e-Commerce companies are generally well positioned to benefit from rising internet penetration, improving affordability of mobile devices/tariffs and a maturing e-commerce ecosystem.
e-Commerce in India to Takeoff from Small Base
There are 200 mn internet users (c. 100 mn are active regularly), only 15 mn are currently transacting online. In order to entice more people to shop online, companies are using heavy discounts. Also in order to build trust and transparency, they are providing a cash on delivery (COD) option. As a result, the customer acquisition costs are high, meaning most e-commerce companies are unprofitable at present and most companies face these 3 challenges of – Affordable Connectivity, Logistics and Payment.
Global Players for e-Retailing in India
There is limited room for more companies to enter as a horizontal portal (offer products/services from different vendors). Global Players companies are looking to incrementally follow a “managed” market based model rather than an inventory based model as it is less capital intensive and they believe they will be able to manage the fulfillment experience by getting more actively involved in delivery. Many industry participants we spoke to believe that the Indian e-commerce companies are yet to see the full impact of competition from foreign global companies like Amazon etc. For the vertical space (offer products/services specializing in a specific area) to further evolve, buying patterns need to mature.
Demand from Tier-2 / 3 Cities
For most e-retailers, 50% of their revenues came from Tier 2/3 cities. This is because there are few branded retail chain stores outside the Tier 1 cities and are largely serviced by unorganized/unbranded markets. However, many consumers in smaller cities have aspirations to buy branded products and their ability to afford them is increasing. This should drive future e-com company revenues.
Mobile SmartPhone for Shopping – Big Surprise
Most e-retailers indicated that approx. 20% of their current traffic comes via mobile of which 60% is through mobile internet and 40% through the App. As most of the transactions happen in Tier 2/3 cities where fixed-line penetration is not good and most users transacting through mobile are first-time internet users. E-commerce companies expect a higher proportion of transactions to take place through mobile phones going forward, and therefore are investing in mobile technology to ensure good user experience. Falling handset prices, more affordable tariffs and improving 3G/4G coverage will lead to faster e-com uptake.
Localization Not Happening Yet
There is limited focus by e-commerce companies to address the non-English-speaking population at present. Their current focus is to target the 85 mn English literate population currently not transacting. Several companies think that with more consumers using Apps, non-English literate consumers can still transact via Apps as it has less text and more pictures.
In the next five years we expect this space to mature rapidly as consumer behavior evolves and online businesses challenge traditional offline businesses by improving their value proposition.