India is at the cusp of a digital revolution. Declining broadband subscription prices, aided by the launch of 3G services, have been driving this trend. This has led to an ever-increasing number of “netizens.” Furthermore, the likely launch of 4G services is expected to significantly augment the country’s internet user base.
Internet has become an integral part of this growing population
segment for remaining connected with friends, accessing emails, buying movie
tickets and ordering food. The changing lifestyles of the country’s urban
population have also led many people relying on the internet for their shopping
needs. The convenience of shopping from the comfort of one’s home and having a
wide product assortment to choose from has brought about increased reliance on
the online medium.
The trend of online shopping is set to see greater heights
in coming years, not just because of India’s rising internet population, but
also due to changes in the supporting ecosystem. Players have made intensive
efforts to upgrade areas such as logistics and the payment infrastructure.
Furthermore, the Indian consumer’s perception of online shopping has undergone a
drastic change, and only for the good. Given these developments, venture
capital investors, who were restricting themselves to the sidelines, are now
taking a keen interest in the country’s e-Commerce market.
In this report, we seek to provide an insight into India’s e-Commerce
market. The report focuses on the various sub-segments of the e-Commerce market
and highlights factors driving growth across these segments. We have also
elaborated on challenges faced by stakeholders.
The e-Commerce market in India has enjoyed phenomenal growth
of almost 50% in the last five years. Although the trend of e-Commerce has been
making rounds in India for 15 years, the appropriate ecosystem has now started
to fall in place. The considerable rise in the number of internet users,
growing acceptability of online payments, the proliferation of internet-enabled
devices and favorable demographics are the key factors driving the growth story
of e-Commerce in the country. The number of users making online transactions
has been on a rapid growth trajectory, and it is expected to grow from 11
million in 2011 to 38 million in 2015.
Venture capitalists (VC) and private equity players have
demonstrated their faith in the growth of e-Commerce in the country. This is
amply substantiated by the significant increase in the total investments
(US$305 million in 2011 against US$55 million in 2010).
Online travel has traditionally been the largest e-Commerce
sub-sector (by revenue) in India. Nevertheless, online retail is catching up
fast and is expected to match online travel revenues by 2015. To improve
margins, online travel players are diversifying their offerings to include
hotel reservations, along with the regular ticketing services. To make the most
of this move, players will need to develop skill sets that are different from
the ones required in the ticketing segment. They will have to manage challenges
associated with a diverse supplier base, technological constraints, customer
experience, authenticity of information and grievance re-dressal.
The online retail segment has evolved and grown
significantly over the past few years. Cash-on-delivery has been one of the key
growth drivers and is touted to have accounted for 50% to 80% of online retail
sales. Players have adopted new business models including stock-and-sell,
consignment and group buying; however, concerns surrounding inventory management,
location of warehouses and in-house logistics capabilities are posing teething issues.
Classifieds, the earliest entrant in the e-Commerce space in
India, is undergoing a shift in operational model from vertical to horizontal
offering. Players now offer a gamut of services ranging from buying/selling
cars to finding domestic help/babysitter.
To ensure that e-Commerce maintains the steam that it has
gained in recent years, the government needs to focus on the regulatory front.
Unlike many other countries, India still does not have dedicated e-Commerce
laws. The Sales Tax laws need to be revised, as they are posing issues for
online retailers while they decide warehouse location. e-Commerce is set to
continue on its growth path on the back of the stabilization of the ecosystem
and interest demonstrated by VC players, combined with support from the Government
of India (GoI).
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