Even as the buzz over online-shopping websites increases by the day, brick-and-mortar retailers seem to have decided to compete with them on the key measure of competition: price.
In a full page ad today in several newspapers, Kishore Biyani's Future Retail , one of the country's largest modern retailers, announced a grand 12-day scheme starting October 1 in which shoppers would get back varying amounts of cashback on their purchases.
The amount will be credited to cards issued to Future customers and starts from Rs 600 (on purchase of Rs 5,000) and goes all the way up to Rs 3 lakh (on purchase of Rs 10 lakh).
The cashback, which ranges from 12 percent to 30 percent in percentage terms, will have to be utilized on a monthly basis instead of at one go and can be used at any of the group's format stores such as Big Bazaar, eZone, Central, HomeTown, etc.
However, as discounts go, the amount may still be less than what one would typically find for a corresponding product online across a variety of lines.
For instance, the iPhone 5s (16 GB version) which retails at an MRP of Rs 53,000 (some offline stores offer some amount of discounts/cashback), can be found for as little as Rs 36,000 online.
Even as online sales account for a small percentage of overall retail sales in the country, the ecommerce industry has been growing at a phenomenal pace. The Indian ecommerce industry notched up sales of USD 13 billion in 2013 (up from USD 2.5 billion in 2009) and sales are expected to touch as much as USD 70 billion by 2020, according to a report by consulting firm BGR.
This has been led by increasing Internet penetration as well as by following a cut-throat pricing strategy, which has led to brick-and-mortar stores complain of predatory pricing.
Compared to physical stores, which require investments in costly real estate, manpower, etc, online websites have a leaner cost structure and are thus able to generally offer more competitive price than the former.
To make matters worse, organized retailers – not just in India but across the world -- suffer from thin margins, making up for it by volumes.
In the June quarter, Future Retail notched up profits of Rs 66 crore on sales of Rs 2,317 crore. The country's largest retailer, Reliance Retail (disclosure: Network18, which owns Moneycontrol.com, was recently acquired by Reliance Industries, which also owns Reliance Retail) has only recently broken even though its exact financials are not known.
That said, even online shopping companies have been known to suffer from high operational costs, such as those arising from logistics, etc, and many have been known to be reeling under losses for years.
Despite that, the superior sales growth has seen a frenzy among private-equity investors leading some to question valuations going for many such companies.
For instance, the largest online player, Flipkart, was valued at USD 7 billion (or Rs 42,000 crore) in a recent fund-raising round. In contrast, the marketcap for Future Retail stands at a mere Rs 2,900 crore.
Future chief Kishore Biyani had also recently questioned some of the valuations offered for online websites.
"These days, the media only looks at e-commerce. However, you must also ask if gross margins of any such company are positive or not. There is hope of survival for them when their gross margins are positive. I'm not saying it is sustainable or it is not sustainable," Biyani had told PTI.
"They're getting private equity money in the hope that one day they'll have their own products and brands," he added.
Most online websites in India, as they are majority owned by foreigners through the FDI route, serve as marketplaces (where buyers and sellers meet) rather than selling their own inventory as Indian regulations allow FDI only in marketplace-model companies.
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