the innovation issue – PROFITS WILL ACCRUE ELSEWHERE IN THE DASH FOR E-COMMERCE GROWTH

GUARDIAN FUND MANAGEMENT

RUVINI FERNANDO
GUARDIAN FUND MANAGEMENT

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PROFITS WILL ACCRUE ELSEWHERE IN THE DASH FOR E-COMMERCE GROWTH

The path to e-commerce leadership is blood spattered. Online retailers must build infrastructure, gain scale and wring savings from supply chains to attract customers away from high street retailers by offering far lower prices and convenience. An analysis by Guardian Fund Management, an asset management company, found that refrigerators, washing machines and flat screen TVs were 12-27% cheaper at independent online e-commerce sites than at high street electronic retailers.

“In the case of TVs, there is heavy discounting online, by as much as by 27%,” points out Guardian Fund Management’s Ruvini Fernando. Online businesses pass on the cost benefit of doing away with brick and mortar showrooms to customers. However, many e-commerce ventures have negative cash-flows due to their overwhelming focus on scaling and grabbing retail market share.

As e-commerce penetration and deliveries rise, logistics infrastructure will have to grow and evolve next day delivery. E-commerce companies the world over are piggyback riding on the infrastructure of logistics companies and banks.

Consumer durables like TVs and refrigerators are the most popular items purchased online. Fernando points out that demand for these ‘one-off purchases’ is susceptible to economic and consumer sentiment-related downturns and inflation. “But, consumer financing takes a longer horizon, and generates long-term cash flow.”

As a result, in most countries, the rise of e-commerce has resulted in more business and profit for banks, insurance and logistics companies. “Durables demand is volatile, but financing them is a growing business. Because you pay installments over time, business in the financing side of consumerism is greater.”

Investors keen to pick winners in the blood-splattered jostle for e-commerce market share must seek out private equity funds or join one of the informal angel investor networks. Early stage investing carries higher risks commensurate with potential returns. Most ordinary investors, however, looking to benefit from the e-commerce boom will prefer a less riskier approach, which may be available by carefully selecting from among established banks, insurance and logistics companies, some of which are publicly traded.