May 24, 2017 (LBO) – Sri Lanka’s online retail sector is booming, which poses a threat to traditional retail stores. Online stores too are battling it out for market share.
Lanka Business Online spoke to Lahiru Pathmalal, the CEO of Takas.lk, one of the top online retailers in the island, to find out how the sector is shaking out.
“Once online retail accounts for 20 percent of total retail in any given area it disrupts traditional retail. You saw this trend with Amazon. The moment Amazon captured 20 percent of the books market, traditional retailers started closing down. For instance, Barnes and Noble,” Pathmalal said.
“The same thing is now happening with clothing and electronics. Then real disruption will take place, and the ones who have not embraced eCommerce will sink.”
Store chains such as Macy’s, Abercrombie & Fitch, J.C. Penney and Payless in the US are all downsizing their physical stores due to online alternatives.
In Sri Lanka the situation is different.
Sri Lanka’s e-commerce market, with external and internal travel included, is estimated at around 40 million dollars. This could grow tenfold to 400 million dollars by 2021/22. Traditional retail is estimated to grow 30 percent from 10 billion dollars to 13 billion dollars by 2021/22, according to estimates by Takas and York Street Partners.
Given the early stage of Sri Lanka’s high street stores, malls and online retail channels, real estate advisors such as JLL don’t expect a significant risk of cannibalization across channels.
Counting Retail Jobs
Nevertheless, particular stores may be affected. The US lost 60,000 retail jobs in just two months, and 8,600 stores are projected to close by the end of the year, a situation that may eventually reach Sri Lanka.
“There will always be customers who want to touch and feel. But in the longer term the value proposition given by online retail will win people over. Which is convenience and price advantage. This said, companies that have a hybrid model of online and offline will flourish in the coming years,” he said.
With stiff competition online, Sri Lankan retailers appear to be in investment mode.
“Currently everyone is trying to build market share. Online retailers can possibly go cash flow positive but there is a cost to it. I don’t think online retail should be penny wise pound foolish, which means we need to grow at a sustainable rate now. When the market becomes more saturated, growth will cost a lot more. Now is a great time to grow.”
Takas.lk opened in December 2012 with venture capital secured though the Lankan Angel Network and other investors. The company offers around 9,000 electronics products, and 6,000 products in categories such as apparel, personal care, car care and home appliances.
The company was the first to introduce Cash on Delivery to Lankans and also helped automate easy payment schemes.
“Since we opened we have seen massive growth. We have more than 30 percent of our consumers originating from outside the Western Province. In terms of pure play revenue, without any store front, we are the market leader.”
Pathmalal said they are constantly working to improve the customer experience, get products to their customers faster, and offer more payment options, both traditional and digital.
He said he is passionate about what they do for two main reasons.
“E-commerce is a frontier market here, and I am thrilled to be apart of a team who is helping shape that. We are doing new things everyday, it’s not business as usual every day we are doing and trying something new, and that is super exciting.”
“Secondly, I believe we are making a real change in our consumers life. As an eCom company consumers can buy value added products from anywhere in the island. So customers have both choice and information. This as a team we take real pride in. We are apart of a movement of empowering the Lankan consumer.”
Pathmalal said the short term plan is to grow more aggressively and reach cash flow positive status. In the not too distant future Takas may also be in a position to list on the stock exchange.