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Ecommerce trends in India 2012
- 1. By Upasna Kakroo In the last decade, India has made a name for itself as a tech player. But that reputation, however well-deserved, belies important limitations – and these are having a big effect on the development of online commerce. Forastart,Internetpenetrationisstill verylow,withonly8.4%ofthepopulation online.ThenthereisIndia’sgreatsize, unpredictablelogisticsandcreaky transport.Bricks-and-mortarretailers, manyofwhomhavecultivatedrichand long-lastingrelationshipswiththeir customers,offertoughcompetition.And finally,90%ofallretailtransactionsare conductedincash;onlineworksbestwith plasticorelectronicmoney.Nowonder, then,thate-commerceaccountsforless1% oftotalretailsales(comparedtomorethan 4%inBrazil). Andyet….theopportunityisjusttoo alluringtoignore.Eightypercentofcurrent Internetuserssaytheyareplanningto shoponlineinthenearfuture,forreasons asvariedasconvenienceandprivacy(for itemslikelingerie).Moreover,India’s onlineretailersaremakingprogress.The e-commercemarkethasgrownanaverage of34%ayearsince2005andwillcontinue togrowbrisklyfortheforeseeablefuture, reaching$2billioninsalesby2015.By then,itisestimatedthatIndiawillhave38 millionactiveonlineshoppers. Inacountryof1.3billionpeople,that isstilladropinthebucket.Butbyany standard,38millionisanappetizingly bigdrop.Moneyistalking,too:In2011, investorspoured$305millionintoIndian e-commerce. E-commerce on the move Sofar,onlinecompanieshavebuiltthe businessbyplayingtothenaturalstrengths ofthechannel:focusingonyounger andmoreaffluentconsumers;offering aggressivepricing;andemphasizingspeed andconvenience. Onecategory,travel,standsheadand shouldersabovetherest.Nearlyathird ofIndia’stravelisnowbookedonline, accountingfor$7billionofthe$23billion E-commerce in India: Early birds, expensive worms Consumer and Shopper Insights July 2012 USD millions SOURCE: Euromonitor, McKinsey Exhibit 1: E-commerce sales, by year and rate of growth Internet retail in India SOURCE: Euromonitor; McKinsey 2,054 1,355 930 543 302 108 2005 +34% p.a. 201513110907 Low Internet penetration and high infrastructure barriers are hobbling — but not crippling — online shopping.
- 2. market.Twolocalplayersdominate --MakemyTrip(48%marketshare)and Yatra(30%). Inonesubcategory,train reservations,40%ofbookingsare madeonline,thankstothepopularity ofIndianRailways’IRCTCsite.The onlinetravelmarketisideallysuitedto Indianconditions,becauseticketscan bedownloaded,andthusthesectordoes nothavetodealwiththetransportand logisticalproblemsthatloomsolargefor otherproducts. Outsidetravel,themostpopular categoriesaresimilartothoseseen elsewhere,suchasmobilephones,books, computerhardwareandconsumer electronics.Apparelhas,however,been slowtotakeoff.Indianconsumerslike tofeelandtryonbeforetheybuy,and bespoketailoringiscommon. Asbefitsayoungandfast-growingsector, thee-commercemarketisfragmented, withalargenumberofplayerscompeting inamultitudeofformats.Thereare e-tailerslikeFlipkart,Infibeamand Letsbuy;onlinechannelsofestablished retailchainslikeNextandShoppers Stop;nicheplayerslikePerfume2order andCaratlane;anddealaggregators likeSnapdealandCrazeal.Inaddition,a numberofbigplayersintheappliance andelectricalgoodssectorshavebuilt dedicatedonlinestorefronts.These areincreasinglysupportedbysocial networkingfeatures,fromFacebook pagestouserforumsandloyaltyschemes. Finally,thereisthird-partye-commerce. IndiatimesShopping,forexample,runs customersupportforaglobalphone company;thephonesaredelivered straightfromthemanufacturer.Single- brandoutlets,however,maystrugglefor position,becausebargain-huntingIndian consumers(andthatmeansjustabout everyone)prefermulti-brandchannels thatallowthemtocomparepricesand productfeatures. Atthemoment,Indianconsumersare gettingthebetterbargainine-commerce. Consideronlinebookselling.Ananalysis inForbesmagazinefoundthatinaneffort tobuildmarketshareandloyalty,many onlineretailersaresellingatclosetobreak- evenorevenataslightloss–essentially transferringwhatwouldhavebeentheir profitmarginstoconsumers.Thisis obviouslynotalastingbusinessmodel. Pricewarsbetweenonlineplayershave beenharsh,andsomeearlyentrantshave alreadybeenforcedout.“Everybodyis inacut-throatprice,”RutvikDoshitold theEconomicTimes. “Ifotherplayersare sellingaproductat85rupeeswhenthe costitselfis100rupees,itisclearlynot sustainable.” Heshouldknow:Doshiwas CEOofTaggle,anonlinegroup-buying sitethatshutitsvirtualdoorslatelastyear. Consolidationacrossthesectoris inevitable,particularlyasoperational excellencebecomesmoreimportant.Ravi Adusumalli,managingpartneratSaif Partners,aDelhi-basedprivate-equity firm,predicts,“Oneortwocompanieswill surviveineachsegment;otherswilleither failorgetacquired.” Pay now, deliver later? Muchoftheinvestmentflowingintothe sectorisgoingintologistics,asretailers worktoimproveserviceandtoextendtheir reachbeyondtheTier1cities(ie,Bombay, Delhi,Madras,Calcutta,Hyderabad,and Bangalore). Flipkart,forexample,India’s largestonlinebookseller,planstobuild18 additionalwarehouses(itnowhasseven) and25moredeliverycenters(upfrom35). Anumberofe-tailersarealsosettingup theirownlogisticsoperations.Itwillbe particularlyinterestingtoseehowAmazon does,andhowitsentranceshapesthe market.TheAmericane-commercegiant recentlyenteredtheIndiane-commerce spacewithjunglee.com,aplatformfrom whichconsumerscanbuyarangeof products,fromdiaperstobeardtrimmers, fromthousandsofoutlets,bothon- and offline.Theseller,notAmazon,handles themoney. Whichbringsustotheotherbigchallenge: payment.Eightoutoftenonline purchasesmadeinIndiatodayarecash- on-delivery.Thisisaveryexpensivefor e-tailersandthelackofarequirement topayup-frontencouragesawkward consumerhabits.KVaitheeswaran,who SOURCE: Nielsen, McKinsey Millions of users Exhibit 2: Debit card and credit card users 0 50 100 150 200 250 06-072005-06 Debit cards Credit cards 2010-1109-1008-0907-08