Notes

India: E-Tailing on the road to Success
India's e-tailing industry

India's e-commerce market is projected to attain USD 20 billion by 2015. By 2021, the projected growth will be a hundredfold, from USD 0.6 billion in 2012 to USD 76 billion.

India's e-tailing sector is booming, dominated by start-ups with backing from capital raising funds and driven by younger generation. The sector's growth plus the rise in amount of Internet users in India is attracting established players to enter the e-commerce business.

Why is e-commerce booming?

India's e-commerce market is set to attain USD 6 billion in 2015 with scope for more growth because of the growing Internet user population and increased usage of mobile phones. A few of the key causes of this growth include:

Rise in Internet surfers

Till June 2014, India was lagging behind China and america in terms of the number of Internet users - to arrive a close third. According to a report by the Internet and Mobile Association of India in 2014, India is projected to really have the second largest population of Internet users in the upcoming 3 years. The report also claims that the number of online users will rise to a lot more than 500 million by 2018.

Mobile devices

India has tremendous potential in the mobile communication realm. This is often related to the 6 million new Internet users added every month - a lot of them through mobile phones. Another factor adding to this can be a inadequacy of copper fixed line connections across the country as a whole.

The introduction of 3G and 4G network services is likely to boost e-tailing. Telecom companies in India have committed USD15 billion to acquire licenses for 3G networks. check here of 3G networks in 2013 stood at approximately 6 % of India's population with approximately 70 million users, and is estimated to attain 370 million users by 2017.

Potential in Tier-2 and Tier-3 cities

Online shopping is booming in metros as well as smaller cities. Internet usages in small cities - like Bhubaneswar, Mangalore, Pondicherry and Kolhapur to name several - are on the rise. In 2011, approximately 48 per cent of the full total urban Internet surfers belonged to smaller cities with a population below 1 million. Hence, the largest addressable market for internet users is based on the Tier-2 and Tier-3 cities.

Some Indian e-tailers use multilingual (local dialect) se's to enhance the online shopping experience for customers in various regions of India.

Just over a third of Internet surfers came from the top 8 metropolitan cities in India. Aside from price discounting, e-tailers also adopt other approaches such as for example multilingual (local dialects) se's to improve users' online shopping experience in different regions.

Liberalization of Foreign Direct Investment (FDI)

Currently in India, Foreign Direct Investment (FDI) in Business-to-Consumer e-commerce is prohibited. Therefore foreign businesses cannot sell products directly to Indian consumers online. However, due to the capital-intensive nature of the business enterprise, around 70 to 80 % of e-commerce companies are in need of funding. Liberalization of FDI norms wouldn't normally only help India's e-tailing industry from a funding perspective, but would also usher in valuable operational know-how from mature markets.

What should investors look-out for?

The Indian e-tailing market is set to endure massive changes in the coming years. Some noteworthy trends include:

Women are primary buyers

Women bought goodies worth USD500 million online in 2013 which figure is expected to grow fivefold to reach USD3 billion in the following 3 years, with fashion being the most popular category. For instance, Myntra - an e-commerce player popular and casual lifestyle products - expects to earn 50-55 percent of its sales within the next 2 yrs from women consumers.

Option of (Cash-on-Delivery) CoD

The penetration of plastic money is still lagging in India. Consumers have adopted CoD as a trusted and safe solution to pay for online purchases. Most online retailers offer CoD as an substitute for boost online sales revenue.

In 2013, Cash on Delivery accounted for 55-60 per cent of online transactions in India.

However, this comes at much price to the e-tailers. Not merely do they suffer higher cost of payment delays, consumers are also likely to return the goods which in turn curtails margins. In 2013, Cash on Delivery accounted for 55-60 % of online transactions in India.

Private Equity investments

Private Equity (PE) and Venture Capitalists (VC) are investing heavily in the Indian e-commerce market. In July 2014, Flipkart raised more than USD1 billion and another USD700 million during two separate fund-raising campaigns. Similarly, Japan's SoftBank made a commitment in October to invest USD627 million in SnapDeal.

Acquisition and consolidation

Mergers & Acquisitions (M&A) as well as consolidations have started showing up in India's e-commerce market in addition to in other mature markets. Smaller enterprises are merging with leading companies - fueling competition. This is due to e-commerce companies are running losses. Of the 193 Indian e-commerce firms that were set up over the last 3 years to 2013, 87 have ceased to exist.

For instance, Flipkart bought Letsbuy - a rival firm - for USD20 million in 2012. As well, Snapdeal acquired Esportsbuy - an online retailer of sports and fitness equipment - for an undisclosed amount of between USD10 to 15 million in April 2012. Within the next many years, more mergers and acquisitions are anticipated to follow.

The industry isn't as rosy as it seems

Because of low Internet penetration along with poor financial and logistical infrastructure, India continues to be trailing far behind its counterparts regarding overall value. China (USD64 billion) stayed at the top spot for the next year in a row for online market attractiveness, followed by Japan (USD52 billion) and america (USD177 billion).

E-tailing small percentage of retail

India's online market continues to be at a nascent stage. In 2012, the e-tailing market size was at USD0.6 billion contributing a minuscule of 0.1 % to the full total retail sector of India worth USD490 billion.

Low internet penetration

There is still a long way to go before Internet becomes truly generalized among the Indian population. There are 900 million people with mobile subscriptions but only 10 per cent use smart phones and will access the Internet. Thus, the potential for online shopping is huge.

Logistics constraints

Logistics in India is definitely challenging given the geographical complexity in the united states. With the rapid growth of e-commerce, there is an urgent have to spend money on road infrastructure for better support of internet vendors.

Customer service

Due to the immature state of India's e-tailing market, client satisfaction levels are relatively low. According to a report in 2014, 62 % online shoppers expressed dissatisfaction in their shopping experience. Furthermore, in accordance with an online consumer complaint site, a complete of 11,980 e-commerce related complaints were registered between January - March 2013.

The majority of consumers complained of delivery of damaged goods, delivery of a different product or non-delivery. A significant area of concern for complainants was the procedures for the return of goods, which were cited as either complicated or expensive.

Future outlook

India's e-tailing market continues to be far behind other large economies. However, there may be without doubt that the sector will growth massively in the coming years, driven by Gen-X Indians that are tech-savvy and who find online shopping far more convenient.

There are several growth drivers which make the growth expectations real and achievable. Internet penetration through cellular devices is diffusing over the entire nation - allowing flexible usage of online stores - while on the go. Secondly, major players in the e-tailing market are investing heavily to expand their consumer base. This is done by offering attractive price discounts and improving the online shopping experience for customers. Additionally, the government also intends to help ease the policies for foreign investments in the web B2C market.

In opening up the bricks and mortar retail sector to competition, the Indian government faces huge political obstacles. This has held back the procedure of consolidation and modernization of retail in India, to the detriment of the Indian consumer. A farsighted policy will be for India to take measures to cautiously liberalize investment in e-tailing. This would allow consumers to exploit the prices, product range and service levels of large, modern retailers without having to leave their homes or offices.

At the same time, e-tailers complain of low and falling margins because of problems of logistics, return of goods and non-payment. It remains to be observed if online vendors can overcome these obstacles in order to both scale up volume and be profitable.
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