E-COMMERCE AND PROFITABILITY

For E-commerce firms   profitability looks like a mirage.  Right now it’s fairly low ROI because there is a mad rush to build user fan base, scale the business, advertisement cost and over the top deals in any segment. Investors have pumped in a lot of money in this space I don’t know how the bottom line profitability will be met and when. The top line might be important in order to raise money from investors, but the bottom-line is more important if the business wants to become self sustainable.

Gross margins which gets impacted by the overzealous deal focus, inventory holding costs and fulfillment costs. The companies are reporting sales growth but the boom has been driven by persistent advertising and deep discounts, leading to huge losses and prompting analysts to question whether online retail can ever be a profitable business.

When you start an e-commerce you generally chose the inventory management model. Unfortunately this model has to face many pitfalls such as inventory risk, marketing costs and shipping expenses.

The main problem e-commerce websites are facing in India is generating organic traffic.
India being a highly price sensitive market, customer retention is another major issue. A typical Indian user will visit all the possible e-commerce websites and end up buying from a source where he will be offered the lowest price and this can be an offline store too. However looking at the overhead costs involved in running a website in proportion to profit margin, e-Commerce is not really picking up in India.

I believe Marketplace model is the answer to profitability in this space or the B2B Model.