2014 was a memorable year for ecommerce industry in Asia. China has become the second largest ecommerce market after US and India, which has been on a roller coaster ride over the last few years had a staggering annual growth rate of 80 per cent, valued at USD 16 billion, thanks to a booming online retail industry that defied slow economic growth and spiraling inflation.
Indian ecommerce is at the tipping point.With close to 250 million internet users and growing smart phone sales, Indian ecommerce industry has been a land of opportunities for institutional investors.While ecommerce marketplaces like Flipkart, Amazon, and Snapdeal snapped up big ticket investments, niche portals like Pepperfry, Zomato and Ola among a few others have also found their spot.
The Indian retail customers conventional mindset of ‘can’t touch – won’t buy’ mentality is changing with the increasing trend of online shopping. The ecommerce companies attract the customers with discounts, customer reviews, same day delivery and cash on delivery; thereby alleviating the customer security concerns about buying online.
India’s retail landscape differs from other developed markets like US. Building organised retail stores across India’s considerable geography, with many smaller cities takes both time and high levels of investments. As a result, organised retails have captured only a smaller percentage of the overall retail market in India. Organized retail is still developing in India. More than 90 per cent of shopping is done at informal level through roadside stores and in bazaars. These small shops are seen as the lifeblood of the economy and successive governments have protected them.
India’s protectionist government policies have long shielded established organised retailers from international competition. As a result, they never felt the need to invest in state-of-the-art technology. The ecommerce players are racing ahead, modernising the retail industry at a pace that traditional chains cannot match. With the emergence of the ecommerce, the impact is largely pronounced in major cities but the effect is already cascading to next level town classes where the customers do not have access to the products and the brands. India’s ecommerce ecosystem and support services have grown rapidly thereby exploiting the inefficiencies and higher costs of setting up organised retail stores.
Online portals continue to offer aggressive discounts; if anything, the discounts have increased slightly over the past six months, as major companies have boosted their cash reserves with the recent investments. The online retail companies have used the promotional campaigns as a means to shift customers from the brick and mortal to online shopping model. Companies are currently focusing on increasing their market share thereby offering steep discounts compared to stand alone stores. Flipkart made 100 million revenues on the ‘Big Billion Day Sale’ within 10 hours of feverish purchase by eager customers. Snapdeal, Amazon and Myntra followed with similar sales campaigns with promotions and discounts lasting one day to one month during Diwali.These flash sales were huge success, despite the retailers ruing about the decline in sales in the stores, the brands see it as positive trend as the inventory is cleared and the ecommerce players doesn’t mind forking out a small fortune to snare these customers.
In a surprising finding, Flipkart had a billion clicks on their site and Snapdeal mobile app was downloaded by over a million times on the big sales day. Predictably many of these sites crashed on the big day owing to the large traffic to the site leaving many customers annoyed as they could not login or complete the transaction and there were instances wherein the discounted products got sold out within few hours though the sale was planned for the entire day. This proves the fact that the companies have to strengthen their supply chain and IT infrastructure.
The way forward may be more impressive.The industry has already seen a number of consolidations. However, new alliances will be coming up. Most of the ecommerce companies have been bleeding and consolidation will happen to control the financial losses and to survive. The ecommerce industry is expected to reach around USD 100 billion in the next five years (NASSCOM). Ecommerce will continue to transform the Indian retail sector. Apart from increasing the size of the consumer market, it hascreated efficiencies in the important allied sectors that support ecommerce—logistics, supply chains, IT services, and digital marketing. This efficiency edge should force brick-and-mortar retailers to modernise and pave the way to a more efficient coordination of supply and demand across the Indian economy.
Meanwhile, India’s store-based retailers, and the manufacturers will need to place some new bets—soon. Recently Future group has partnered with Amazon making its exclusive online partner to sell its private label brands. Brands like Panasonic have launched their online sales channel to address the threat of losing customers to other ecommerce players. But many have yet to fully embrace multichannel strategies. They’ll have to decide whether to join existing ecommerce marketplaces or establish their own online storefronts and whether to own parts of the value chain (such as distribution and IT) or use third-party suppliers.
As the ecommerce market matures in India, the companies and merchants that today relay on the ecommerce marketplaces may find it tempting to pursue growth by operating independently. To do so, these companies must go beyond their current strategies, which mainly depends on products, and price, instead, to build a strong online brand and channel, companies will need to dedicate management resources and investments to create an attractive package of value proposition— excellent customer service, fast and reliable delivery and a better shopping experience. This will require a new level of capabilities and perhaps new partnerships as well.
The write up is part of the DMA Annual Report ‘What’s Trending 2015‘. To book your own hard copy of the Annual, write to firstname.lastname@example.org