By Sneha Ullal
A whopping $13 billion. That’s how big the e-commerce industry in India is right now, as opposed to just $3.8 billion in 2009, according to a KPMG and Internet and Mobile Association of India (IAMAI) report titled ‘e-commerce Rhetoric, Reality and Opportunity’. With 213 million active Internet users in India — 72 million of which are in rural areas — the growth potential of e-retail is huge for both major and emerging players.
But both face certain growth restrictions due to reasons like lack of reach especially in remote areas, non-desirable Internet penetration, FDI restrictions and yes, convincing the majority offline crowd to shop online. This feature aims to address these challenges, and highlights how most of the e-commerce players have confronted them with unique and smart services.
Also, considering the astounding figures we just covered, will this mean that e-commerce can possibly replace physical retail? And what about unmanned drones replacing postmen and courier guys? While that might be the case internationally, India’s e-commerce story might veer towards a different direction…
Current challenges of India’s e-commerce players
Establishing true nationwide reach
Catering to remote towns and cities is a major concern, due to limited last-mile connectivity, which constitutes over 50% of the logistics cost for most e-commerce companies. Also certain pin codes are only serviced by the India Post and not by most or all courier services — which can also be, again, a logistical nightmare. “This sometimes takes extra time for us to send our orders to consumers, sometimes more than what we promised,” says Arun Sirdeshmukh, Co-founder and CEO, Fashionara.com, a fairly new fashion portal. “That’s why we try to do some of our own deliveries, which also means additional investment in training.”
To reach out to users in every corner of the country, classifieds portal OLX will be introducing new languages for a more customised experience. A part of fashion portal Myntra’s core vision is to introduce fashion to Tier II and III cities that have limited access to brands. “We strongly believe that there is a gap in the market,” says Ashutosh Lawania, Co-founder, Myntra. “Being an online player, we have the advantage of providing a lot of realtime data where consumers get to know what’s in trend. We want to create a multi-billion dollar business in this space, because we believe that there exists an opportunity in Tier II and III cities.”
Cash On Delivery woes
While the cash-on-delivery (COD) option eases the insecurity of consumers most often, it can also pinch the e-commerce players, especially new companies and startups. “It costs the company anywhere between 5 to 10 % of each transaction, as opposed to prepaid, which costs just about 2 %,” says Sirdeshmukh. “Also with the COD process, consumers have the liberty of changing their mind.” So to curtail any additional costs of COD failures, Fashionara sends a confirmation email right after a consumer has made a purchase. Only after the order is confirmed does the site process tit and accordingly handle shipping.
Getting SMEs to go online
One of the biggest challenges for e-commerce portals is to get SMEs on board on their marketplace model, since they are the best ways to reach out to even the remotest corners of the country. To attract SMEs and support them, Amazon India is currently providing two unique services: Sell on Amazon (SOA) and Fufilment by Amazon (FBA). “SOA provides businesses of all sizes a compelling sales channel with nationwide reach,” explains Amit Agarwal, VP & Country Manager of the six-month-old Amazon India. “A seller can list an unlimited number of products and benefit from Amazon’s investment in technology and innovation, traffic, convenient shopping experience, and a secure payment infrastructure backed by Amazon’s A-to-Z guarantee. Additionally, a seller will have access to Amazon’s ‘seller coaching tools’ and a suite of integrated services that can help the seller grow his business online. With FBA, the sellers can put Amazon’s world-class fulfilment technology to work for them.”
FDI restrictions
While the government is still in talks to loosen the restrictions on the e-commerce sector, the current Foreign Direct Investment (FDI) policy doesn’t currently allow e-commerce players to retail directly to consumers. Even though there may be overseas funds coming into the sector, there are also restrictions on further investments. While 100% FDI is allowed in business-to-business (B2B) e-commerce, it’s banned in business-to-consumer retail. FDI is, however, allowed in online marketplaces, where the site is essentially a platform to sell other retailers’ products (like Amazon, Flipkart, etc). So companies either follow the marketplace model to raise investments, or have structured their business as two separate entities, including the marketplace model, just to comply with the policy.
Presently, FDI in retail in India is currently set at 51% for multi-brand stores and 100% in single brand retail stores. If the FDI norms are relaxed, most big players, like Amazon, believe that it’ll not only offer more choices to consumers, but also do wonders to their customer service model. It can also help raise funds, which a lot of e-commerce players will appreciate, and attract the interests of bigger international companies.
IAMAI and KPMG’s recent e-commerce report found that India is one of the few countries that does not allow FDI in inventory-based e-commerce. The current FDI policy can lead to low online consumption and “shrinking of the e-commerce business”. In the report, Dr Subho Ray, President, IAMAI, added that inventory based e-commerce needs “deep and sustained investments on technology and other back-end operations, marketing and brand-building areas where domestic investment is not forthcoming.”
Lack of trust in online shopping
Promote great deals, ensure quick deliveries, customer support, convenient and timely shopping, etc — marketing and advertising these features can only convince consumers to a certain degree. But for most e-commerce players, gaining their trust is still a barrier. “That coupled with delivery issues and whether they’ll get the same product they ordered, worry consumers,” admits Ravi Vora, CMO, Flipkart.
According to Amit Agrawal of Amazon India, customers need to feel secure about online transactions, and feel assured of customer service and product guarantees, which the portal has been relentless about. “Customers can shop with confidence from any seller on Amazon.in and benefit from a safe and secure online ordering experience, convenient electronic payments and cash-on-delivery, easy returns, Amazon’s customer service with 24X7 support, and a globally recognised and comprehensive purchase protection provided by Amazon’s A-to-Z Guarantee.”
Flipkart too ensures that there are no glitches in their customer service. “We are not just trying to deliver a product, but also ensuring post-sales service, or any other problem that the customer might face,” says Vora. “We have user-friendly return policies and we also work with dedicated logistical partners to make sure customer issues are addressed immediately and resolved.”
Solutions for future growth
For both start-ups and established e-commerce players, the answer to surpassing these roadblocks is pretty straightforward — focus on consumer education (especially those new to the space), provide smoother, glitch-free support services and invest wisely in both mass-media advertising as well as intuitive banner display, search engine, social media and email marketing.
Myntra’s game plan for instance is 100% growth in the next three to four years, without moving away its focus from fashion. “We will continue to add more expertise and depth in fashion itself rather than going towards other categories,” says Ashutosh Lawania. “While we will try to cover value, premium and luxury brands, at the same time we want to stick to premium and mid-premium segments.” But will Azim Premji’s rumoured stake in Myntra change their plans? We can only wait and see. While Amazon, which launched only six months ago, hopes to concentrate on innovation to improve customer experience, OLX, which has been going strong with its mainstream advertising and marketing, hopes to focus on educating its users and reaching out to as many people as possible.
Vaibhav Aggarwal, MD of the barely one-year-old furniture and home décor site FabFurnish.com which already gets 75,000 hits every day, lists the site’s top three priorities: widest assortment, unbeatable prices, and the best delivery experience for customers. “To ensure these things fall into place, we are always scouting for quality vendors in India or abroad. We have also set up distributed warehousing to ensure we are able to reach our customers as fast as possible,” he says.
According to the recent e-commerce report by KPMG and IAMAI, issues on “the demand side, supply side and government and regulatory side” also need to be addressed to ensure rapid progress. It also recommends four solutions stakeholders should focus on:
a) Developing and building human capital
b) Adopting effective business practices
c) Strengthening the technology backbone
d) Building a favourable yet controlled regulatory environment.
Next stop, m-commerce
While most of the big e-commerce players have made their portals mobile browser- friendly, some have already gone the travel portal and movie ticketing route — by launching smartphone apps. A few months ago Flipkart recently launched its own Android and iOS apps, which let users place orders and choose between different payment methods like cash on delivery, credit/debit cards, EMIs and net banking. Just like the desktop portal, the apps allow tracking of orders and managing user accounts. “So far the response has been very positive,” says Ravi Vora. “Visits, transactions and revenues from these apps have grown tremendously in the last two to three months.” Vora is certain that mobile is the next frontier of growth in this space. Why? “As devices multiply and their functionalities improve, people will be able to shop and transact smoothly,” he explains. “The ecosystem will also become more robust. Payment service providers, logistics providers, packaging partners, will become more mature and quick on their feet, which will enable us to serve customers better and faster. As a result more sellers will come online.”
To strengthen their m-commerce strategy and multi-screen model, HomeShop18 recently carried out a ‘Scan N Shop’ marketing initiative. Vikrant Khanna, CMO, HomeShop18, describes the initiative: “We installed a digital shopping wall at the T3 terminal of the Delhi airport. This dynamic display shopping screen allowed customers to shop by scanning the QR code of the product from their smartphones. The sheer traffic on the Scan N Shop wall proved that people are getting comfortable with mobile shopping.”
Physical retail vs e-commerce
Though it’s hard to deny the growth and potential of India’s e-commerce industry, the chances of it replacing physical retail entirely in the near future are not high. In fact, most of the big online retail players believe it’s important for online and physical retail to co-exist. According to Amarjit Batra, CEO, OLX.in, physical retail will see enormous growth thanks to rise in consumerism and disposable incomes. “In the next eight to 10 years, I do see e-commerce taking an increasing share of the retail business pie though,” he adds. “Also, millions of consumers haven’t made their first purchase online yet, which will hopefully change three to five years down the line.” Vora adds that not all products and services can be sold online, simply because of the touch-and-feel experience that’s integral to them “But with the way e-commerce is growing, it can leapfrog some of the organised retail steps. Organised retail was supposed to record a growth of 25% by now, but it’s still in the 10-15% range. E-commerce can fill that gap, since it does not have to meet physical infrastructure requirements like those of offline retailers.”
Coming soon: Bye bye, Mr delivery guy?
Jeff Bezos, CEO, Amazon.com, made an interesting announcement a few weeks ago. Through an elaborate video demo, he showed how his R&D lab had been developing these unmanned delivery drones called, which will ensure delivery of packages weighing not more than 5 pounds (about 2.26 kg) in 30 minutes. Bezos hopes this service titled ‘Prime Air’ rolls out by 2015, while they work on ironing out issues like how will the drones tackle telephone poles or avoid into bumping into animals, birds or people; and, well, the American government’s restrictions on commercial use of drones. And maybe even think of a better term that the deathly military ‘drones’.
Considering the sheer growth of the Indian e-commerce market here, will a service like this make sense? While Amazon India’s Amit Aggarwal declined to comment, Vikrant Khanna says it’s hard to predict anything at the moment. “While it’s a wow concept, I’m not sure whether it’s practical or viable for the Indian market,” he adds. “India is still evolving as an e-commerce market, and there are so many other innovations to be done like enhancing services and customer experience.” Khanna adds that some of the innovations the Indian market will see are products displays and video demos in 3D, supply chains being more efficient and the inclusion of 4G technology. So delivery men, for the time being, can heave a sigh of relief.
What happened at this year’s GOSF
Think of the idea of GOSF as an ‘online super mela’. Launched by Google India last year, the second edition of the Great Online Shopping Festival, organized a few weeks ago, brought together leading e-commerce players in India on a common platform to provide the best deals available on the web.
This year’s GOSF saw participation from over 200 partners (as opposed to 90 last year), including online travel sites, auto companies, telecom companies, fashion labels, health and well-being companies, banking and financial services, etc, and around 2 million online shoppers across India, who shopped for four days (between December 11 and 14).
Rajan Anandan, VP & Managing Director, Google India compared the event to the West’s ‘Cyber Monday’, organised to raise awareness about the benefits of online shopping. “With over 200 million Internet users in the country, more and more Internet users are opting to shop online and fueling the growth of both large multinational and homegrown companies. Industry estimates suggest that there are close to 20 million online shoppers in India and it’s estimated to grow to 50 million in next few years, making it a $16 billion industry,” he added.
While Google and most of the e-commerce players claimed that the event was a big success, there were a few issues that cropped up that left to a handful of consumers disgruntled and disappointed.
The highlights
The winners: Snapdeal, Myntra and eBay saw jump in daily sales to almost three to four times. Popular categories: Apparel and electronics were the most popular shopped items, followed closely by e-books, books, home and kitchen equipment, jewellery, and healthcare and wellness.
Car and home sales: Even cars and housing saw great traction. In fact, Tata Housing closed bookings of over 55 flats, with a sales value of over Rs 25 crore across four projects. About 30% of those bookings were done by NRIs and 40% by customers from Tier II cities.
The traffic: Of the 2 million shoppers, almost half were women. The traffic peaked between 2 pm and 8 pm each day, with 62% being in the age group of 18-34 years.
The glitches
Site crash: The site crashed within the first 24 hours of the launch of GOSF 2013. Google India claimed that their servers were down, and there were rumours that the site had been hacked. While this annoyed many visitors, experts were surprised to see that Google wasn’t prepared to handle the onset of heavy traffic, especially after last year’s success.
No Google apps: A lot of visitors observed how Google Play was surprisingly left out of GOSF. Some sites did run offers on the new Google Nexus phone though.
Raw deal?: While most of the e-commerce players appreciated the traffic and jump in sales, some consumers weren’t in on most of the deals. They pointed out how certain players had jacked up prices first before slashing them. Others faced problems like transactions failing repeatedly and coupon codes not working.
Feedback: sneha.ullal@exchange4media.com
