Indian consumers are getting comfortable with buying online. But there are far too many sellers than buyers. Surviving, therefore, still remains a challenge
The Great Online Shopping Festival, the desi version of Cyber Monday that debuted in 2005 in the US, turned out to be an unexpected bonanza for Indian online retailers, or e-tailers as they are popularly called. The initiative led by Google, which created the platform gosf.in in partnership with 50 online retailers, saw a deluge of buyers turning in and picking up products ranging from apparels, perfumes, beauty products, gadgets such as mobile phones, computers, among many others. The week long festival that culminated with actual sales on December 12, 2012 saw more than a million visitors walking in and on the day of the festival, approximately 400,000 buyers checked out the offers up for grabs. According to organisers, approximately over 3,50,000 transactions were made during the GOSF hours, which is almost a 100% jump against 1,60,000 to 1,80,000 transactions made on an regular day.
While on one hand, the festival provided consumers an opportunity to buy products cheap and without taking the trouble of visiting a market, on the other, online retailers also had a lot to gain. For instance, the festival initiated new consumers into online buying. Needless to say discounts and deals were great inducements. Besides, for most, it wasn’t just a curious peek into the extravaganza ? a majority of those who came in, went back having bought something or the other. Says Nitin Bawankule, industry director, e-commerce, Google India, ?Online shopping is at a nascent stage in India. The industry felt an initiative that could motivate consumers to adopt internet platforms to buy products was a the need of the hour. Organizing a day-long sale with exciting offers from a number of e-tail vendors offering diverse products was a unique experiment in India and for Indian consumers.?
According to a 2012 report by the Internet and Mobile Association of India (IAMAI). there were 137 million claimed internet users in India at the end of June. Of these, 99 million users were from urban and 38 million from rural India. Furthermore, of the total number of claimed users, 111 million were active users. The number of active Internet users is growing at the 19% faster than claimed users who growing at 16%, says the report. The report predicted -the number of claimed users to grow to 150 million by the end of 2012, while the number of active users is expected to have reached 122 million by December.
Meanwhile, along with the increase in the number of internet users, the e-commerce industry, too, has witnessed an increase in its turnover from R8,146 crore in 2007 to R19,688 crores in 2009 and to R46,520 crore in 2011. Indeed, online travel continues to account for lion’s share ? 81%?in this. The non-travel, which includes the e-tail segment, digital downloads, financial service and other services?signifies retail consumers making purchases for personal consumption is still, too, small at 19%. The share of e-tailing in the total e-commerce business is around R2700 crore.
No prizes for guessing that metros drive maximum traffic but tier two and three cities are also fast catching up. ?As per eBay India census 2011, metros contributes 51% of all e-commerce transactions while tier 2 and 3 cities contribute about 41% of transactions and rural India contributing to 9% of transactions,? says Muralikrishnan B, country manager, eBay India. ?India and its people have just woken up to the concept of e-commerce and it is from here that the actual fun begins,? says Ashutosh Lawania, co-founder, Myntra.com.
The small size of the buyers notwithstanding, there has been a mad rush in the sellers market with the mushrooming of a number of sites selling a diverse range of products. While the first movers such as Flipkart seem to be having nifty business, smaller players and late comers are still trying to find their feet in a small yet already crowded market. ?The sentiments of investors have already turned bleak. This will make it tougher for many players to generate further funding for their businesses,? says Shailesh Vikram Singh, executive director, Seedfund, a venture capital firm. Most new players are struggling with issues such as investments for expansion, acquiring new customers or to simply find a sustainable business plan with better margins. According to Rahul Bhasin, managing partner at Baring India Investment Ltd, a business model where one sells a product of R100 for R90, is never sustainable. ?While a GOSF does help in garnering eyeballs and brining new consumers to the table, at the end, it also spikes the cost of customer acquisition and such a model cannot be sustainable,? he added.
Speaking of business model, most Indian e-tailers seem to be following the format set by US-based Amazon.com, which rides on promotional offers such as 100% cash-back, weekend loot, deals of the day apart from offering various discounts on products and services from time-to-time. In addition to this, e-tailers have to manage other issues related to back-end operations, right from warehouse management to logistics. For FabFurnish, a company dealing with home-d?cor products, the biggest challenge is managing its logistics. ?As our shipment includes furniture, we need to first take very good care while wrapping and packaging the goods. Packaging in this case mainly constitutes paper, pulps, etc. Next as products shipped are usually large in size, and through road, it takes time to deliver,? says Vaibhav Aggarwal, co-founder at FabFurnish. Local deliveries take two to three days but out of station shipments take about 10 days and this makes buyers a bit restless in some cases. The other factor which makes the job more tedious is that the company at present has only one warehouse in the Capital. Setting up new warehouses is a cost that would, obviously, need more investments.
Besides, e-tailers also have to deal with issues at the consumer end such as lack of trust, security concerns regarding mode of payment, uncertainty about product and service quality, look and touch factor and many more. According to Sundeep Malhotra, CEO, Homeshop18, while the business is growing year-on-year, some of the challenges which were there 10 years back, still remain. He, however, adds: ?The US market took about five decades to come of age. In India, the journey might be shorter as all the mediums of communication are growing at the same time and a faster clip.?
Even as the industry struggles to find its success formula, some players have begun taking baby steps that are likely to bring in long-term rewards. Many, for instance, have either begun making investments in their own back-end set up or have started tying up with those who have set it up. Ankur Warikoo, CEO, Groupon India says the next level of innovation in the e-tail industry will be in the back-end. ?There will be players who would come up and offer back-end solutions, create warehouse and stock products for all and sundry. Such a model would result in economies of scale and efficiencies, leaving the online companies to focus on their core job of marketing and selling,? he says.
Some players have already made the move. Jabong.com which mainly operates in the space of fashion and lifestyle, for instance has set up its logistics service by the name of JaVAS. ?While initially it was started to ensure smooth deliveries of our own orders, we have now started working for competitors as well,? says Manu Kumar Jain, co-founder and managing director, Jabong.com.
Many players, on the other hand, are working on creating new payment platforms. Cash-on-delivery was one of the first steps taken towards creating more such options.
?As we deal with expensive products such as furniture, we could not follow cash-on-delivery model. We have, therefore, introduced a new payment gateway called part-payment. As per this, a customer can make 30% of the payment online, and the rest later at the time of delivery,? says, Aggarwal of FabFurnish.
A few e-tailer such as MyGrahak.com have introduced the concept of ?card on delivery?, allowing consumers to make payment by swiping their cards at the time of receiving their order. For this, delivery boys bring with them portable card swipe machines that are GSM enabled with battery back-up.
Industry players say technology will play a vital role in taking the industry to the next level. Increasing smart phone penetration, expansion of 3G services and more and more people accessing internet on the go are developments that augur well for the industry. ?Smarter players will start working on tailor-made mobile interfaces to capture this rapidly growing market,? says Sachin Bansal, CEO, Flipkart.com. Groupon, for instance, is already working on developing its mobile application, which it plans to launch soon.
User experience is also a factor that will determine the longevity of players. From being just a website in the game, the future will revolve around creating a richer shopping experience, say industry players. ?Personalisation will emerge as a major focus area. The ability to customise and personalise shopping experience for customers would become a critical differentiator,? says Sandeep Komaravelly, vice-president, marketing, Sanpdeal.com. ?Based on consumer analytics, e-tailers will create customised solutions such as tailored home pages, mailers, etc for its loyal group of consumers,? he adds.
Tweaking business models is also advised by some in the game. Singh of Seedfund believes that in the long run lot of business models will be re-defined and will be designed keeping the Indian consumer in mind. Providing an example of a kind of model that perhaps will work, he noted, ?A blended model of offline and online is something that might become popular and one of the most successful example of such kind of model is Amway. At present Homeshop18 is one of the companies following this model through its home shopping channel and it website in India.?
In the midst of all this action, some wise men are predicting a shake out. Arguing that too many players have already entered the business, Bhasin says the phase of new crop is over. ?It will be no longer be about launching a business venture. Instead, the focus will be on sustainability.?
Malhotra predicts consolidation in the industry is more than due. ?The next three years will segregate men from boys.? The process, in fact, has already started with Flipkart acquiring Letsbuy.com; Myntra acquiring both Sher Singh and its parent company, Exclusively.in, which started as a flash sale site and in the on-line travel category, Yatra.com bought Travelguru.com.
