Minimize the fakes. Customers would walk up, scan the QR code and walk out. The absolute volume of people doing this was high. In China, the O2O market recorded sales of $78 billion in 2017 with projections of close to $100 billion in 2018. A lot of people found it convenient; it gave customers a touch and feel of the product, and retailers got people to upgrade their purchases.
“If a customer came to buy a phone, they would sell them Bluetooth headphones, too, which meant bigger margins,” the executive adds. The logistics were then handled by the retailer. “It was possible because there is so much volume,” he adds. It gave the retailer economies of scale when making these deliveries. “Sometimes, the likes of Tmall would make deliveries, but that meant a larger commission from the retailer,” he says.
Great relief from the problems
This solved two problems for Chinese customers: it took out the risk of being saddled with fake goods and they got to experience things first hand. For the retailers, it increased footfall, which meant they could sell more. The likes of Tmall showed huge GMV and the commissions worked as well.
Now, let’s come back to India. “There is a problem of fakes, but not as acute as China,” says Satish Meena, senior forecast analyst at market research company Forrester. And the reasons for pulling Indians to the store are different. India still doesn’t pull in the same volume. “Alibaba has also been skeptical about logistics in India,” adds Meena. And now starts the tug-of-war between the retailer and Paytm.
Both of them want the other to do deliveries. “At CLiQ, because they were all Tata products, it was the retailer who did the delivery because that’s how it is always done,” says the executive quoted earlier. But retailers don’t want to do deliveries. “It makes sense only if there is volume. Imagine a retailer making deliveries for one phone,” says a senior executive at a phone manufacturer who also has e-commerce experience. He asked not to be identified as he is not allowed to talk to the press.
In this model, there are two ways to make a purchase:
- The customer makes an immediate purchase, scans the QR code and pays via wallet
- The customer scans the QR code and buys from the retailer’s online store while standing at the shop
- Here is where things get a little tricky. Let’s say the retailer sells phone Brand X. Now, Brand X’s corporate headquarters decides that this new series it has developed will retail at Rs 10,000 ($148.07). Typically, within this Rs 10,000 is where the retailer makes her margin.
- This pays for the rent of the store, the salaries and the commission to a sales agent for making the sale. “All of this is done in really thin margins,” says Meena. Now, within this thin margin, she also has to make space for deliveries.