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On Cash-On-Delivery Viability, TV Shopping, GST, Accounting & More – Gautam Sinha, Indiatimes E-Commerce

In part 1 of this two part interview series, Gautam Sinha, CTO and Head (E-Commerce) at Indiatimes, spoke with us about changes that the Indiatimes Shopping is making, why it’s making them, why now, and the pricing of products online. In part two, he speaks with us about the viability of the Cash of Delivery model, how the company prices products given differential taxes across states in India, ticket sizes, about Indiatimes’ accounting of e-commerce revenues, about entering the TV shopping business, and platform changes:

MediaNama: What do you view from the users side – has there been a change in buyer behaviour?
Gautam Sinha: Because of the general awareness of e-commerce, and most players are well capitalized, the buyers feel more comfortable in transacting online. Payment modes like Cash on Delivery (COD) which gives comfort to buyers – they see the product and make the payment. We see shift in traction towards that, especially in tier-2 and tier-3 cities.

MediaNama: How does the COD model work? You are taking a risk in terms of cost, of delivering and the customer refusing to pay for it. Is the cost justifiable?
Gautam Sinha: It is an industry problem. Cash On Delivery returns is a function of how long you take to delivery. The general rule of thumb is that if you take four days to deliver, your returns are in the order of 40%, if you take 3 days, it is of the order of 30%. While COD is a risk, all players have to innovate to deliver the next day or within two days to keep the COD return percentage minimum.

MediaNama: 40% is scary…
Gautam Sinha: It is scary for the business, but that is why the innovation is coming. Another problem with CoD is that your money is locked with the courier partner for 15-45 days, so you have to manage your cashflow. So there is innovation where you pay by credit card on delivery, and your cash is not locked, and you’re able to recycle. It’s a better cashflow situation and reconciliation between you and the courier partner.

MediaNama: How are the taxes structured for you, because you are delivering across state lines, and what will be the impact of GST on E-Commerce?
Gautam Sinha: It will be fantastic, because to certain states – West Bengal and North Eastern States, followed by Uttar Pradesh, fulfilment is a larger challenge, where we have a larger problem in fulfilment. Additional forms need to be filled to make sure that we can deliver goods. A uniform GST will be hugely beneficial, in that you don’t have to deal with shipments differently, based on where they are shipped to. Based on the state, we have separate processes.

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MediaNama: How does this impact pricing? Do you then look at prices where the pricing in one state makes up for another?
Gautam Sinha: That’s right. From a pricing perspective, the pricing in one state makes up for another, because it becomes too complex. They’re absorbing the cost.

MediaNama: Will the implementation of GST bring prices down?
Gautam Sinha: I think it will bring the cost to the player down, because I won’t have to manage separate process, and it becomes seamless in terms of execution.

MediaNama: What are the changes that you’ve observed in terms of ticket sizes?
Gautam Sinha: It would be too early to comment on that. What we have seen is that as compared to other players, we are slightly higher on the ASP side, but it is a difficult comparison to make at this time. However, ASP is hovering at Rs 3000.

MediaNama: That’s high…
Gautam Sinha: It’s more dependent on the mix that you sell. Certain competitors started with books. Their ASP is oriented to Rs 400-500, and then growing from there. While they had a lot many transactions, they ASP is lower. It’s just the way companies are approaching this. I’m just giving you a factual statement of where we are.

MediaNama: You’ve published a press release that says you’re did Rs 1 crore a day in July. What kind of seasonal changes do you see over a year?
Gautam Sinha: We’re doing around 3000 transactions per day, and we have grown more than 100% in terms of Gross Merchandise Value and transactions in the last six months. We have seen a significant increase in repeat customer behavior, which is heartening. The reason our Average Selling Price (ASP) is high, is because we have a huge share of mobiles that we sell through our platform. That’s probably the reason why our ASP is skewed towards Rs 3000.

I expect it to double again by March 2012, and we should do Rs 240 crore by the end of the year.

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MediaNama: I don’t have your FY11 numbers, but in FY10 you (Indiatimes E-Commerce) did about Rs 17.75 crore, FY09 was 22.43 crore and FY08 was Rs 20.32 crore. You’re only accounting how much Indiatimes makes from it, right?
Gautam Sinha: That’s right – it is only commission revenue. We are very clean in accounting because our internal processes are very rigid. The numbers that we give out is what we actually do in terms of commission. That’s why when there was hue and cry about accounting practices, we were happy that we were always clean in this aspect. There is another aspect to this. One of the things Indiatimes used to do before, was that we charged a setup fee. We moved out of the setup fee revenue this year, and none of the revenues in this year are setup fees. These are pure transactions. There is no setup fee, no ad revenue, and it is commissions that we earn from the sellers after making a transaction.

MediaNama: Do you also account the advertising cost that gets paid to BCCL for newspaper advertising inventory?
Gautam Sinha: Everything is accounted in the P&L, in the cost.

MediaNama: Cost of services procured in mentioned for FY10 was Rs 4.99 crore, as opposed to E-commerce sales of Rs 17.75 crore. It’s been a profitable business?
Gautam Sinha: There is a significant investment going into supply chain. If we try to become profitable, we will become profitable by January or February, in terms of headcount cost, but our interest is to continue to invest in customer experience, giving a higher quality of supply chain and efficiency to the platform. So we are investing hugely in technology and supply chain.

MediaNama: Any plans to hive this business off, like in case of TBSL?
Gautam Sinha: It’s not been discussed, but if it makes practical sense, and that’s what the board feels, that’s a step that could be taken.

MediaNama: What about TV? Homeshop18 seems to have taken a substantive lead, and e-commerce is feeding off TV by the looks of it.
Gautam Sinha: We have most of the pieces for TV shopping. As a company, we tried it two years ago, and I don’t rule the possiblity out, that we can enter that quite fast. The group has multiple channels in this space, it is an are we are comfortable with. Two years ago we had taken slots and done TV shopping. TV is an important medium because it covers an audience that is unique from Internet and Print. It’s a much larger distribution medium. It’s one media that we’re looking at very closely.

MediaNama: What about mobile?
Gautam Sinha: Mobile will be a part of our technology roadmap, and we’ll be launching products soon.

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MediaNama: Are you going the apps way or a mobile Internet presence?
Gautam Sinha: Mobile experience has to be the apps space. While all our sites will be HTML5 compliant, adopted to most of the tablet platform, but we are coming up with custom apps for shopping.

MediaNama: You’re shifting from a horizontal to a product specific focus? Techcircle had reported as much.
Gautam Sinha: New players go from vertical to horizontal. Everyone has to be horizontal to get the range of transactions that they want. Most of the competition has done that. The group has certain strength in certain areas. We’ve seen specific verticals – in certain categories, we want to dominate. It’s something we’ll announce very soon.

MediaNama: Which categories work for you?
Gautam Sinha: Mobiles is something which we cant to be strong in. We have good partnerships with primary mobile brands – Nokia, Sony, LG, Micromax and Samsung. We’re able to get volumes through our platform. Mobiles is number one at 40%, followed by Gifting. It was limited earlier to seasonal gifting, and it does around 20% as a category head.

MediaNama: How does books do for you as a category?
Gautam Sinha: We’ve just started to pick it up. While the growth within ourselves is huge, the volume that we do is not as high as some players in the market. But books is one category that we want to exist and exist strongly.

MediaNama: Do you see any category where repeat purchase is high?
Gautam Sinha: I think mobiles is a category where we have been able to improvise our experience. Books is something where we want to build that base, and I’m hoping that in the next six months, we’ll reach there. We’re launching a new platform, and that is where I hope things will pick up.

MediaNama: What platform changes?
Gautam Sinha: We have been working over the last six to 9 months, on a new platform which integrates and provides a singular view to the enterprise – to the supplier, the category managers, merchandisers or the business heads. It’s an in-house platform that we have build. That platform has a lot of widgets, recommendation engines and APIs built into it.

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Corrigendum: the article had incorrectly mentioned that the site does 3000 transactions per month, instead of per day. The error is regretted. 

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