Sagar Malviya & Chaitali Chakravarty, The Economic Times
Mumbai/New Delhi, 21 March 2016

The discussion would have also covered areas such as logistics, offline stores and omni-channel to support Alibaba’s core ecommerce business, the person said. Alibaba could have approached others, including another ecommerce company. “India is set for a big consolidation in ecommerce,” said the person. An Alibaba spokesperson said it does not comment on speculation as a matter of policy.
A Tata Sons spokesperson said, “Several entities have appreciated our model and have expressed interest in it at different points of time. We do not wish to comment any further.” Evans had said in Delhi on Friday that the company plans to enter India’s ecommerce segment this year. “We have been exploring very carefully the ecommerce opportunity in this country, which we think is very exciting against the backdrop of Digital India,” Evans told reporters after meeting Communications and IT Minister Ravi Shankar Prasad.
FDI is still not allowed in the ecommerce sector but there are no restrictions on foreign funds in online marketplaces—the model adopted by the big three of Amazon, Flipkart and Snapdeal— that connect sellers with buyers. Morgan Stanley estimates the total Indian internet market size will grow to $159 billion by 2020 to emerge as the fastest-growing ecommerce market globally, from $16 billion now.
To put things in perspective, Alibaba sold goods worth $377 billion in 2015, compared with around $16 billion by all of India’s ecommerce companies put together, according to Morgan Stanley.
Tata Group, a salt-to-steel conglomerate with combined sales of $108.78 billion, has been a launch pad for several marquee consumer brands in the country. Retail arm Trent has two major partnerships— with the world’s largest apparel firm Inditex to sell its Zara brand and an equal joint venture with UK’s Tesco, the world’s second largest retailer. The biggest coffee chain Starbucks has entered India through an alliance with Tata Global Beverages.
“Tatas are the best match for Alibaba given the scale and capabilities both these players possess,” said the person cited above. “Alibaba is keen to create a strong back-end network before launching its online portal.” Unlike Amazon, which relies on third-party service providers for most of its logistics, Alibaba owns a consortium of companies connecting a network of logistics providers, warehouses and distribution centres to create a platform that serves smaller towns and the hinterland well.
In China, its arm Cainiao works with 15 strategic partners, collectively operating 1,800 distribution centres, 1 million delivery stations and 25,000 pickup spots.
THE TATA EDGE:  Experts feel Tatas could give Alibaba an immediate boost in terms of infrastructure capability as well as understanding of the consumer market.
“Tatas are viewed as a fairly good partner across sectors and bring with them a strong retail infrastructure created over the years and awell-structured, transparent management,” said Devangshu Dutta, chief executive officer at retail consultancy Third Eyesight.
The Tatas also have a history of cordial relations even with those they have split up, experts said. In India, electronics and fashion are the dominant categories as in China and the US. Online penetration in these two categories is set to increase from 3-5% in 2014 to 25-30% in 2020, resulting in an online market of $88 billion, according to Morgan Stanley. Within retail, Tatas gets a bulk of its revenue from watch brand Titan and jewellery company Tanishq. It also runs the Westside department stores and electronics chain Croma.
An ecommerce venture is also in the offing. “Tata Unistore will shortly be launching a unique omni-channel in e-retail. This is entirely a Tata venture with over 200 international and domestic brands and, at launch, presence of over 200 omnienabled stores all India along with the app and web presence,” added the Tata Sons spokesperson. In India, Alibaba is a fringe player in its core business-to-business online trade but it has an indirect presence in Indian ecommerce through its investments.
Alibaba and its financial-services affiliate Zhejiang Ant Small & Micro Financial Services Group last year invested over $500 million for a 40% stake in One97 Communications, which runs Paytm, a wallet and ecommerce company. Snapdeal raised $500 million from a clutch of investors including Alibaba last year. Snapdeal and Paytm also have Tata Sons chairman emeritus Ratan Tata as an investor.
“With Alibaba’s stake in Snapdeal and Paytm, it can leverage both these companies into some sort of consolidation with Tata at a later stage that will give them a real clout in the Indian consumer market,” said the person cited above. Some experts feel that Alibaba will have to increase its stake in the Indian companies to dictate any sort of merger strategy though.
“Alibaba needs to bring its stake to a level when it can control the consolidation process seamlessly in these three businesses. It may not happen in the short term but there will be a serious consideration for such a move after few years,” said Ruchi Sally, director at retail consultancy firm Elargir.
While global rival Amazon and the country’s largest player Flipkart controls a majority of the Indian online market, there is still scope for Alibaba. Total online shoppers in India as a proportion of internet users stood at 12% in 2015.
Analysts expect online shopper penetration to reach 20% by 2017, which could be a turning point for ecommerce in India. Alibaba’s active buyers as a percentage of total internet users in China has doubled from 28% to 54% in the past few years, cementing its dominance. In comparision, that of Flipkart is 12% in India, added the Morgan Stanley report.

(Published in The Economic Times)

The New Indian Express
Chennai, 17 March 2016

Purchase of cars, bikes, or gold jewellery can give immense pleasure, but is a labourious exercise. E-commerce companies are trying to change just that.

A host of high-value products be it SUVs, cars, diamonds, gold coins, two-wheelers including electric bikes are all up for grabs online. If the likes of Flipkart, Snapdeal or Amazon saw rise in sales of electronics or clothes during their formative years, version 2.0 of Indian e-commerce market is banking big on money guzzlers i.e., luxury products.

“There is more flexibility in terms of the product categories and certainly e-tailers are beginning to exercise that flexibility as much as possible. The reasons are simple: currently, in e-com customer acquisition costs are high, retention is low, margins are thin due to discounts, so any product or service, which can broaden the portfolio and the chances of a successful transaction, increase the value of the transactions happening, or lead the customer away from discount-oriented behaviour are being looked at seriously,” Devangshu Dutta, CEO, Third Eyesight told Express.

“It took them almost a couple of years for ecommerce players to get consumers buy mobile phones online. The current trend of retailing high-value products will help consumers do online research, compare products and make an informed decision on a product purchase,” said Harish HV, Partner – India leadership team, Grant Thornton India LLP.

“As customers are becoming comfortable transacting online, the average ticket size is increasing and high value purchases are rising. Premium brands are also coming online to broadbase their customer base. We see this trend only growing further with increasing smartphone-led penetration of internet,” said a Snapdeal spokesperson.

(Published in The New Indian Express)

Richa Maheshwari, The Economic Times
Bengaluru, 26 February 2016

Snapdeal and Amazon India lost market share in 2015, according to the research arm of Morgan Stanley, as online shopping options grew rapidly in India and established etailers cut back on discounts. But Flipkart managed to marginally increase its share and the Big Three, despite a fall in combined market share, accounted for more than 80% of the total market.
A Morgan Stanley research report released earlier this month pegged Snapdeal’s and Amazon India’s market share in terms of gross merchandise value at 26% and 12%, respectively, in 2015. A similar report published by the same firm last year had estimated the shares of these two companies at 32% and 15%, respectively, for 2014.
While Flipkart maintained its number one slot and increased its share from 44% to 45%, the combined market share of India’s top three ecommerce companies fell from 91% to 83%. Paytm remained steady with 7% market share. The real gainers were small and more-focussed online retailers who saw a jump from 2% to 10%.

Industry watchers said unlike China that is dominated by a handful of ecommerce giants, India’s online shopping market will grow in a ‘more democratic’ manner, like it has in Europe. “Our market will not be like China where you have a few big players like Alibaba, Tmall and JD.com. India will go more the Europe way with many vertical players,” said Nitin Chhabra, CEO of Bengaluru-based ecommerce consultancy firm Ace Turtle.

“Verticals players such as Urban Ladder and Zivame have started nibbling at market shares. India will be far more democratic than China where it is just few big players,” said Chhabra. “This is a healthy sign for the ecommerce industry in India,” said Arvind Singhal, managing director at Technopak, adding, “As the ecommerce space is seeing multiple startups coming in along with several brickand-mortar players, it will be unrealistic to expect them (Flipkart, Snapdeal and Amazon India) to increase market share.”

Experts also believe that leading players might be losing share because of the gradual reduction in discounts. “In 2015, companies started looking at improving margins. As a result customers have started exploring other portals in search of discounts,” said Devangshu Dutta, CEO at Third Eyesight.

Snapdeal said it has one million daily transacting users on its ecosystem, which is more than both Amazon and Flipkart put together.

“This robust and growing user base and frequency of usage are the key metrics to evaluate long-term growth trajectory of businesses like ours. We are working towards our stated goal of having 20 million daily transacting users by 2020,” said a Snapdeal spokesperson in an emailed response.

Amazon challenged the findings of the report. “The report does not reflect what we are actually seeing on the ground as we are growing significantly faster than the growth rates of the ecommerce industry in India and other mentions in the report. We have previously announced that Diwali 2015 was four times bigger than Diwali 2014 and we sold more in Q4 2015 than we did in the entire previous year (2014),” said the company spokesperson.

Flipkart said it would continue to invest in technology and supply chain, and will focus on consolidating its position in the coming years, “We believe that keeping customers at the core of our business and our relentless focus on customer experience has enabled us to earn the trust and faith of millions of customers across the country,” said a Flipkart spokesperson.

(Published in The Economic Times)

Athira A. Nair and Vishal Krishna, Your Story
Bengaluru, 25 February 2016

Online retail constitutes just one percent of India’s total retail. Yet, out of the country’s nine startup Unicorns, three are major online commerce players: Flipkart (valued at $15.5 billion), Snapdeal ($6.5 billion), and ShopClues ($1.1 billion). Estimated to touch $38 billion in 2016, Indian e-commerce industry has grown impressively. However, hurdles for its potential growth are many – most of which related to government norms.

The tug-of-war between the physical retailers and online marketplaces mainly surrounds foreign direct investment (FDI). While the Centre in November 2015 permitted singe-brand retailers with FDI to sell online, the e-commerce sector can witness no major transformation unless FDI is allowed in multi-brand retail. It was immediately after that 21 e-commerce websites were listed by the Delhi High Court for investigation on violation of FDI laws. Although the order led to no serious investigation or shut-downs, and even had listed companies with no FDI, the lack of clarity regarding the sector continues.

While ‘Stand up, India Startup India’ campaign brought relief to startups, the e-commerce sector is hoping for the same from the Union Budget 2016, to be announced on February 29. E-commerce Coalition recently expressed hope that the Budget will allow 100 percent FDI for online (multi-brand) retail, as it does in single-brand retail. At the Budget, the government may define the nature of an e-commerce marketplace business and possibly put an end to the confusion about what constitutes retailing.

What should e-commerce be?

In simple words, e-commerce is any commercial transaction done over the Internet. But in a simpler world, e-commerce would not need to be defined at all. According to Arvind of Technopak, the definition of commerce should be based on whether it is a physical channel or a distribution channel. “In the latter, it is just a channel for distribution of goods and services from a producer to a customer. To that extent, there should be no differentiation between e-commerce and physical retail,” he says. But as far as investments are concerned, every industry has investors from all over the world, Arvind says. “E-commerce is not an area to be bothered about. It is not national security, why worry about where the money comes from?”

E-commerce currently falls in services category as marketplaces claim that they are just mediators so are not liable to pay VAT or CST (Central Sales Tax). Sellers end up paying not only VAT but service taxes as well, along with 2 percent to 50 to 55-percent commissions. In traditional business, commission was a fixed percentage. Even if it varies, there was no such drastic change.

Also, the commission agent was charged taxes based on goods and not services.

What led to the confusion?

The hullabaloo over e-commerce is far from minimal. The Department of Industrial Policy and Promotion (DIPP) stated in January 2016 that it does not recognise marketplaces under FDI laws; within six weeks, it declared that it is considering allowing 100 percent FDI in marketplaces.

The ambiguity goes back to the law itself. The DIPP does not define what a marketplace is other than that FDI is allowed in wholesale retailing. It allowed all small merchants to sell on e-commerce websites like Flipkart, Snapdeal and Amazon. But these marketplaces had their preferred sellers like Prione, Cloudtail and WS Retail. These constitute 60 percent (according to sources) of the sales of the platform by value and so small retailers who use the marketplaces have taken their objections to the Delhi High Court saying that these marketplaces are direct sellers and not commission agents.

“By law, these marketplaces are not flouting any rules. They are at an arms-length with their distribution companies. But yes, there is confusion over the nature of transactions on a market place,” says Ganesh Prasad, partner at Khaitan and Company. However if the Central government chooses to ignore the definition then it is clear that the platforms’ major sales come from its preferred distribution companies and it is not a platform for small retailers like it was intended to be in the first place.

The lack of definition has hurt the sellers in more than one way. The All India Online Vendors Association (AIOVA) hopes that by defining online marketplaces, e-commerce sellers can be recognised as a legal industry that can open up avenues to them. For instance, up until a few years ago, mutual funds were not recognised. Once it got defined, many regulations came up and helped reducing fraud and one-sided policies by fund managers. The AIOVA spokesperson told YourStory that e-commerce marketplace definition should specify that they should not indulge in buying or selling, or create entities like Cloudtail and WS Retail that they own, and must keep same policies for all stakeholders.

State & FDI: A complicated relationship

Karnataka was the first State to clamp down on marketplaces by sending them notices. The State, in its notice, said that marketplaces were generating invoices and were storing products in their warehouses and therefore needed to pay VAT. The marketplaces said that they could not pay tax because it was in violation of FDI rules if it collected and paid tax on behalf of sellers.

“The States are yet to understand the DIPP rules and the nature of a marketplace. In principle, there is no violation of the law, but since the Delhi High Court has asked for a probe into these marketplaces it allows States to send notices to the marketplaces,” says Prashant Kathore, partner and Head of Corporate Taxes, Ernst & Young.

The ideal future

Divisions more often than not bring about more confusion. Bringing all retail activity under one umbrella will make the business easier for all stakeholders, and policies can be made more consistent. Devangshu Dutta, Chief Executive at Third Eyesight, a consulting firm, says, “Today there are various artificial segregations, some driven by policy hangovers and some due to the evolution of the business itself. Having multiple brands versus having one single brand should be a decision that is driven by business strategy, rather than by government policy.”

There is a general consensus among experts that the government should not differentiate between categories of business in a sector that is growing increasingly integrated.

Any change in rules in the retail sector should come from the ruling party. But in the last 15 years it has become a political issue more than an economic issue. Arvind of Technopak says, “Former Prime Minister Manmohan Singh brought the question of FDI in retail to the Parliament unnecessarily while it should have been a mere executive decision. It is now time to call a final shot in the issue. Finance Minister Arun Jaitley or PM Modi or Amit Shah as head of the ruling party should make a decision on whether FDI is needed or not; then DIPP can come up with a simple policy statement.”

While disruptions in business models are always welcome, whether or not the money is sourced internationally, it is essential to have clearly defined policies regarding the sector. E-commerce is the buzzword, but it has the potential to go light years. Defining the term is only the first step in that direction.

(Published in Your Story)

Shinmin Bali, Financial Express

Mumbai, 21 February 2016

Having created quite a stir at the time of their launch, hyperlocal companies are now witnessing a dampened mood. While several have folded up operations in some cities, others have downsized staff, tweaked the services they offer and even made alterations to their business models. A recent example is Grofers shutting down operations in Bhopal, Bhubaneswar, Coimbatore, Kochi, Ludhiana, Mysuru, Nashik, Rajkot and Visakhapatnam.

TinyOwl last year was in the news for a poorly-handled downsizing operation in Pune, with a dramatic hostage situation involving its co-founder Gaurav Choudhary. PepperTap also recently shut down operations in six cities.

Ironically, giants like Amazon have not only aggressively entered the hyperlocal space, they are building on it. Amazon is currently offering the service in Bengaluru, Amazon Now, after running a pilot project, Kirana Now, in 2015.

The investor sentiment in India is also on a decline, as was reported earlier this year. Investments by venture capitalists have dropped from $2.12 billion (October-December 2014) to $1.15 billion (October-December 2015), according to a report by CB Insights and KPMG International. This leaves an even shorter window of opportunity for players to retain investor interest.

Albinder Dhindsa, co-founder, Grofers, states that differing levels of technology literacy among the majority of merchants and consumer adaptation to the online platform are concern areas for the company. In 2016, the company is looking to bring over one lakh merchants aboard and ensure that turnaround time stays under an hour. Grofers delivers more than 35,000 orders per day on average. In Q4 2015, the firm acquired teams of SpoonJoy and Townrush to bring dynamic learning to the table.

For Swiggy’s co-founder Nandan Reddy, the focus is currently to grow the market, while catering to a wide demographic of consumers. He admits that in the early stages, the brand had trouble educating even its partners. Furthermore, operating a delivery fleet in an on-demand service offering sub-40 minute deliveries is a challenging task, given that there are at least 15 points of failure in an average order. Swiggy currently owns a delivery fleet of 3,800 delivery executives. The brand’s repeat consumers contribute to over 80% of orders.

Debadutta Upadhyaya, co-founder, Timesaverz, says some of the major challenges in a hyperlocal market are optimum resource utilisation and matching locations, price points, and other specific requirements to customer needs. Timesaverz currently has a service range spread across 40 categories, aided by a network of over 2,500 service partners across five metros. Its revenue model is commission based, where 80% of earnings from consumers are shared with service partners.

Vinod Murali, MD, Innoven Capital, points out that as the hyperlocal industry is in its nascent stages, it needs a fair amount of time to grow. “One aspect to keep in mind is that a large sized equity cheque does not imply that a company has achieved operational maturity or robust business metrics, especially in this segment,” he notes.

Given the recent consolidation in this category, the survivors have the opportunity and time to focus on improving unit economics and demonstrate that their businesses are viable and valuable.

Devangshu Dutta, CEO, Third Eyesight, is of the opinion that hyperlocals make the mistake of borrowing business models and terminologies from Silicon Valley, without adequately understanding the real context of the Indian market. “Is there an existing or even potential demand for the service claimed to be provided? Or are you just going to introduce an intermediary and an additional link in the chain, with additional costs and unnecessary administration involved?” he asks.

(Published in Financial Express)