INDIA’S E-COMMERCE SECTOR COMES OF AGE
▶ The industry is expected to grow at 30% a year to reach a gross merchandise value of $200bn by 2026, writes Rebecca Bundhun
India’s e-commerce industry is garnering a lot of attention from global giants.
In a country with a 1.3 billion population and rapidly growing internet use, no one, be it the Amazons or the Walmarts of he world, wants to miss out on a market where the growth potential is enormous.
“India is the last frontier of sorts to be conquered by e-commerce majors,” says Ankur Bisen, the senior vice president of the retail and consumer products division at Technopak, an Indian consultancy.
As a firm indicator of the interest in the sector, US retail giant Walmart is understood to be in talks to invest billions of dollars into India’s online shopping industry by buying into Flipkart, the country’s homegrown answer to Amazon.
Flipkart, which has raised more than $6bn of investment over the past decade, was launched by two young entrepreneurs, Binny Bansal and Sachin Bansal, in 2007 as an online bookseller.
But not every e-commerce venture has been a success.
The sector has lagged behind other global markets in terms of its development, and a number of platforms launched over the past few years did not survive.
Things have taken a turn for the positive, and India is now seeing businesses that have managed to build scale, a sign that the sector has come of age, Mr Bisen says.
This is the reason why leading global firms are “now looking at taking a bet on India, making sure that the Indian market is not to be missed out on”.
Reports emerged in recent days that Amazon has also been eyeing the opportunity to take control of its Indian rival, according to the business newspaper Mint, citing unnamed sources.
Japanese technology giant SoftBank is injecting $400 million into India’s online retailer Paytm Mall, while China’s Alibaba, already an investor, will pump in another $45m, bringing the valuation of Paytm Mall to close to $2bn, according to a SoftBank regulatory filing earlier this month. The online marketplace Paytm Mall launched last year.
The platform aims to bridge the online and offline retail gap, allowing customers to browse in partner brick-and-mortar stores, scan product codes and then make purchases using the app.
It is no surprise that global players are eager to grab or increase their share of the online shopping market in Asia’s third-biggest economy.
The country’s e-commerce sector is expected to grow at 30 per cent a year to reach a gross merchandise value of $200bn by 2026, according to a report by Morgan Stanley.
There are 60m online shoppers in India currently, but the bank forecasts that this number will rise to 475m, or more than half of the country’s internet users, by 2026.
More and more people are getting committed to the internet as their main means of shopping.
Srishty Chawla, 25, a public relations professional in New Delhi, is one example. She says that she does up to 80 per cent of all her shopping – from buying phones to clothes to her daily groceries – online these days. “Amazon is my go-to for most products,” she says.
“For grocery shopping, I prefer BigBasket. For clothes and accessories, I rely on Myntra, and I like to keep exploring other websites.”
Despite the potential pitfalls of shopping online, she now finds it hard to imagine being without these services.
“I have sometimes received completely different products from what I’ve ordered, in terms of colour, size, or even the product itself,” she says.
The main reason behind the rise of online shopping is the growing internet penetration in the country, driven by the meteoric rise of smartphone use in India.
Cheaper devices and lower data costs are helping more and more Indians to be able to afford to get online. About 430m people in India have access to the internet, which is a third of the South Asian country’s population. “We believe internet access will double in the next ten years and we estimate that 915m Indians will be on the internet by 2026,” says Ridham Desai, the head of India research at Morgan Stanley.
The government’s push towards a digital economy is also a boon for the sector. India has long been an economy heavily dependent on cash transactions, and many Indians are without bank accounts.
But that is changing. Indian Prime Minister Narendra Modi’s shock move of banning the banknotes of the two highest denominations overnight in November 2016 has prompted many more Indians to open bank accounts and start using digital wallets, a space dominated by Paytm.
“We want to provide an experience wherein users can browse the entire catalogue available from a brand and be able to pick up products from the shop or get them delivered to their doorstep on the same day,” says Amit Sinha, the chief operating officer of Paytm Mall.
“We will also offer this technology to traditional retailers to help them transform into the digital age.
“We are confident this will prove beneficial for brands.”
Despite its rapid growth, Indians still predominantly shop at brickand-mortar stores.
The report by Morgan Stanley
reveals that in the financial year to the end of March 2017, online sales accounted for just 2 per cent of retail sales, and that in ten years, e-sales will still only account for 12 per cent.
That is good news for traditional retailers, though, with analysts saying there’s plenty of room for both online and offline players to thrive.
But traditional retailers are not ignoring the rise of e-commerce.
Vikash Gupta is the chief executive and founder of Three Sixty, a luxury leather goods company which has five retail stores in India.
Recently, the company has shifted its focus to boosting its online segment, whereas up until last year its plans were to aggressively expand its physical stores.
“The online story is quite new in India, in the sense that it has grown lately at a huge pace,” says Mr Gupta. The only way forward is that we have to have an online presence too. We’ve become very aggressive in our online business this year itself. Last year we kind of got started.
“This year, our entire effort is going to be on the online business.”
He says his company does not have any plans to close any of its brick-and-mortar stores, given that most shopping still does take place offline, and the company also needs to be able to showcase its products.
Also, there is still some reluctance among people to move towards shopping online, sometimes because of security concerns, the widespread sale of counterfeit goods in India and habit, he says.
Ashok Hegde, 50, a partner in a media consultancy in Mumbai, says that he is happy to buy products such as electronics online, mainly through Amazon, but for shopping for clothes, he still prefers to go to physical stores.
“I haven’t had much luck with getting the right sizes for clothes and shoes online,” he says.
“The sizes are quite misleading.” While India’s e-commerce sector is clearly a growth story, it seems that it’s not the end of the story for brick and mortar stores. Both are thriving and will continue to do so in the short-to-medium term.
We believe internet access will double in the next ten years and estimate that 915 million Indians will be on the internet by 2026 RIDHAM DESAI Head of India research, Morgan Stanley