In India, bricks and mortar retail has become a hassle for both retailers and customers. Property is expensive, infrastructure is of poor quality and town centres are heavily congested. But the future of this emerging economy is looking increasingly bright for retail. India’s leading management consulting firm, Technopak, expects online retail to take 3 percent of the market by 2020 which translates to sales of $32bn a year. This figure is very attractive to retailers looking to boost online sales overseas and the race to capture mind share and market share has begun.
Opportunities and challenges
With 250 million internet users, the Indian e-commerce industry is a land of opportunity for institutional investors. Snapdeal, an online marketplace where 50,000 retailers list their products, exemplifies the excitement surrounding India’s e-commerce revolution and the challenges it faces.
The payment of online goods is not straightforward in India due to the low levels of credit cards in circulation. Only 35% of Indians have access to bank accounts with many suspicious of owning a credit card; and those that do have one prefer not to use it for purchasing products online. Thus, the most popular payment method in India for online transactions is cash upon delivery.
Paying by cash can create several problems for both the retailer and customer. Firstly, it allows customers to change their mind after purchase has been dispatched – leading to a strain on resources and logistics at the brand’s expense.
Kunal Bahl, chief executive of India’s largest online shopping site Snap Deals, says 60 per cent of his customers pay cash on delivery and though more are paying online, he expects 40 per cent of customers to continue using cash in the medium term.
It’s worth noting that from an online retailer perspective:
– Once the goods are despatched, the couriers have to wait until the customer is home to make the delivery
– Couriers must ensure they carry change on them to fulfill the transaction
Delivery of goods to customers in remote places is another factor retailers must consider. With many roads in rural areas not being accessible by vehicles, retailers will have to think about local delivery methods to reach isolated areas – often only accessible by a push bike.
Another challenge to consider is the low level of internet penetration in India– but reportedly this is changing fast. Around 214m Indians, that’s 17 percent of the population, use the internet according to KPMG, with growth heavily driven by cheap smartphones.
With domestic producers selling smartphones for as little as $70, millions of Indians have gone from having no internet connection to accessing it on their mobiles.
“About a year ago 5 per cent of orders were made online”, says Kunal Bahl, Snapdeal’s chief executive, “Now it’s 60 per cent”. It’s clear that a change in consumer shopping habits in India is moving swiftly from traditional channels to online platforms.
The impact of m-commerce
Mobile transactions as a percentage of total online transactions were in single digits 12 to 18 months ago, but several companies have recently reported 40% to 50% of their transactions now coming from mobile. According to Forresters, nearly half of the total 206 million online users in India (2013) are mobile only internet users. This number will only increase in the future as more people in rural India access the internet through increasingly affordable mobile devices.
Despite having the lowest mobile web users in the world (just 12 per cent), India’s online shoppers are forecast to rise from 25 million to about 40 million by 2016, due to the rising usage of mobile internet. The mobile revolution will primarily be led by young demographic groups, as close to 90 percent of its online population is aged between 25-44 years.
Only 31% of the total Indian population lives in urban India with 69% of the population living in rural India.
In partnership with FINO PayTech, Snapdeal is set to tap into rural areas in India, reaching out to people living in slums like Dharavi in Mumbai and villages in Rajasthan and Haryana, the Times of India reports.
Snapdeal plans to set up as many as 5000 e-commerce kiosks across 70,000 rural areas in India. These kiosks will include PCs and tablets for people to go online and shop and will also act as collection points for packages.
A FINO agent at the kiosk will login and help people shop for products across a wide range of categories including speakers, juicers, dinner sets and mobile phones. Snapdeals’s Kunal Bahl believes that by tapping into the rural market, the company will be able to reach 50-100 million new customers in the next three years.
Snapdeal isn’t the only company looking to enter into India’s rural market. Both Amazon India and Flipkart have been in talks with the government to improve the India postal service with the objective of delivery times to be within 24 hours anywhere in the country. They also proposed that the government should roll out better internet connectivity in rural areas which would in turn boost e-commerce in these areas.
“While India’s population is three times the size of the US, its e-commerce sales at $13 billion are just over 5 percent of that of the US. This shows the immense potential of e-commerce in India”, eTailing India Founder Ashish Jhalani stated.
The future of e-commerce in India
India’s e-commerce market is expected to grow 37% to reach $20 billion by 2015. This is largely due to the growing internet population, improved logistics and an increase in online shoppers.
– The number of online shoppers is on the rise and expected to increase from 25 million up to 40 million in the next two years
– The popularity of online grocery shopping is increasing, as customers in large cities attempt to avoid traffic on the roads and the heavy congested shopping centres
– Competitive pricing and a wider selection of products online are highly attractive to shoppers. In 2013, fashion sales reached $559 million, with growth estimated to reach $3 – $6 billion by 2016
Amazon India states “the pace of e-commerce in India has picked up faster than our expectations and companies have witnessed very strong growth”. In August Amazon made the exciting announcement that it will invest $2 billion in India.
According to Amazon, who only launched its Indian operations in June 2013, at current scale and growth rates, India is on track to become the fastest country ever to reach $1 billion in gross sales.
According to Forrester’s Asia Pacific online retail forecast for 2013 to 2018, the number of online buyers in India is expected to reach 39 million by the end of 2014 and 128 million by the end of 2018. Forrester’s study shows that a few years ago the majority of online buyers were from metropolitan or tier one cities. Now, we are seeing increasing online sales from tier two and tier three cities as well.
Kumar Mangalam Birla is the latest billionaire with plans to enter the burgeoning Indian online market. He states “it reflects a new India. It’s about new lifestyles, new spending patterns, it’s about new family structures. And we want to be in that space”.