Online Shopping Portals – Are valuations enriching?

The growing retail boom, increasing internet users and brand awareness has resulted in an interest in the space of online shopping. The tightening work schedule, traffic jams, massive crowds on weekend, paucity of time and convenience have also been the driving factors behind the rise of online business, thus creating more opportunities for the portal owners to expand their lines of business.

Online shopping was initially limited to sale of books and music on internet though today it has  reached a wider proposition, where one can buy stuff ranging from Apparels, Accessories, Computers, Electronics, Gifts, Home Appliances, Home Furnishing, Jewellery, Office Products, Personal Care products, Toys and Games, Travel packages among other lines. Globally amazon.com is the market leader in this space while in auctions, ebay is the final word. But in Indian context, most of players in online shopping space are locally owned apart from ebay.in, which came in India by acquiring baazee.com.

Other major online shopping sites in India include futurebazaar.com (Pantaloon Group), indiaplaza.in (formerly fabmall.com), and shopping portals of rediff.com, indiatimes.com, indiainfo.com and sify.com. Apart from this there are specific portals for books, travel, music and mobiles. The easy payment options through net banking, credit & debit cards, and cash-on-delivery have also contributed to the growth in demand. In India, 1 year old Futurebazaar.com is the market leader with Rs. 36 crore turnover managing around 3,50,000 hits daily. Leading that is the 8-year old Indiaplaza.in (owned by Aditya Birla through acquisition of Trinethra) with around Rs. 20 crore turnover. 

Online shopping portals have become high revenue potential for companies as they have certain advantages over offline medium due to lower overhead expenses, lower lead time and inventory, less manpower requirement and little space requirement. However, since there is lack of touch and feel factor, thus in products such as clothing, jewellery and fashion products, the demand is yet to pickup. But products like books, iPods, Mobiles, Digital Cameras are getting good responses.

Owing to growth stage of this business platform, some portals are even attracting funds from institutional investors. Futurebazaar.com is in talks with private equity funds, Sequoia and Carlyle for a 10-15% stake to raise Rs. 80-120 crore. Of all the other portals, futurebazaar has an added advantage as it has a wider retail network, has presence in every product category and can offer cheap products which are also displayed on its shelves across the stores. It offers a better brand visibility, service network and has better economies of scale to deliver cheap products.

Futurebazaar.com works in partnership with Big Bazaar, which is India’s largest hypermarket chain, and offer products on its website which is in sync with the products and prices in the stores. This way, it gets to reach a wider customer base and cater to requirements of people who are not situated in Big Bazaar located cities. It even offers products from Pantaloon’s other brand formats.

Online shopping space is still at a nascent stage in India and to get good valuations, the portal need to increase the conversion to sales ratio which is just 1%. Companies should also take care that their website is highly available providing good service & quality. It would then increase the revenues and profits of company along with improving the higher operational efficiency of the already established business.