K Vaitheeswaran is someone who can effortlessly inspire you. He has been a pioneer in the Indian e-Commerce scene and has been one of the important people who have built the industry into what it is today. K Vaitheeswaran was bitten by the internet bug after almost 14 years in the corporate world. He co-founded Fabmart.com in 1999 – India’s first pure-play online retail company. Within 3 years, he followed up with Fabmall – India’s first integrated online and offline retail company. Fabmall went on to become one of India’s largest grocery retail chains, acquired IndiaPlaza.com in 2007 and was subsequently acquired by the Aditya Birla Group and re-branded as More chain of stores.
The 25 years of rich experience in the e-Commerce industry reflect in his straight, to-the-point answers. We picked his brains on how far the industry has come and where it could potentially go.
With Fabmall, you were one of the first ecommerce ventures in India. How did you tackle running an ecommerce business in the 90s, when the exposure was not so high?
We founded India’s first e-commerce company in 1999 – it was first called Fabmart.com, then the name changed to Fabmall.com and finally Indiaplaza.com It was quite difficult. When we started, there were less than 3 million people using the internet in India and no one knew about online shopping. We faced massive challenges in all three areas – getting vendors, customers and employees.
I feel happy that we continued moving forward and solving problems because our pioneering effort in some small way has helped build a large e-commerce industry in India today. Someone always has to be the first to walk down a new path and clear the obstacles for others to follow. It is the way of life.
You started with just Music CDs for sale in Fabmall. Why music CDs? What was the strategy behind this?
We wanted to start with music, movies and books at first. There was no specific strategy except that these 3 categories are low value and hence easy to try for first time customers. The music catalog got ready before the other two hence we launched with music.
Fabmall acquired US based Indiaplaza in 2007 and took a global avatar, something other Indian online companies could only dream of at that point. What was the thought process that lead to this?
Online shopping in India was still quite unknown whereas customers in USA were more comfortable with this concept thanks to amazon.com Hence we decided that while business was slow in India, we should target NRIs (who were comfortable with shopping online) and encourage them to send gifts to India. When we started working on it, Indiaplaza.com came across as a popular site for sending gifts to India. Subsequently, when an opportunity arose to acquire the assets and brand of Indiaplaza, we closed the transaction but initially kept it as a separate entity only for NRis to send gifts to India. The Indian website continued to be Fabmall.com
Later, when the Fabmall grocery stores (also founded by us) was acquired by the Aditya Birla group and re-branded as More, we converged all our online stores into a single site Indiaplaza.com for Indians in India and worldwide.
Indiaplaza was a pioneer in so many things when it comes to Indian e-commerce, including selling food online (Yes! I am talking about the Alphonso Mangoes). In your opinion, what are the 5 things that you are most proud of launching/accomplishing with Indiaplaza?
The things we are proud of pioneering at Indiaplaza are:
About COD – I remember reading that you were the first to bring COD into India. What is your opinion about COD now? Is it an undeniable boon or an unkillable menace?
Yes. We were the first to launch CoD in 2002. We tried various versions of this and arrived at a conclusion that I believe holds true even today. It is the most inconvenient payment option for customers. It beats the convenience of e-commerce if you have to order online and then wait for the delivery person to turn up.
It is also administratively and financially a drain on merchants.
Unfortunately, the e-commerce industry has got itself into a bind on this and it is difficult to come out of this today.
What were the major challenges you faced at Indiaplaza?
Setting up the business as a pioneering green field venture was a big challenge. We did not know how to build an e-commerce website, where to host it, how to get customers, how to convince vendors to sell, how to convince employees to join, how to pack items, how to ship orders. In fact every single aspect was a challenge and we had to learn everything on a trial and error basis since there was no one we could learn from being the pioneers. However, that was also the fun part.
Around June 2013, Media started speculating that Indiaplaza was shutting down. In July rumours started that Tata was acquiring the company, there were some nasty statements made on Quora, and then everything went silent. What has been the biggest learning from it all?
That there is something called destiny and what is meant to happen; will happen. All we can do is do our best at whatever we try with passion and integrity.
You have seen ecommerce span over 25 years now. What in your opinion were the 5 milestones Indian e-commerce industry has seen in these years that has changed its course?
All the top e-commerce players are spending heavily on TV, radio and newspaper ads. Well, there is one advantage! This has really helped expand the market and reach tier-2 and tier 3 markets a lot more than before, but is this sustainable in the long term for an online business with extremely low margins?
I don’t think so. It is amazing that there continues to be a steady stream of investors willing to fund loss making e-commerce companies hoping for a future that is profitable. Conventional wisdom suggests that at some stage this would dry up but it hasn’t. However, a business, to be called a business, must at some stage hope to make money. Being such a low margin business, I believe the current cost structure is not sustainable for long.
Currently, we have 2 types of tax levied on sales, according to the sales tax law. The local sales tax and CST. Laws depend on the destination of sale and purchase. When I buy a product from Karnataka, I pay sales tax to the seller. When I sell it to someone in karnataka, I charge them a local sales tax. Now sales tax has been paid twice for the same product. With the right documents in place, I, as a seller can get a VAT refund on the same. However, if I sell the product to someone in another state, I charge them CST. Now tax is levied twice, and is not refundable for the seller. When GST is introduced, All India will be seen as one state. That way, Prices for customers will come down and operational cost for ecommerce companies will also come down tremendously.
You currently consult with a couple of retail giants in India. In your opinion should offline retailers that big really get on the ecommerce wagon as well? Why?
The biggest cost for online retailers is inventory and supply chain management. For offline retailers such warehouses, inventory and transportation systems are already in place. Plus, they have a strong offline brand and recall. They will benefit greatly and quickly if they go online.
If Profitability was the main concern, which way do you think small and medium retailers should go – Omni channel selling or smaller niche ecomm websites?
I would say that if you are a retailer with existing offline assets, you must integrate your assets with your online efforts to help scale the business. The cost of setting up your own website has gotten very very less today, and there are third party web store solutions that one can start of with as well.
But the cost of acquisition of customer is very high, with the heavy competition in the segment today. Keeping the traffic flowing steadily and interested in your products is going to be the tough part. The different marketplaces are already doing this part for you and it might be a good idea to take advantage of these marketplaces, their traffic and acquired customers. I would suggest that the seller get on as many of these marketplaces as possible to grow their business while also setting up their own website and building convertable traffic there.
From Amazon trying to do sales through SMS in 2008, to ecommerce sites promoting their apps heavily today with free shipping, mobile commerce has seen multiple stages. People still believe it is the future and with good reason. What is your take on m-commerce?
M-commerce is where e-commerce was in 2000. Lots of hype but the scale is still not there. However, it will certainly arrive. The form factors of personal devices like ipads, tablets, smartphones will impact this. Right now, m-commerce is alright for digital goods.
What is really the future of ecommerce in India according to you? What are 5 big things you are expecting in the e-commerce landscape?
1. Other global giants like Rakuten, Alibaba will enter India
2. Goods and Services Tax (GST) will be announced
3. Offline retailers in India will go online in a big way
4. Pure play online retailers in India will go public outside India
5. Someone will surprise everyone else and actually make some profits.
You have done some amazing things in your career. They say, once an entrepreneur, always an entrepreneur. What’s next for you?
Actually, Mr. Vaitheeswaran, we can’t wait to see!