I will believe in e-commerce model when they sell at an economical price: Rakesh Jhunjhunwala

A file photo of investor Rakesh Jhunjhunwala. Photo: Hemant Mishra/Mint

A file photo of investor Rakesh Jhunjhunwala. Photo: Hemant Mishra/Mint

Mumbai: What do you get when you put the man who pioneered modern or organized retailing in India, the country’s top value investor, and the poster boy of its ongoing e-commerce boom together?

Answer: An entertaining and lively panel discussion with no shortage of either insights or fireworks.

In addition to Rakesh Jhunjhunwala, Flipkart’s Sachin Bansal, and Future Group’s Kishore Biyani, the panel discussion at the Retail Leadership Summit in Mumbai on Wednesday also featured Mohit Pande, country head, south-east Asia and India, Google for Work, and Ramanathan Hariharan, group director and board member, Landmark Group.

Biyani fired the first shot.

Expect some e-commerce firms to shut shop in the next few months, he said.

“The current business model of etailers with its high costs is not sustainable and in the next six months the sector will be in the news for closures of some of these loss-making companies.”

“Can someone keep operating at a loss? And how much loss can someone keep funding?”- Rakesh Jhunjhunwala

“The cost of doing business for Future Group is at 12-14% compared with 4-5% of the kirana wala (corner store owner). For e-commerce companies, the cost of doing business is 53%,” added Biyani, without explaining how he came by the numbers, although, given the high delivery costs and huge discounts offered by e-commerce firms, they do not appear counter-intuitive. Bansal explained that this was on account of the high cost of customer acquisition.

Bansal also justified the costs and said e-commerce firms still account for just 1% of India’s $650 billion by sales retail market and that they are in investment phase with an emphasis on growth (not profitability).

“This is the stage where it is about investing in the growth of the business. We are investing in training schools for our staff, we are getting outside talent, in technology, infrastructure, warehousing and logistics. What is visible is the discounting, which is a small part of the overall investments we are making. It is the tip of the iceberg; 90% (of the investment) is in the back-end,” added Bansal.

Jhunjhunwala was skeptical.

“I will believe in it (the e-commerce model) when they (e-commerce firms) sell at an economical price. You are in a capitalist society. Can someone keep operating at a loss? And how much loss can someone keep funding?” he asked.

Investors will soon start seeking consolidation in the sector, he added.

The focus of everyone in the e-commerce ecosystem is on growth, Bansal reasoned.

“The market is growing at 100% year-on-year and if you are not matching that or beating it, you will become irrelevant in some point in time.”

According to Amitabh Mall, partner and director, Boston Consulting Group, India’s e-commerce market will grow from $10 billion in 2015 to $50 billion by 2020.

Bansal is even more optimistic. He believes it will grow to over $100 billion.