Amazon launches as Junglee.com in India! Is it a big deal?

Amazon launched as Junglee in India earlier this week. It is a price comparison site for various merchants to list their products and provide prices. Already quite a few significant Indian vendors (homeshop18, indiaplaza, healthkart, uRead, bookadda, etc) have listed their products on the website.

So, with the brand name of Amazon, one would think this will be a major development in the Indian online market. Right?

Well I don't think so.

Amazon has launched this price comparison site (and not an ecommerce website) only because Indian law prohibits 100% foreign direct investment (FDI) in multi-brand retail. Foreign investors who want to own Indian retail operations (e.g., international private equity firms, foreign internet retailers) have typically invested in the 'supply chain back-end' operations of retailers or in 'wholesale cash-and-carry' operations. Amazon apparently is not interested in playing such games.However let's be clear that Amazon will launch its own store-front in India the very day that Indian government allows FDI in multi-brand retail.

Given that scenario, it is likely that Junglee is only an attempt by Amazon to learn about the Indian ecommerce market and understand the price sensitivities of the Indian consumer. They are also getting pricing information freely from their competitors !! I assume many of the sellers listed would only be too happy to be acquired by Amazon when the time is right.

However some of the bigger players in the Indian market (flipkart, snapdeal, dealsandyou, fashionandyou, yebhi, myntra, etc) seem to be staying away from Junglee. They seem to understand the threat of giving structured pricing data to their future competitor.That is why, Junglee is unlikely to be a great force in the Indian e-commerce landscape.

Current Alexa rankings for India:
snapdeal 26
flipkart 30
homeshop18 124
Myntra 153
koovs 186

infibeam 208
indiaplaza 284
Junglee 533

While these rankings are based on 3 month averages and Junglee is likely to rise in rankings over the next 3 months, there is also a honeymoon effect which is likely to wane (also as buyers see lot of items with only 1-2 sellers).

My bet is that Junglee will make it to top 200 within the next 3 months, but will not generate as much traffic as the leading Indian e-commerce sites.

How can brick-and-mortar book stores compete?: Part 1

Last week, Borders and Barnes & Noble declared their third quarter results. Both companies reported a net loss at an operating level. Both companies are shutting some unprofitable book stores and trying to rein in costs to become profitable.

I am a big fan of both Borders and Barnes & Noble, and cannot help thinking: How can these companies use analytics to survive the onslaught of Amazon.com?

I analyzed the Q3 numbers of B&N, Borders and Amazon, and here's what I found:

• Online sales account for less than 10% of Barnes & Noble sales and less than 2% of Borders' sales. Of course they account for 100% of Amazon.com's sales.
  
• Amazon is growing much faster than B&N and Borders. In Q3, these companies had comparable sales growth of 19%, -6% and -12% respectively. Note that Amazon numbers are for Media sales (Books, DVD, music). Amazon Media sales for international markets grew faster at 24% compared to US sales at 15%.
  
• Amazon runs an operating profit whereas its competitors run a loss. The key difference is in SG&A cost and depreciation. Surprisingly B&N has a lower COGS (cost of goods sold) than Amazon. Amazon has a higher operating margin in its international operations. Borders has a higher operating loss margin in small-format Walden US stores (-14.4%) and a lower operating loss margin in international stores (-5.3%).
• A large format book retail store requires sales of $20 per sq.ft per month to turn an operational profit. B&N is currently registering $18 per sq.ft per month and Borders US is selling only $14 per sq ft per month in its large stores. A Walden's (small format) store requires sales of more than $30 per sq. ft per month to have an operational profit. Currently Walden's US has sales of $17 per sq ft per month only. Thus there is an urgent need to increase sales per sq ft
• Amazon has much lower inventory than B&N and Borders (as shown below). Borders is carrying more than 5 months of inventory whereas B&N is carrying more than 4 months of inventory. I feel that book stores need to better align inventory with demand.

Here are my suggestions (which I will detail in subsequent posts):

• B&N and Borders need to create a more credible online option to compete against Amazon.
  

1. I recommend usage of collaborative filtering to offer instant book recommendations to online buyers. Also bn.com and borders.com can improve in terms of linking past browsing behavior to book recommendations online
2. Barnes & Noble needs to consider matching amazon.com on pricing (given it's lower Cost of Goods). E.g., I recently found that the Buffett biography : The Snowball is priced at least 5% lower on Amazon.com
3. Many customers feel that Amazon has a wider selection of technical and children's books titles than other online book stores. Catering to the long tail may be essential to competing with Amazon.
   

• Use brick-and-mortar as a competitive advantage:

1. Offer the option to buy online and pickup at a store within a few hours
2. Let loyal book buyers work for you by organizing 'low-cost' book discussions/reading sessions especially for children, niche interest segments
3. Offer bundled offers in the store, based on basket analysis of previous purchases
4. Consider installing digital displays in the store showing reader reviews and suggesting complementary reading recommendations (based on collaborative filtering).

• Align inventory to demand

1. Use statistical models based on demographic profiles of localities and historical title sales to better allocate inventory to stores.
2. Dynamically trans-ship best-seller inventory between stores based on matching with demand patterns (since most demand for best-sellers occurs in the first week after release)
   

More later...