Advertisement

E-tailers plan ahead to cast a wide net in India

As all eyes are on Chinese e-commerce giant Alibaba’s plan to launch the largest ever initial public offering in US, e-commerce market in India is taking a few baby but definite steps to carve a place for itself under the Sun.

Rohit Joshi/Zee Research Group/Delhi
As all eyes are on Chinese e-commerce giant Alibaba’s plan to launch the largest ever initial public offering in US, e-commerce market in India is taking a few baby but definite steps to carve a place for itself under the Sun. For starters, the Indian e-commerce market has witnessed an incredible compounded annual growth rate (CAGR) of nearly 30 percent over the last five years being worth about 13 billion dollars in 2013. E-commerce industry grew by 88 percent in 2013. This has been made possible primarily by the Smartphone surge in the country that has made shopping easy with the press of a button. Given the low internet penetration yet and the ever growing appetite for shopping, e-commerce growth would not only sustain but grow. While e-commerce industry of China contributes nearly 2.4 percent to the overall GDP, India’s e-commerce industry yet contributes merely 0.6 percent. Indian e-Commerce industry is now dominated by the online travel segment which contributes around 70 percent of the country’s e-commerce revenues. During FY 09-13, e-tailing segment reported highest CAGR growth rate of 59 percent amongst peer groups to garner 16 percent market share. The drivers for growth in e-tailing in India are as follows: rising internet penetration, increasing mobile penetration, low levels of e-commerce activity, and rising income levels of middle-class Indians. India has the third-highest internet user base globally after China and US. In 2013, the internet user base grew 42 percent from 150 million (in 2012) to 213 million. As per the Boston Consulting Group (BCG) estimates, the internet user base in India would increase to nearly 450 million by 2018. However, internet penetration at nearly 17 percent is low compared with the global average of 34 percent and over 60 percent in most developed markets. Of the total internet user base in India, mobile internet users accounted for 130 million in 2013 when compared to 68 million in 2012 (a growth of 91 percent). Declining data tariffs, cheaper smartphones and faster data connections are key enablers which are attracting new consumers to come online for the first time. Even, low levels of online e-commerce activity make a case for growth in the Indian e-commerce landscape. According to Macquarie, online buyers as a percent of internet users stood at 12 percent when compared to nations like USA (64 percent), China (50 percent), Australia (55 percent), and Brazil (34 percent). This depicts that there is a huge scope for e-commerce activity in India. BCG research shows that nearly 34 percent of people online are from Tier II-IV cities, while 25 percent are from rural areas. E-tailing can cater to this latent demand as it saves time and energy. While in India, search and social network is dominated by global players, there remains a big opportunity for domestic players with regards to e-tailing. Flipkart is the largest e-commerce firm in India and there are a number of other players like Snapdeal, Indiatimes Shopping, Shopclues, Yebhi, alongside global companies like Amazon and eBay. Besides diversified e-tailers, a number of niche vertical focused e-tailers have also emerged in the past two-three years. These are mostly focussing on relatively higher margin categories such as branded apparel and fashion accessories, baby care, home furnishing and jewellery. Key players in apparels and fashion accessories include Jabong, Myntra (acquired by Flipkart) and Zovi, in baby care include Firstcry and Babyoye, in home furnishing include Urbanladder, Pepperfry, Fabfurnish and Zansaar and jewellery includes Caratlane. The focus of e-tailers is on customer acquisition at any cost. For this, they offer large discounts and facilities like cash on delivery and flexible return policies. Further, an e-tailer displays significantly higher number of SKUs as against a brick and mortar retailer. Mobiles, branded apparels, footwear and books are some of the top selling items though e-tailing sites in India. Recently, Flipkart has launched a range of sexual wellness products. This is Rs 1,000 crore revenue category and is witnessing 40 percent growth per month in sales. With regards to the turnover of e-tailers, Flipkart’s turnover breached the 1 billion dollar mark in March 2014. Similarly, Snapdeal expects revenues to cross 1 billion dollar mark in FY15. In addition, both Ebay and Amazon are also present in India though their revenues are relatively small. The FDI restriction is an opportunity for domestic players as it has dampened Amazon’s India expansion plans. The existing FDI policy in India allows 100 percent FDI under the automatic approval route for B2B e-commerce activities. However, FDI is not allowed in B2C models, i.e. where the inventory is held by the retailer.