India’s $100 billion e-commerce opera takes a Faustian twist

By Raja Murthy

Since 1939 (Sundays included), Suryodaya stores has been serving South Mumbai from opposite Churchgate railway station, a three-minute walk from the Arabian Sea. This mini-departmental store was favorite too, with overseas consumers who loved its cheese and chocolates. Now Sarvodaya is being consumed.

In the past year, Swiss chocolates and muesli vanished from Suryodaya’s shelves, next some mini-departments disappeared, queues in the payment counters vanished, and then familiar faces among the staff. Yesterday, the manager was manning a cash counter; even the doorman was gone. Like a desperately struggling man sinking in quicksand, Suryodaya is dying a slow death.

Enter localbanya.com, the online ‘banya’ (grocer/trader), which has taken over Suryodaya’s customers. It’s another inevitable yet acceptable civilizational change, as apps-enabled phones and convenience of online shopping begin to put on the extinction list the stores and malls of our childhood. Like VHS video-tapes and book lending libraries, Suryodaya is becoming a memory.

About two kilometers from Suryodaya’s death throes, Gupta Bros. sells groceries from Burra Bazar, in the Fort area with its striking Baroque architecture and 18th century Persian fire temples. Like in the original island villages of Mumbai 500 years ago, or India 5,000 years ago, the original banya, not the online version, continues to rule this narrow Burra Bazar lane. A few hundred meters from the Stock Exchange building towering in Dalal Street, vegetables and fruit vendors sell by the roadside; Gupta Bros. sells spices in 50 gm sachets, cooking oil for Rs 5, to serve lesser income families.

The new gently co-exists with the old, like the Airbus A380 and Audi S8 have not put out of business the buses in nearby Nariman Point, one of Asia’s most expensive financial districts. But these gradual shifts and swings of civilization are getting a disturbing sudden shake-up, dangerous, artificial and avoidable. Online giants Amazon, Flipkart and Snapdeal are gobbling billions in capital, reporting hefty losses — and yet have global investors giddily giving them over $3 billion in 2015. They chase a projected $100 billion at the end of India’s e-commerce rainbow.

Discounts galore

Discounts galore

As usual, promoters behind such loss-making behemoths are becoming billionaires, while millions of retail industry jobs are at stake, offline and online.

At work seems something like a Faustian Ponzi scheme — burning investor cash to offer reckless discounts through multi-million dollar advertising campaigns, dazzling baits to build a ‘loyal’ customer base. The unspoken byproduct: maybe a society of shopaholics, and hundreds of thousands of offline retails stores going out of business in the world’s fastest growing Internet market. A Morgan Stanley report expects India’s online retail to hit $100 billion by 2020, less than five years away.

Flipkart India lost $63 million last year, Amazon (India) $50.5 million and Snapdeal lost $41 million. Yet Japan’s SoftBank dumped $627 million into Snapdeal’s coffers, Amazon founder Jeff Bezos announced a $2 billion check for his Indian company.

Bangalore-based Flipkart raised $1.5 billion in 2014 and $550 million this year, after being valued at $16 billion (*1) — for a business model to undercut the competition out of business. Hard to buy now online in India, it seems, without a “70% discount.”

Tiger cubs rush in where angels….

New York-based Tiger Global Management leads the heady investor rush into India’s online retail. It serially invested over $900 million in Flipkart, and heavily backs other start-ups like Quickr ($150 million), Bangalore-based Ola cabs ($400 million) and Delhivery ($85 million) (*2).

Founder of Tiger Global Management, Charles ‘Chase’ Coleman III (*3), was ranked sixth in a Forbes list of 40 highest paid hedge fund managers. Coleman (39) is a descendant of Peter Stuyvesant (1612-1672), the last Dutch governor of New York and the man who built the wall after which Wall Street is named.

Coleman’s Tiger Global, his Park Avenue office and his $6.7 billion hedge fund also have a less distinguished origin — in the billions-to-bust Tiger Corp that was shut down in New York in March 2000. Coleman is one of the so-called ‘Tiger Cubs’ – protégés of supposed genius speculator and Tiger Corp founder Julian Robertson.

Over 20 years ago, Robertson’s Tiger Corp operated with over $20 billion as the world’s second largest hedge fund. Robertson and his ‘wolf of Wall Street’ misadventures were brilliantly chronicled in the BusinessWeek cover story ‘Fall of the Wizard.” Four years after the Gary Weiss article was published in 1996, Tiger Corp shut shop.

India’s billionaire e-com ‘wizards’ may share the same fate. Besides sharing a surname, Flipkart founders Sachin Bansal (33) and Binny Bansal (31) — not related to each other — share the same city of birth (Chandigarh, northern India), same alumni (Indian Institute of Technology, Delhi), same CV (worked together at Amazon). Their Flipkart model replicates Amazon, starting with Flipkart selling books in 2007.

Sachin Bansal

Sachin Bansal

Like Amazon, the Bansal duo and “Tiger Cub” Coleman may have got their long-term reading of the market horribly wrong. “Easy money, Maan,” as patrons of the Boat Yard club, Bridgetown, Barbados, might sing, “Easy come, easy go.”

Shopping saga of Samsung Sam Singh

Here we consider adventures of our timeless Asia Times hero Samsung Sam Singh. In 12,000 BC, Sam Singh had time for second thoughts before rushing off buy the Apple iPhone 3G King’s Button selling for a song, beyond mastodon-infested forests. “Some other time,” says he, staying put in his cave. “I better clean my stone club today.”

Circa 2015 AD, Samsung Sam Singh has fewer chances of changing his mind. Push a button, he has a thousand choices; push another button, he and his money are parted. He sees ten thousand objects of desire, but what he sees may not be what he gets. He may receive a damaged cell phone, or even a packaged stone like the unhappy man from Ghaziabad (*4).

Despite such delivery “blocks,” e-commerce, or now more specifically mobile or m-commerce, offers drooling prospects in India: a 243 million Internet population in 2015, 550million Net users by 2018, 106 million already on social media, six million new Internet users a month.

A desperate Flipkart-type basement bargain business, therefore, shrieks incongruously against rosy projections from a Confederation of Indian Industry (CII) report released in New Delhi, May 15. It expects India’s overall retail market of $550 billion to be $2.1 trillion by 2025, and online retail to expand 26-fold — over thrice that of organized retail.

But a storm’s coming — if Bansals and their Wall Street backers expect Asian consumers to exhibit similar shopping mania culture in the West. Shop like someone with an eating disorder keeps gorging. “Shop until you drop,” invited a full-page, front cover ad for a shopping “app” in today’s Times of India edition. Not likely. There may be excesses, but less chances of Samsung Sam Singh searching for Shopaholics Anonymous (*5) in Asian cities. And belying expectations, his loyalty will remain with the best bargain available, not to Flipkart.

Binny Bansal

Binny Bansal

So, to endlessly continue their manic master plan of 70%-plus discounts – bankrolled with investor funds – Flipkart needs the eternally full purse of Fortunatus, or get chummy with the $3 trillion Industrial and Commercial Bank of China, the world’s biggest bank.

It’s a no-brainer that e-commerce is here to stay and evolve. Millions, for instance, daily book railway tickets online in India, and the Indian Railways even runs a new e-catering service (*6). The question is the journey. Will the likes of Flipkart and Amazon.in be seen 10 years later as pathfinders, or as warnings of what not to do?

Flipkart versus GadgetsGuru

At the other end of this e-opera stands the low profile but solid GadgetGuru.com that technopreneur Arun Kapur started in 2004. Kapur took the safe but surer path. No devilish deals. In Mumbai on May 14, he launched “OK Sir,” an Android “app” that provides 150 household services – from electricians, cooks, maids to emergency medical services 24/7. Twenty-five-thousand skilled workers in Mumbai potentially get better wages. “OK Sir” becomes both utility provider and poverty buster.

The Mumbai-based Kapur was unimpressed with eye-popping discounts and wheeling-dealings of Messrs Flipkart, Amazon, Snapdeal and Co. “It’s wrong,” he said. “They are trying to put others out of business, and it is not good for the economy.”

Kapur is confident he is ahead of a three-year curve, where service providers like him are the e-commerce backbone. He may not be declared a billionaire like the Bansals, but neither would he star in the next “Fall of the Wizard” feature. GadgetsGuru has more chances of being around in 2025 than Flipkart and Snapdeal – an Internet version of the age-old story of real growth versus greed. Or, of how the hidden price for Faustian feasts never makes them much fun.

Faust image

Notes:

*1) Flipkart Investors: Economic Times, May 14, 2015

*2) Tiger Global Management, Crunchbase, San Francisco

3) Why Photos of Some Hedge-Fund Managers Are So Hard to Find, Bloomberg, by Anthony Effinger and Katherine Burton, Jan 9, 2015

*4) Customer gets stone in packet, instead of mobile! The Statesman, May 15, 2015

*5) “How much would you have to buy to finally feel satisfied…?” – Shopaholics Anonymous, Franklin, Michigan, USA

*6) Indian Railways e-commerce services

Image courtesy: ‘Ich bin Faust’, Daramalan Theatre Company, Shadow House Productions.

Writing for The Statesman since 1990 and Asia Times circa 2004, Raja Murthy’s diverse freelancing included Times of India, Economic Times, Elle, Wisden.com etc. He happily shuttles between Mumbai and the Himalayas, practicing Vipassana and metta.

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