Reliance and Amazon have officially entered into one of the biggest retail wars in Indian history. We are looking at two of the most powerful companies locking horns to capture the $200 billion 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 Industries Limited, which is by far the most powerful company in India with a reputation for disruption. We see that the Jio Revolution has literally redefined India forever. And now that both these giants will be fighting the billion-dollar business war in India. The obvious question is, ‘What exactly is their strategy?’ So how are they planning to destroy their competition?
How did Amazon turn into one of the biggest e-commerce empires?
The story of Amazon's dominance in India started way back in 2013 when they created a very powerful ecosystem using the strategy of Amazon Prime. And because of their 60+ warehouses spread across 15 states, Amazon has the highest penetration in India, along with Flipkart, which enables it to deliver products up to 15,000 PIN codes. These include all types of cities, starting from tier 1 cities to tier 4 cities.
In addition to that, they've also got one of the best customer support in the world. So now the question is, while Amazon has spent 8 long years in mastering this art of e-commerce in India building a robust supply chain and customer loyalty, how is Reliance even planning to compete with Amazon in the first place? The answer lies in the most important asset of any e-commerce company and that is the supply chain.
Can Reliance overpower Amazon?
If we compare the supply chain of both these companies, Amazon has around 60 giant warehouses in 15 states, while Reliance has more than 12,000 micro warehouses in 7000 cities spread all across the country and these warehouses exist in the form of Reliance retail stores. Now this distribution chain gives Reliance three incredible superpowers over Amazon.
1. While Amazon can give you a 1-day delivery, Reliance can give you a 2-hour delivery. Well, how? Say, for example, both Reliance and Amazon have data that says that boat headphones or OnePlus mobiles sell very well in Kolkata. 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 this, it can give you a 2-hour delivery, whereas Amazon will take at least a day or two to come. Of course, the products which are not available in the Reliance Retail store, will take a day or two to come, which is the same as Prime delivery.
2. Due to the data accuracy, Reliance has been able to build such a robust supply chain, while Amazon e-commerce marketplaces reported a net loss of 5849 crores in FY20. 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.
3. Considering these two factors, another big disadvantage that Amazon has over Reliance is customer returns. Returns are the largest challenge to any e-commerce, as 20-30% of products get returned every day costing billions of dollars to both retailers & manufacturers. 70% of the consumers want free return shipping. 5 billion pounds of waste gets thrown away as a result of these returns that can't be resold. So long story short, the three points to be noted here is:
- More than 70% of the customers look for the return policy, which makes it an essential feature of any e-commerce platform.
- If you ask your customers to pay for the return shipment, there is no way you're going to retain them. Therefore, the seller has to pay for the return shipment.
- And because a large chunk of the Amazon products are sold by Amazon itself, it comes at an exorbitant cost with 100 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.
Why is this a loss venture for Amazon and not Reliance?
As far as Reliance is concerned, the return order from the Reliance store is simply collected and kept at the nearest Reliance store. The stores being closer, most of the products wouldn't even need to be packed, saving them tons of packaging material, millions of dollars in packaging, and labor.
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 the refurbished section at the Reliance retail store. This way, all these returned products could be available at a discount for the customers who are visiting the store. And guess what, this throw-away pricing strategy will attract more people to the store to get them to buy more from the store, eventually profiting Reliance again.
How government regulations are the biggest hurdle for Amazon?
As it turns out, from 2018 onwards, the government regulations on foreign direct investments have become more strict. 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.
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. The competition commission of India has also placed strict restrictions on Amazon selling its own products in the form of Amazon Basics. Therefore, some 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 stores as Reliance.
Conclusion | Can we predict the future of this retail war?
In general, there are 7 major variables or factors that determine the success or the failure of any e-commerce company. From the consumer standpoint, there are 3 variables, i.e, cost, delivery, and variety. From the business standpoint, the 3 variables are customer retention, supply chain, and profits. And lastly, the most crucial variable of all is nothing but government regulations. So to predict the future of Amazon in India, we need to keep an eye on these 7 variables.
Also, just like Reliance, even Tata and DMart have a huge advantage over Amazon and Flipkart, because they are Indian companies. So we need to keep an eye on their retail ventures.
Apart from that, JioMart and Future Retail case are two of the most game-changing ventures that can decide the future of Amazon versus Reliance business war.