Flipkart: Down, but not out

The Rs 600 crore sales that Flipkart grossed in a matter of ten hours on Monday was unprecedented, but so was the lengthy public apology that founders Sachin and Binny Bansal wrote to its customers a day later.

In the letter, the online retailer acknowledged the pitfalls of its 'Big Billion Day' sale - not creating enough inventory, not gauging the response to the sale in order to prevent a possible technology glitch, and messing up terribly on product pricing, leading to complaints that Flipkart deliberately jacked up prices of products and then offered "discounts", leaving their retail prices virtually unchanged.

However emotional the apology may be, the trust built by the seven year old company was broken in a matter of hours. The result was instantaneous – a barrage of criticism on social media and an influx of shoppers to other competitive e-tail platforms such as Snapdeal and Amazon. Not surprisingly, Snapdeal clocked record sales the same day.

But Flipkart will move on, if it manages to set right the fiasco in a month as promised, and learns its biggest lesson – not to take the average shopper for granted. The online retailer will continue to spin surprises like this in the future too.

The biggest criticism against Flipkart was raised by Kishore Biyani, chairman of the Future Group, who said undercutting of prices by e-tailers will “destroy competition”, and that the discounts offered by e-commerce sites were backed by foreign funds.

The allegation stems from the fact that Flipkart had raised one billion dollars from three investors in July, although the company had clarified that the funds would be used to strengthen its back-end infrastructure by creating more delivery hubs and warehouses.

Yet another e-tail major, Amazon, announced two billion dollars of investment in India, but is reportedly under the government scanner for FDI violations. India does not permit FDI in online retail, so e-tailers follow an online marketplace model, connecting buyers and sellers and getting a fee from the sales.

But Biyani himself had disrupted traditional sales models with his aggressive sales offers at Big Bazaar on national holidays, leading to shutdown of malls in some cases to control the crowd of shoppers. That did not, in any manner, wean away customers from his stores.

Despite the Flipkart fiasco, sales offers still abound, especially in view of the festive season. Retailer The Mobile Store, for instance, announced pre-booking of the iPhone 6 that will be launched on October 17 in India through full page advertisements in Indian newspapers on Wednesday.

The trends are clear. E-commerce is here to stay, as it provides convenience, variety and attractive discounts, beating brick and mortar retail in the bargain. In the past three years, the Indian e-commerce space grew 150 per cent, from 3.8 billion dollars to 9.5 billion dollars.

E-tailers’ business model helps them save on physical stores, while building up huge volumes across hundreds of categories, advantages that they will continue to pass on to customers. That model, if managed deftly, will remain unbeatable for a long time to come.