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April 20, 2016

Kishore Biyani's "It's Not Very Important to be Online" - Practical Wisdom or Famous Last Words?

The founder of the retailing focused Future Group has declared e-commerce as an optional area in an interview to Mint:
“I have been a very good student of e-commerce business,” Biyani said in an interview on 12 April. “I have been watching it by doing it myself with Futurebazaar(.com) and by meeting a lot of people who have been in this business. I have met everybody in this business. I have experimented with exclusive tie-ups with particular e-tailers and have also worked with the father of multi-channel retail (Love Goel, chairman of global investment firm GVG Capital Group) to understand global trends,” he said. He explained that this was done as a part of six-month immersion programme last year, and it led to the realization that “it’s not very important to be online”.

Biyani has offered more arguments (on why e-commerce doesn't work) in a Forbes India interview (emphasis mine):

My cost of doing business is 12-18 percent of sales. In online, it is 45-50 percent of sales. Sellers’ commission is 15 percent when you sell through a marketplace. Delivery cost is 11-13 percent. The rest is the cost of managing the business. Even the cost of creating and running a website (all those top dollar techie salaries) is 8 percent. Sellers will eventually sell what [product] has margin. To do business legally online is not easy unless you manufacture yourself or have private labels.
We are not able to sell a lot of our brands online due to the lack of margins. For example, we have a fantastic electronics brand in Koryo that sells about Rs 200 crore a year but we can’t sell it online as the electronics category has low margins. And if we at Future Group can’t get margins, how can anyone get them is beyond my understanding. I expect the online business in a lot of categories to reduce.

Does all this feel like Practical Wisdom (borne from years of retail experience "in the Indian context") or Famous Last Words like the following:

"I have traveled the length and breadth of this country and talked with the best people, and I can assure you that data processing is a fad that won’t last out the year."
Editor of Prentice Hall business books, 1957

"There is no reason anyone would want a computer in their home."
– Ken Olsen (Founder of Digital Equipment Corp), 1977

"I think there is a world market for maybe five computers."
– Thomas Watson, president of IBM, 1943

Given that Future Group has just purchased online furniture store FabFurnish.com (and said that it would be rolling its existing home furnishing brands into FabFurnish), something doen'e seem to be adding up.

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