How Reliance is planning to KILL Amazon in INDIA_ _ The BIGGEST BUSINESS WAR IN INDIAN HISTORY

Hi everybody reliance and amazon have officially entered into one of the biggest business wars in indian history we are looking at two of the most powerful companies locking horns to capture the 200 billion dollar indian e-commerce market while on one side we’ve got amazon a trillion dollar company with a stellar record of destroying its competition in every sector and every country while on the other side we have the mighty reliance which is by far the most powerful company in india with a reputation for disruption and we all saw that with the jio revolution that literally redefined india forever and now that both these giants are going to be fighting the billion dollar business war in india the obvious question is what exactly is their strategy how are they planning to destroy their competition and most importantly as students of business what are the business lessons that we need to learn from this iconic business world the story of amazon’s dominance in india started way back in 2013 and as we saw in the previous episode they are creating a very very powerful ecosystem using the sun cost strategy of amazon prime video and because of their 60 plus warehouses spread across 15 states amazon has the highest penetration in india along with flipkart which enables it to deliver products up to fifteen thousand pin goods and these pin codes include all types of cities starting from tier one cities to tier four cities in addition to that amazon has a huge amount of data about what does each customer want and what they don’t want apart from that they’ve also got the best customer support in the world so now the question is while amazon has spent eight long years in mastering this art of e-commerce in india to build a robust supply chain and customer loyalty how is reliance even planning to compete with amazon in the first place the answer to that lies in the most important asset of any e-commerce company and that is the supply chain now if you compare the supply chain of both these companies while amazon has around 60 giant warehouses in 15 states reliance has more than 12 000 microware houses in seven thousand cities spread all across the country and these warehouses exist in the form of reliance retail stores now this distribution chain ladies and gentlemen gives reliance three incredible superpowers over amazon number one while amazon can give you a one day delivery reliance can give you a two hour delivery for example both reliance on amazon have data that says that chitale bhakarwadi or spark sandals sells very well in pune but while amazon can bring it only up to the nearest warehouse that is hundreds of kilometers away from your house reliance can bring it to your closest reliance store which is just a few kilometers away because of which it can give you a two hour delivery whereas amazon will take at least a day or two to come and of course the products that are not available in the reliance retail store they will take a day or two to come which is same as prime delivery secondly because of the data accuracy reliance has been able to build such a robust supply chain that while amazon e-commerce marketplaces reported a loss of 5849 crores reliance retail has been extremely profitable with 9842 crores in profit and not just that they also had a footfall of 640 million in their reliance retail store and thirdly because of these two factors there is a very very big disadvantage that amazon has over reliance and that is customer returns because this is what amazon returns looks like i’m scared to think about how much stuff is going back to the landfills because it’s just it’s endless amounts of this stuff every day returns are the largest challenge to ecommerce for both retailers and manufacturers so slightly more than 100 billion dollars in returns in e-commerce it’s 20 or 30 percent get returned 79 of consumers want free return shipping 5 billion pounds of waste gets thrown away as a result of these returns that can’t be marine solely so long story short the three points to be noted in the sequence is that number one more than 70 of the customers look for the return policy which makes it an essential feature of any e-commerce platform number two if you ask your customers to pay for the return shipment there is no way you’re going to retain them therefore you the seller has to pay for the return shipment and lastly because a large chunk of the amazon dot and products are sold by amazon itself it comes at an exorbitant cost with hundred billion dollars worth of returns in amazon america alone so practically the reverse supply chain of the return shipment is a billion dollar loss venture for amazon but not so much for reliance the question is why is this only a loss venture for amazon and not for reliance well that is because here’s what the river supply chain of a conventional e-commerce return shipment looks like when you place a written order it first gets picked up by a delivery boy then it gets transported to the hub over there it gets bagged and then it is either sent to a local warehouse or back to the seller over there it sits in the inventory either to be destroyed or until someone else places the order this means a total waste of transportation labor and packaging for both delivery to the customer and back to the warehouse and this is not applicable for reliance because as far as reliance is concerned the delivery boy from the reliance store could just collect it and keep it at the nearest reliance store and because the store is so close by most of the products wouldn’t even need to be packed saving them tons of packaging material millions of dollars in packaging cost and millions of dollars in the labor that is needed for packaging on top of that after the product goes to the store if it is really faulty it would go back to the seller or it would be thrown away but if it is fairly usable it could either end up back online or it could be featured in something called the refurbished section at the reliance retail store such that all these written products could be available at a discount for the customers who are visiting the store and these products could be made available at a dirt cheap price in business terms it’s called the throwaway price which is a pricing that is specifically meant to move the product out of the inventory and guess what this throwaway pricing strategy will attract more people to the store by acting as a lost leader to get them to buy more from the store eventually profiting reliance again even in the return shipment process and you know what I also see a possibility wherein reliance will tell you that if you shop for 500 rupees at the store you can access the refurbished section then you can get jbl speakers and clothes at a 50 discount and this is attractive enough to get people to spend more which will rapidly move out inventory this is the superpower of integrating a high traffic online platform with a high traffic offline platform like the brick and the moltar store but fortunately or unfortunately this luxury is available only for reliance and not for amazon now this begs the question when a billion dollar company like reliance can build 12 000 plus brick and mortar stores why can’t a trillion dollar company like amazon do it I mean they’ve got so much cash to burn they could just build one amazon retail store right next to every reliance retail store right well not really this is what brings me to the third segment of the episode and that is government regulation and as it turns out from 2018 onwards the government regulations on foreign direct investments have become more and more strict and now international companies are not allowed to own more than 51 of the local brick and mortar supermarket chains therefore it is extremely difficult for amazon to build a supply chain as big or as profitable as reliance apart from that one of the most profitable wings of amazon is on the verge of being destroyed and if this happens there is also a possibility that amazon might be forced to quit the indian markets to tell you about it if you look at amazon’s operations in india they operate with two models the first is a marketplace model and the second is the inventory model the marketplace model is a model wherein there are independent buyers and independent sellers and amazon merely acts as a platform to connect the buyers from the sellers whereas in the inventory model amazon is going to place a bulk order with the seller eventually having the bargaining advantage to place the order at a dirt cheap price and then amazon will mark up the price and then sell it to the consumers by keeping the inventory to itself for example if a bookseller makes a book at 150 rupees and sells it on the e-commerce site at 450 rupees in this case if the e-commerce company acts as a platform it will generate a revenue of 112-150 rupees but this includes the packaging cost and the transportation cost for national delivery which eventually reduces the scope for commissions but if the e-commerce company operates with the inventory model the platform will buy 10 000 books from the bookseller at once and will use its bargaining power of a bulk order to buy the book at just 200 rupees per piece after that all these books will be kept in the warehouse and then it will be listed in the e-commerce site at 450 rupees so if you see this gives them 250 rupees in revenue as compared to 150 rupees in the previous case now although this includes the inventory cost it gives them a wider scope of profit in this case is the 100 rupees wherein there is a scope of profit for the e-commerce site now when it comes to books it’s just hundred rupees but when it comes to products that cost ten thousand and twenty thousand rupees the difference in revenue that can be generated between both these models skyrockets by a billion dollars therefore the inventory model is a billion dollars more profitable for amazon as compared to a marketplace model this is the reason why amazon entered into a strategic partnership to establish giant sellers like cloudtail in 2014 and apario retail in 2017 and using these sellers amazon has deployed the inventory model to generate a major chunk of its revenue and according to a reuters investigation report in 2016 cloudtail share of sales on amazon.com was around 47 of the total amazon sales but that month amazon got some bad news because the indian government announced new foreign investment rules wherein it capped the online marketplace sales from a single seller at 25 of the total sales because of which they had to bring down cloudtails share of sales on amazon platform to less than 25 now from here onwards there are certain sensitive information that I cannot directly convey to you so what i’m gonna do is i’m gonna attach a link in the description that will help you understand the detailed report completely and from that you can draw your own conclusions but long story short while the government of india allows 100 foreign direct investment in the marketplace model of e-commerce it has not allowed fdi in the inventory driven models of e-commerce and the competition commission of india has also placed strict restrictions on amazon selling its own products in the form of amazon basics and if you watch the somato video you know what i’m talking about therefore three of the potentially most profitable channels of amazon have been restricted to a large extent so as of now on the outside it seems as though amazon cannot match the number of brick and mortar store as reliance number two amazon cannot use the inventory model like they planned and lastly they cannot sell their own products as much as they planned this is the state of the biggest business war in indian history with that we move on to the most important part of the video and that is considering all this drama as investors and as students of business what are the factors that we need to keep an eye on in order to understand the future of this retail war before we move on I want to thank our partners for today’s episode and that is small case small case is this wonderful company that leverages cutting edge market research to design a basket of stocks to help you make the best investments possible in this context the most relevant small case is the house of tata why because the tatas are going to be active participants in the retail revolution because of the tata super app and also they’re going to be an active participant in the green energy revolution because of tata power and what I like the best about this app is that even if you don’t want to make any investments you can keep track of the latest and the most relevant market updates using their new section and using their blog post the best part is both these contents are specifically curated for every sector and if you do a deep dive into each one of these stories you will get some wonderful market insights that very few people will bother to understand so if you want to make the most strategic market investments and if you want to understand the deepest insights of the market download the small case app from the link given in the description moving on to the lessons of the case study there are three very important points that you need to study in order to understand this retail war better number one there are seven major variables that will determine the success or the failure of any e-commerce company from the consumer standpoint there are three variables that is cost delivery and variety and from the business standpoint the three variables are customer retention supply chain and profits and lastly the most crucial variable of all is nothing but government regulations so as students of business you need to keep an eye on these seven variables because ultimately this is going to be the scorecard of this billion dollar retail war number two just like reliance even tata and dmart have a huge advantage over amazon and flipkart because they are indian companies so keep an eye on their retail ventures because they’ve got some powerful strategies that can again lead to a retail disruption apart from that jio mart and future retail case are two of the most game-changing ventures that you need to study about if you want to understand the future of amazon versus reliance business world and when the time comes I will also be making an episode on the same and lastly i’m gonna attach three study materials for you number one is the investigation document that contains information about amazon’s seller problems number two is a document that contains the new rules and regulations for e-commerce companies and thirdly you will also find a study material that will teach you in depth about the major consequences of return shipments so read through them and if you find time please drop a comment about what are the lessons that you learn from the case study or from the study material that’s all from my side today guys if you learned something available please make sure to hit the like button in order to make youtube bubba happy and for more such insightful business and political case studies please subscribe to our channel thank you so much for watching I will see you in the next one bye bye you.

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