Tata Group's Croma, which launched its e-retail store last month, is reworking its backend to secure its early mover advantage

When myriad portals selling everything from personal items like apparel and shoes to financial products like insurance and mutual funds cropped up over the past couple of years, many said e-commerce was coming of age in India. But now, with the Tata Group owned electronic goods retail chain Croma foraying into online retail, one is tempted to say e-commerce has finally arrived.

Croma launched its online arm, Croma Retail, last month, extending its reach from the 14 cities the chain is currently present in through brick and mortar stores to a virtual presence in 319 cities, covering around 6,000 pin codes. More pin codes will be added every week going further.

“We’ve noticed our consumers are not short on resources. But, while in major metros they are short on time, in the smaller cities they have limited access to the latest gadgets and electronic items,” says Ajit Joshi, MD and CEO, Infiniti Retail, the wholly owned subsidiary of Tata Sons, which runs the multi-brand electronics store chain Croma, explaining the latest initiative. Joshi’s reasons are in place, but he also has numbers on his side to support this move.

According to a November 2011 report on the digital commerce industry by financial services firm Avendus Capital, the Indian e-commerce market is estimated at Rs 28,500 crore. Online travel transactions constitute almost 87 per cent of this, way higher than that in any other country under consideration — like the US, where online travel transactions stand at 37 per cent of the overall pie. The rest of the pie in India (13 per cent) is contributed by e-tailing, a Rs 3,600 crore industry.

Avendus predicts this market will be 10 times its current size in just four years. They estimate it to grow to about Rs 53,000 crore by 2015, achieving an overall penetration of 1.4 per cent. This is still very small compared to China where it is already at 4 per cent.

Based on these estimates and Joshi’s rationale, an online presence would be the fastest way to scale up operations for a player like Croma and increase its reach manifold. But first they must spot their customers.

Changing customer profile
Anand Ramanathan, associate director at KPMG, doesn’t think the brick and mortar stores and online model will jostle for the same set of customers. “The touch and feel factor continues to dominate the purchasing habits especially for large appliances and are hence restricted to store buying,” he says. “It may not be as important for smaller gadgets or standard accessories like cartridges, which may be easily bought over the internet. Online medium also helps greatly with pre-buying decision making.” Also, given that Croma’s physical footprint is still very small, the possibility of an overlap among consumers is on the lower side.

However, if the orders received by Croma during the first seven days of the website going live are any indication, it is safe to assume that the well-documented predilection of the Indian consumer with regard to the ‘touch and feel’ factor is changing. Croma has received orders for air conditioners, coolers and refrigerators in addition to laptops, iPads and mobile phones from across the cities it has a digital presence.

Another myth to be busted here: the average sale price (ASP) for tier 2/3 cities is almost double that of the top metros. It stands around Rs 10,000 versus the Rs 5,000 ASP for top metros. In fact, smaller cities seem to have a voracious appetite for high-end electronic gadgets. “The mindset is changing and there is a cultural shift. What helps is, these are cash rich customers, for whom there is also something of a snob value in owning the latest and expensive gadgets,” says an executive associated with Croma Retail.

There is no denying the online story sounds promising. But, one cannot ignore the challenges in building a successful business model in the space. The challenges will be unique — among them are things like ensuring on-time deliveries as well as managing the consumer expectations even from the delivery crew. The distribution model thus becomes key in an online business. Here the company must bridge the last mile — reach out to the consumer, rather than vice-versa.