E-tailing has been present in India for well over a decade now. While the early 2000s can be better described as a decade of foundation building, when Internet penetration increased steadily, technological advancements enabled better online interfaces with safer transactions, and e-commerce inched into the common man’s life through travel retail, classified services, financial services, and e-tailing. The period from 2007 onwards can be marked as the second phase of e-tailing which saw the emergence of game-changing players who brought in more investments and innovations into the space. The current wave of e-tailing was driven by start-ups, and backed by Venture Capitalists (VCs) and Private Equity firms (PEs). While the Indian e-tailing market is yet to achieve a steady state, these initial entrants have succeeded in capturing the imagination of a sizeable consuming class. These have also acted as a catalyst in the creation of an ecosystem necessary for the growth of e-tailing. Now that critical mass has been achieved, the next decade is expected to see e-tailing move into the next phase of growth.
Although pegged at USD 2.3 billion, e-tailing is still a minor part (0.4 per cent) of overall retail in India, but is projected to grow at a rapid pace to reach 3 per cent of the total Indian retail market i.e. USD 32 billion by 2020. There are 4 key factors which contribute to e-tailing’s growth:
Growth of digital penetration: Internet penetration is rapidly growing in India. It is currently ~20 per cent, and is projected to reach 40 per cent, by 2020. There is also an increased percolation of Internet-enabling devices like laptops/ PCS and smartphones driven by the increasing affordability of entry=level devices. An interesting feature of the widening of digital penetration is the growth of Internet access via mobile devices. As compared to broadband users, mobile internet users are witnessing much faster growth. This growth is expected to continue given the increase in the penetration of high speed Internet, primarily driven by the rollout of 3G and 4G wireless technology. Currently, the leading e-tailers are already registering around a third of shopping via mobile devices. Mobile commerce is also driven by the absence of device/ internet access alternatives with large number of consumers as well as convenience (as mobiles are a more accessible device). This is set to increase in the years to come, with mobiles likely to become the primary shopping device in India.
Growth of Internet-habitual customers: Internet habitual consumers are rapidly growing in India. An Internet-habituated consumer is adept at, and comfortable conducting, complex tasks on the Internet including file sharing, content uploading, financial transactions, interactive tasks, etc. There has been a disruptive movement, from using the Internet merely for accessing e-mails and for casual browsing to carrying out more diverse and interactive activities. Convenient online interfaces, an enhanced user experience, and attractive offers and services are some of the key enablers for this change.
Limitation of the Brick & Mortar format: While organised retail, in primarily the Brick & Mortar format, has been in India for two decades now, its contribution to total retail is still low, at ~8 per cent, due to the structural issues faced. Such organised retail is concentrated in the top 25-30 cities where retail consumption is also concentrated. Majority of the Brick & Mortar brands are thus concentrated in larger cities and are unable to meet the rising aspirations in the smaller cities across India. This skew in retail presence is fuelling the growing demand through online channel owing to its wider reach and delivery to even the smaller cities and towns where Brick & Mortar retail stores are either not viable or will take years to reach.
Improved supply side: Credit needs to go to e-tailers who have invested much capital and effort in growing the market through multiple means like better interfaces, more products, discounts and promotions, faster delivery, easy returns, options like cash-on-delivery, EMIs, mass media campaigns, etc.
The Indian e-tailing market is led by homegrown players. The market is dominated by mass merchants followed by a long tail of specialty and niche players. The entry of the global leader Amazon last year has brought more competitiveness and urgency into the space and triggered more investments and consolidation. The acquisition of Myntra by the Indian market leader Flipkart has been the major consolidation in recent times. With Series A funding drying up and investors backing incumbent players by injecting more capital, going forward, we will continue to see higher competitive intensity and greater consolidation within the market.
Despite having come a long way, there still remain several challenges e-tailers are faced with. The key challenge is the ecosystem’s lack of readiness. Poor quality, in terms of speed and reliability, of data communication networks is a major hurdle in e-tailing’s growth. The last mile delivery infrastructure is as yet inadequate and suboptimal. Marketplace players also face the challenge of working with a ‘digitally ill-equipped’ vendor base which is not yet ‘ready’ for serving marketplaces efficiently.
Besides the above, another challenge for e-tailers is achieving differentiation to break out of price wars and drive consumer stickiness. The extent of differentiation and the ability to sustain the same will help attract consumer share and drive up loyalty.
E-tailing in India will continue to move along a high growth trajectory in the years to come. The market is presently at a stage where new consumers are getting added every day, players are battling for the top slots, the ecosystem is starting to fall into place, and investors are continuing to show faith in this sector. This is therefore the onset of a very exciting phase of e-tailing, when the next few years will witness the emergence of clear market leaders.
