Kamath, Business Standard
Mumbai, 1 October 2015
India’s online marketplaces are blazing ahead with Amazon leading the way, Flipkart a shade behind and Snapdeal at third position. As per comScore data, Amazon India has received 23.6 million unique visitors, Flipkart, 23.5 million and Snapdeal, 17.9 million in May 2015, a recent study on the growth of retail (online and physical) in India said. And the entire online retail segment grew 40 per cent in the financial year 2013-14 while organised physical retail grew by a mere 10-12 per cent and the whole brick and mortar retail industry grew by just 6-7 per cent.
The country’s retail sector has definitely turned a corner with big brand brick and mortar stores going omni-channel and the large online players breaking into a pace that could see them racing past the old retail chains that do not have an e-presence. ‘All new channels grow faster than established channels in initial years,’ says Rakesh Biyani, joint managing director, Future Retail. And he believes, ‘Retail across channels has the potential to grow over the next two decades. Any retailer that will create an omni-channel retail presence (capabilities to service customers seamlessly across channels) will most likely get a bigger share of the growth in consumption.’
Some also say that the sharp rise of online retail is partly explained by the low base the numbers have been calculated from. Devangshu Dutta, chief executive of Third Eyesight, a retail consultant, says that the base of online retail is significantly smaller in absolute terms and hence online showed much higher growth.
That is true but there is no doubt that buyers are voting with their wallets when it comes to the big players such as Amazon, Flipkart and Snapdeal.
Drivers of the e-volution
According to the study by property consultant Colliers International and Frost & Sullivan, cash on delivery has been the big game changer for e-tailing. So has been the proliferation of high-speed internet and internet-enabled smart devices and the transparency in pricing. Buyers believe that they are getting the best deals online.
‘The entry of a number of high profile participants into the online retail recently, along with an influx of private equity funds and investment from foreign venture capitalists, has resulted in a huge boost in funding that translated to tremendous sales growth in e-tail,’ the study says. Foreign venture capitalists and private equity firms invested US $3.9 billion, led by Tiger Global, Sequoia, DST Global, Soft Bank, and Sofina it adds. And Amazon has announced that it will invest US $2 billion in expanding its Indian operations.
Players such as Amazon and Flipkart are spending big on warehousing, sortation and fulfillment centres and of course on advertising and brand building. ‘It has been observed that discounts offered by e-tail companies are the primary driver…all the major players, whether it is Flipkart or Snapdeal, are bleeding cash.’
Clicks for footfalls
Online retail in India is expected to touch $ 22 billion by 2018 and this will largely be on the back of the sharp growth in mobile users to 300 million by 2017 from 159 million users at present. The impact on brick and mortar stores has been brutal, especially in sectors such as electronics. South India’s largest brick and mortar cellphone retailer, UniverCell is looking to shut the 380-store chain according to the report.
There has been a sharp drop in footfalls and several large chains have closed more shops than they have added in the past 3-4 years. The study says physical retailers are cutting down on real estate investments and store expansion plans.
Dutta of Third Eyesight, however, believes it is unfair to pin the entire blame on online retailers for the cautious expansion of physical retailers. "The economy has not been at the expected levels and retailers are also looking at their own costs, efficiencies and so on," he adds.
Besides Biyani says, ‘Physical retailers continue to open new doors and reach many more cities. Future Group is expanding most of their concepts this year.
Still there is no denying that the physical stores are facing an upheaval. Even those looking to set up e-stores are coming up against the growing clout of e-commerce giants. The study notes, ‘Certain brands sell exclusively on the Internet via tie-ups with e-tail partners, thereby denying retailers, their online business.’ The only way to survive the onslaught of e-tail is for the physical chains to integrate the online and offline presence as Future Group, Shoppers Stop, Lifestyle and others are doing and to build strategic alliances with e-commerce companies.
INDIAN E-COMMERCE INDUSTRY: ESTIMATED TO GROW TO $56 BILLION
(Published in Business Standard.)