Rapid proliferation of high-speed Internet and Internet-enabled smart devices has contributed to the expansion of online retail in India at more than 40 percent growth in FY 2013-14, according to findings released in a new white paper by Colliers India.
The online retail in India is expected to touch USD 22 billion by 2018. Mobile internet users in India is expected to cross 300 million by 2017 from 159 million users at present, further aiding e-tail penetration, the report says.
In contrast, organised retail grew just 10-12 percent in the same period, while brick and mortar retail, as a whole, grew 6-7 percent. Capital value and retail rentals remained at in India’s top seven cities in FY 13-14. Overall absorption declined and only 1.6 million sq ft of retail space was absorbed in India in 2014, down from 5.1 million sq ft in 2013.
The recent entry of a number of high profile participants into online retail, along with an influx of private equity funds and investment from foreign venture capitalists, has resulted in this huge boost in funding that translated to tremendous sales growth in e-tail.
“Brick and mortar retailers are increasingly integrating both offline and online presence through differrent combinations of product presentation, payment, and delivery modules for their stores and digital platforms,” the report notes.
The paper also notes that India’s retail industry is flourishing and accounts for 22 percent of the country’s GDP. In 2014, the market was worth USD 500 billion and is expanding at a CAGR of 15-20 percent. The Indian retail industry is considered the seventh largest retail market in the world. The penetration level of modern retail which is 8-10 percent currently is expected to increase six-fold from the current USD 27 billion to USD 220 billion in 2020.
Meanwhile, there are some challenges for online retail as well, according to Colliers. “One of the debatable subjects is whether shopping online is derived more by convenience or by discounts offered. It has been observed that discounts offered by e-etail companies are the primary driver of this demand. Reportedly, all the major players, whether it is Flipkart or Snapdeal, are bleeding cash,” it says.
Other challenges are low internet penetration, less credit card users, poor logistics and transport infrastructure, COD especially last mile, etc. However, the scope of internet growth will have a positive impact on retailers’ volumes and market share, but the cost of packaging and distribution can erode profit margins.
Click here to view the Colliers White Paper in full
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