E-commerce in India

What is e-commerce?E-commerce (electronic commerce or

EC) is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the Internet.

These business transactions occur either business-to-business, business-to-consumer, consumer-to-consumer or consumer-to-business. The term e-tail is also sometimes used in reference to transactional processes around online retail.

E-commerce ecosystemOnline travel, ticketing etc.Online RetailOnline marketplaceOnline portals classifieds

Indian e-commerceIn terms of size, India’s online retail

industry is very small compared with both organised and overall (organised + unorganised) retail in the country.

It is expected the industry’s revenues to go more than double to around 18 per cent of organised retail by 2016 from around 8 per cent in 2013. Yet, its share of the overall retail (organised + unorganised) pie will be just over 1 per cent.

Offline Vs Online Retail Markets

India’s online retail industry has grown at a swift pace in the last 5 years from around Rs 15 billion revenues in 2007-08 to Rs 139 billion in 2012-13, translating into a compounded annual growth rate (CAGR) of over 56 per cent.

Growth of E-retail in India?Growing Internet PenetrationRising middle class with

disposable incomePayment gateways & logisticsSmooth User Experience

Online Business ModelMarketplaceSelf-owned inventoryPrivate LabelWhite label

Recent InnovationMobile to be the most

influential aspect.

Myntra’s move...

Business StrategiesExclusive partnership with

leading brandsExpanding Product BasketAggressive PricingCoD (Cash on Delivery)Quicker delivery optionsReturn policiesSocial Media

Concerns In IndiaGeneration and sustenance of

trafficCoDLast mile DeliveryLow profitabilityLack of skilled human resourceTax structuring and regulatory

barriersCyber securityCustomer loyalty

How to maintain visitors to websites?Work on data from google

analytics. Find reasons to improve your weak area through data analysis.

Be active on social media brings a positive outcome

Smooth transition through website plays a significant role.

LARGER REVENUE CONTRIBUTION FROM TIER I, II AND III CITIES

According to a study , Tier II and III cities accounted for almost 57.0 per cent of the total revenue derived from the various e-commerce product sites, while the remaining 43.0 per cent came from the eight metro cities.

Similarly, for the service sites as well, tier II and tier III cities accounted for 54.0 per cent as against 46.0 per cent by the eight metropolises.

ComparisonThe Indian online retailing market

is still evolving and certainly has room for growth; e-commerce accounts for just 0.1 per cent of total retail sales vis-à-vis more than 2.9 per cent in China.

This number is quite low compared to the online retail penetration enjoyed by developed markets such as the US (7.0 per cent).

Geographically, southern India leads with 41.0 per cent share of the entire Indian e-commerce landscape, followed by western India (27.0 per cent), as per 2011 numbers. This can be attributed to the high literacy rate in the south compared to the rest of India.

States with least e-commerce penetration Despite the potential of these markets,

certain bigger states like the below generate less than 1% online sales each, either due to connectivity issues, laws and restrictions, or even cheating customers:

KeralaBiharOrissaMadhya PradeshAssam

Effect of E-commerce on traditional market

Online vs offlineOnline stores are projected to account

for only 3% of India's total retail market by 2020, PwC said in its report 'eCommerce in India Accelerating growth'.

Issues such as poor last-mile connectivity, high payment cost, low profitability, regulatory barriers and a dearth of skilled manpower are weighing on online retailers in India, PwC said.

Cash on delivery (CoD) services impose substantial financial cost for online retailers, as unlike in developed markets, this continues to be a preferred mode of payment in India. PwC said profitability for online retailers in the country was affected by free shipping offered to customers and a high rejection rate on CoD orders. Moreover, customer acquisition costs are rising due to competition by companies with more funds, it said.

Traditional market on backfootOver the past 4-5 years,

competition from online retailers such as Flipkart (in books, music and electronics), Myntra and Jabong (in apparel) has eaten into the revenues of physical retailers. Specifically, competition in the last three years has been intense compelling many to go online even as their net store additions slowed.

At an aggregate level, operating and net margins of companies such as Shoppers Stop, Cantabil, Kewal Kiran, Provogue, and Trent have all shown a declining trend. Even Net Store Additions CRISIL Opinion parameters such as same-store sales growth, conversion ratio and sales per square feet have been on a decline. For example, in the case of Shoppers Stop, sales per square feet have declined from Rs 8,518 in 2010-11 to Rs 7,837 in 2012-13, while the conversion ratio has come down from 24 per cent to 22 per cent over the same period.

To be sure, the surge in online retailing is not the only reason for the weak performance of traditional retailers. There are other factors such as economic slowdown and local competition, but what’s irrefutable is that the online upstarts are chomping away business.

The fact that online discounts and sales have come to dictate pricing in India is widely known. While customers benefit from reduced pricing and increased convenience, the extent of the impact that online retailers like Flipkart and Amazon are having on the day-to-day operations of brick-and-mortar stores is something very few have paused to think about.

Traditional retailers being forced to move onlineTo stay in the game, traditional retailers

have been working on their internet strategy. For instance, Shoppers Stop, which started its online store in 2008, has boosted presence and improved features and user interface to bring its online visage on a par with leading e-commerce websites. The company is also trying to leverage its physical network by giving customers the option to return products at its stores. Apart from Shoppers Stop, Croma has an online store with options such as store pickup and cash on delivery.

Info from USAWhat we are witnessing in India

today played out in the US about a decade-and-a-half back. That was when today’s big daddies such as eBay and Amazon debuted. In the next 4-5 years, by the turn of the century, they had become big enough to pose a threat to traditional retailers such as Wal-Mart, forcing them to come up with online strategies of their own.

Similarly, physical retailers in India will have to establish their presence online quickly. And, with the right strategies, they can even compete effectively. For instance, to tackle the queue problem at its stores, WalMart allows customers to shop online and opt for either home delivery or store pick-up. Today, Wal-Mart is among the top 5 online retailers in the US with estimated revenues of USD 10 billion in 2013 from the online segment alone.

Things to look out before entering the MarketMarket SizeE-commerce readinessScope of growthBarriers to entryCompetitionTechnical issues

FDI : How it matters?In September 2012, the Indian

government allowed 51% FDI in multi-brand retail, subject to certain conditions.

However the Department of Industrial Policy and Promotion (“DIPP”) of the Ministry of Commerce and Industry later clarified that this mandate did not apply to B2C e-retail and would apply only to retailers with brick-and-mortar operations.

Disadvantagesthere will be loss of jobs and

creation of a monopoly by multinational companies.

Allowing the entry of inventory-based large foreign e-retailers like Amazon and e-Bay may shrink Indian entrepreneurship and the Micro, Small and Medium Enterprises (“MSMEs”) sector.

It is apprehended that organized retailers would source their goods from cheaper markets abroad, which will adversely affect the Indian manufacturing sector.

Favouring FDIcreation of infrastructure, more

jobs and better consumer service.

The move will reduce the need for middlemen, lower transaction costs, reduce overhead charges, and reduce inventory and labour costs.

the spread of e-commerce in the rural and suburban India will provide choices to the growing number of customers there who have disposable income and are willing to spend for their choices. It will also help the rural economies integrate faster with the national economy.

The government‘s discussion paper observes that e-commerce has the potential to contribute more than 4% to India‘s GDP by 2020.

If and when the new government introduces FDI in B2C e-retail, it will be interesting to see the entry routes, FDI caps and limits on the percentage of sourcing from domestic manufacturers. Supportive foreign investment regulations will help in easing capital constraint and building a constructive growth environment for the e-retail industry.

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MADE BY :AyushTarunRafshan