Kashyap Deorah Interview: Indian e-commerce is on a 'suicide mission'

 

Indian e-commerce firms have never had it this bad. Everyone who is anyone is spearing their weak spots. The most recent sharpshooter was Future Group founder Kishore Biyani. Earlier this week he said, "It is not viable to run an e-commerce company (in India) today", calling them 'nonsense' and 'hopeless'.

This despite the fact that he was rumoured to be one of the suitors for Jabong before Flipkart pipped him. Also, in April this year, the Future Group acquired online furniture seller Fab Furnish in an all-cash deal which could be in the vicinity of ₹15-20 crore. 

 

Intrigued by Biyani's strident criticism of e-commerce start-ups, Asianet Newsable's Shuchi Srivastava spoke to Kashyap Deorah, serial entrepreneur, whistleblower and the insider who was the first to expose the dark underbelly of Indian e-commerce firms in his book Golden Tap: The Untold Story of Hyper-funded Indian start-ups.

In 2010, Deorah sold his phone-commerce company Chaupaati Bazaar to Biyani in an all¬stock transaction. The deal value is still unknown. 

Chaupaati Bazaar then integrated into the Future Bazaar team, and the company's founder and CEO, Deorah, became the head of phone commerce at the Future Group. Deorah is also an angel investor in over 20 businesses in India and the silicon valley. 

 

 

 

 

Excerpts from Asianet Newsable's exclusive interview with Kashyap Deorah.

Shuchi Srivastava: What do you make of Biyani calling Indian start-ups hopeless and Indian e-commerce firms unviable?

Kashyap Deora: He obviously knows what he is talking about. He had started Future Bazaar over a decade ago and was one of the top Indian e-commerce companies in its time. After I sold Chaupaati Bazaar to the Future Group in 2010, I ran Future Bazaar for Kishoreji. Back then we were the first Indian e-commerce company to achieve Rs 1 crore of sale in a day. We were the first to advertise on television. We had the unique advantage of comparing financials of the online and offline businesses. As I have written about in detail in my book, we concluded that contrary to our own hypotheses, offline retail was more viable than online. We compared category by category and saw that offline is more lucrative and lesser loss-making. 

Yes, offline retail might have a high rental cost, but online has other major costs like logistics, inventory management, returns, cash-on-delivery, etc. which it makes it tough to obtain any margins. 

 

SS: Really? That is an extremely contrarian stance and hits at the very heart of the business model of Indian e-commerce firms...

KD: Yes it was counter-intuitive for us as well and made us redo the numbers over several iterations. Offline retail indeed has a high rental cost, but the distribution costs of online retail - logistics, inventory management, returns, cash-on-delivery, customer service - ate up the margin savings and then some.

 

SS: So what about these big gross merchandise value figures that indicate a lot of goods sold on Indian e-commerce platforms?

KD: Sales can be bought with invested capital but do not translate to profits. Like in organized retail, we concluded that the real competition is with unorganized retail. Business is viable if you have exclusive merchandising or exclusive distribution. If it is trade - selling what is already available in the market - it is unviable. This is the dirty secret of retail in India and the  guys running our largest ecommerce firms obviously know that by now. 

 

SS:  What is your opinion on Indian start-ups finally chasing profits, shutting businesses, consolidating, ditching big discount offerings and laying off employees en masse?

KD:  Hyper-funded Indian start-ups are now putting their mouth where the money is. The primary reason they exist is to raise funds and capture a market space that global investors care about occupying. When growth was getting funded, they were chasing growth. When investors are demanding profitability to continue funding, they are chasing that. In that sense, nothing has changed.
 

SS: You had some very interesting things to say on the funding and investors of these companies in your book, can you please elaborate?

KD: Hyper-funded e-commerce start-ups are on a suicide mission. For all the rhetoric about Amazon not making money in the early days, there are two decades of SEC records showing that Amazon is never ever operated on negative gross margin past a few percentage points. It is similar in JD, Alibaba and other equivalents that are touted. 

For all the rhetoric about foreign markets, especially Nasdaq, being open to listing high-growth loss-making businesses, Wall Street rejects companies with negative margins per transaction. E-commerce in India going from '-100%' to '-50%' to '-30%'  margins might be a cause for celebration for the uninitiated, but I believe the bubble has burst, and the worst is yet to come.

I am bullish on e-commerce in India and imagine it to be a large, fragmented market. The single biggest player might own just 10% of the market as brands, traders and retailers go digital, besides pure-plays. Many of the hyper-funded e-commerce start-ups will survive (some will die), but their sales will shrink as negative margin lines-of-business will perish.
 

SS: Tell us about your journey as an entrepreneur and your new venture Hyper-Track 

 

KD:  I have been watching the global trend of small teams within companies of all shapes and sizes buying software tools and APIs (application programming interface) online with their credit cards. This is fundamentally changing the way software is bought worldwide. Companies like Twilio and Stripe have seen growth trajectories and network effects like consumer businesses. 

I am building the Twilio for location tracking. Developers are building applications that involve real-time location tracking using the smartphone GPS. It is way harder than it needs to be. We have reduced all of the complexity of tracking into a few API calls that just work. This saves huge costs and time to build and operate such applications.
 

SS: What is your advice for Indian start-ups?

KD: Be original. Think for yourself.