E-Commerce in India: Future is Bright

India is a 2 trillion economy; retail accounts for 30% of GDP. Globally, as per eMarketer, 8.8% of the retail market is e-commerce, while the figure for India is much less. Explosive growth of e-Commerce, in India, is therefore, inevitable. The interest of PE (private Equity) players & the stratospheric valuations commanded by the Indian start-ups like Flipkart & Snapdeal is but symptomatic of the emerging reality. The growth of data users to over 250 million, smartphone sales to over 80 million per annum & increase in internet speeds, courtesy 3G & 4G networks have only accelerated the trend. As per PWC-ASSOCHAM report 2014, e-Commerce users in India shall grow from 40 million to 65 million & per capita annual spent from Rs 6000/- to Rs 10,000/- within the next one year. Apparel & computer electronics shall continue to account for a major share - 42% of e-com. As per Technopak, apart from online retail & lifestyle, newer online business segments like classifieds, real estate, grocery and healthcare shall gain traction. With China out of bounds, such attractiveness was bound to attract the attention of international players.

The international behemoth, Amazon, made an impressive debut, in 2013, & served to expand the market. E-bay on its own as well as through its stake in Snapdeal has done yeoman service, bringing in international best practices. The entry of Jack Ma’s Alibaba into the Indian terrain through the stake buy in Paytm recently shall only accelerate a bloody game where customer acquisition is the name of the game through heavy discounts, aggressive merchandising, flash sales, daily deals & online loyalty programmes. In this dog eat dog game some players like Indiaplaza fell by the wayside, in 2014, failing to raise funds while  Network 18, post an acquisition by RIL, has stopped selling books – a high margin category. Yebhi.com and Bestylish.com changed their business models to become price comparison websites or aggregators for other e-commerce portals Therefore, the stakes in this game are rising rapidly pushing some to emerge as leaders while others scurry for cover. The following trends need to be keenly watched.

Omni Channel Play:

To counter the threat from the emerging e-com warriors, traditional brick & mortar retail players are decisively opting for an Omni-channel strategy – using multiple channels & resources including online & offline – to push sales. Reliance Retail’s e-commerce platform restricted to grocery sales in Mumbai alone is shaping up for a pan India expansion into new categories - selling TVs, mobiles, laptops, home appliances & apparel - in Q4 FY15. It plans to utilize its strategic assets - 700 reliance digital stores - for product delivery & exchange suggesting a shift to an ubiquitous brick & click strategy. Traditional players like Tata have started consolidating their retail ventures & selling through their own e-store as well as through online marketplaces. Surprisingly, they have sold the Tata Value housing deals on Snapdeal with remarkable success. Domestic electronic retail chains like Vijay Sales & Viveks too have caught on the trend & gone online. Aditya Birla Nuvo’s Madura garments & Lifestyle has launched “Trendin” to further its online ambitions.  Future group - drawing on international learnings' of a drop in retail footfalls - has entered into an agreement with amazon to sell its “own store” brands on the latter’s online platform. Clearly one can witness the thrilling blurring of differences between online & offline while the possibilities of imaginative strategic partnerships make this sector truly exiting.

GOSP & Flipkart “Billion day” sale.

There are many players donning the missionary role to attract more users into the marketplace model.  Google, running the “Great India Shopping Festival” (GOSF) since 2012 has witnessed total brand partners increasing from 90 in 2012 to 450 in 2014; companies like HP, Lenovo Group, Tata Housing Development Co, Van Heusen, Motorola Nexus and Karbonn Mobiles have launched their products exclusively at the festival. Flipkart, launched the “billion day sale” in 2014, which floundered due to technical issues not before amassing sales of $100 million in gross merchandise value (GMV) indicating the latent potential of such an initiative;  after all Alibaba sold $9 billion worth of merchandise  on a single day on Nov 11, 2014 commemorated as “Singles Day” & branded as “Double 11”. Therefore expect Flipkart’s next sale to be much bigger.

Sellers are increasingly gravitated towards an E-commerce platform since it allows a pan India launch in an instant - a luxury denied by traditional physical retail.  Analytics makes for targeted selling while Social Media & search engine marketing provide a greater bang for the buck. The biggest lure, however, is the marketing support from e-com players for brands in return for exclusivity

Fight between alternate market place models.

Internationally, Amazon has favoured an own inventory based model while e-Bay has pushed for a non-Inventory based one; the latter, favours bringing buyers & selling onto a platform in return for a commission. Currently, 100% FDI is allowed only in a non-inventory marketplace model; e-bay wants status quo while amazon has been lobbying for change.  Flipkart, started as an inventory based model but hived off its inventory into a subsidiary WS retail to conform to the regulations. Snapdeal meanwhile favours a non-inventory based model subscribed to by its investors Softbank, e-Bay, Ratan Tata & Premji.  E-com regulations need to be model agnostic & if implemented shall accentuate demands on the government to revisit the FDI policy in multi brand retail

FDI in multi brand retail

The much controversial policy on FDI in retail was passed by the previous UPA regime with the caveat that individual states were at liberty to take a decision regarding market entry. AAP, while in office in Delhi, reversed the previous Congress governments’ permission for retail entry; the BJP, heading the current central government, has not revoked the law but has revealed its displeasure on retail entry of multinationals, citing the fear of a likely decimation of the mom & pop stores. It is difficult to fathom how protecting the interests of 12 million retailers – not all of whom would be decimated by organized retail expansion- is more important than the interest of 600 million farmers - who would gain through better prices through reduction of intermediation  - or the 1250 million citizens  - who shall gain through lower prices & reduced inflation. It is pertinent to note that participation in a marketplace helps retailers - currently constrained to a  local geography – to expand their catchment areas nationally & going forward, hopefully, internationally too. Any attempted by trade to counter e-com expansion shall invite the ire of consumer groups. Simultaneously the massive growth in e-com has raised the shackles of organized retail which is seeking parity. Customers, ultimately, are interested in experience, convenience & affordability & see no utility in managed differences between traditional brick & mortar retail – organized or unorganized - & on-line commerce. All the above vectors shall converge & ensure that FDI in retail, eventually, shall become a reality.

The e-com sector is therefore replete with exciting possibilities & is therefore the buzzword both on campuses & boardrooms.  The revolution has only just begun. Stay tuned!!