An opportunity assessment on the potential of E-Commerce and the online retail market in India, for US, Canadian & Indian businesses.
I chanced upon Kara’s Blog ‘The Beautiful Mess so far’ just as we all chance upon some great nuggets of thought and expression on the Web, these days. I was surfing Google’s search results on the ‘perfect wave’ and Kara’s watercolor washed by. Her painting titled “Waiting For The Perfect Time” captures very well her state-of-mind that is expressed below it. I will leave you to read her thoughts and relate it to your life, in your own way. [A great read, I’d say]
However, Kara’s summing up of the wait…of getting that timing right….of catching the perfect wave for that awesome ride…It pretty much captures, what I think is the state of the E-Commerce Opportunity in India, today and the e-players of tomorrow. If you are an online retail business in India, you are already on your surf board, paddling around, waiting. If you are an etailer in Canada or the U.S. or any other part of the world, this perhaps is a good time to pack your board and head to Goa. And, if you were an online business idea-in-the-making, a good place for your idea to catch the wave would be India’s shores.
All stars are aligned for the tide to really rise. There are many factors that are responsibe for this but I’d like to set aside all those factors that generally make the India growth story a fetching one for many-a-category and distil this rationale down to just the five that are pertinent to online retail and the e-commerce opportunity.
Trust the trend
Consider this- India’s total E-commerce in 2009 was worth $2.5 billion and the number for 2013 was $12.6 billion. Five-fold growth, in four years. A significant part of this is travel related. So if we look at the numbers for pure retail play [books, electronics, apparel, jewelry, home décor…], from around $250 million in 2008 it reached $2.31 billion in 2013 [we are talking of financial year endings of June]. That’s nearly ten-fold growth, in five years. Believe me, when you look at India, this is just the ripple….the perfect wave is in the air.
According to a research done by CRISIL, a Standard & Poor’s owned, India based Global Research & Analytics Company, this $2.31 billion figure is due to become $8.32 billion in three years, by 2016.
India’s newest mall: the world wide web
Here, the cup is not even ‘half-full’, so keep pouring, baby. If there is one factor that has an unwavering correlation with E-Commerce success & growth, it is the pervasiveness of the Web, the level of Internet Penetration. So, the numbers on Online Retail that we just talked about have to be seen in the context of the rather meagre numbers India currently boasts on Internet penetration. 20% internet penetration- 243 million as of June 2014, in a land of a 1.267 billion people. Adding flavor to this number is the fact that 76% of this penetration is MIU- Mobile Internet Usage. And this last is a tasty morsel of data when it comes to E-Commerce. Today, in the U.S. and Canada nearly 50% of many searches for products on online portals come, from mobiles and last year’s Black Friday and Cyber Monday online sales demonstrated the exponentially growing power of mobiles in E-commerce. Mobiles contributed to over 15% of total online sales the last year in the U.S., according to ComScore. At Flipkart, India’s leading online platform, the CEO says 1 in 3 sales are currently coming from mobiles!
As Internet penetration picks up in India and as smart phone ownership goes up, our wave will start taking shape. And if you must know, Internet penetration is projected to be 330-370 million by 2015 by McKinsey estimates, by which time India will be the second largest Internet population in the world, ahead of the US and behind China. And smartphone sales [which fuels mobile internet access] are set to reach 81.5 million in 2015, up from just 9.5 million in 2011.
The Urban, I-Want-It-Now Gen
While India’s young population profile has diverse positives and negatives, the significance of such a profile on the online retail industry is significant. 1 in 3 in urban cities is between the age band of 15-34 years. Their numbers have swelled from 353 million in 2001 to 430 million in 2011 and projected to be 464 million in 2021. Adapting to change, early adoption of technology and the urge to experiment define youth and young, upwardly mobile adults and these characteristics help propel online shopping. Here again the trends are unmistakable.
If we look at the 12 to 18 age group [in 14 cities], the TCS Gen-Y research of June 2014 shows that laptop, mobile & tablet ownership, amongst these city-bred teens, are in the region of 66%, 82 % and 35% in Tier 1 cities and 58% , 91% and 30% in Tier2 cities. 7 out 10 have shopped online. 4 in 10 buy Clothes & Accessories online, followed by Movie Tickets and Books/DVD/Music.
Urban Young India will help this wave swell.
Cash is the new Payment Gateway
In a market where credit card penetration is < 2%, credit card usage online pales in significance and hence can be a stumbling block for online retail to grow. But India tends to find its own answers and the secret of the online retail success is COD- Cash on Delivery. Ernst & Young estimate that between 50 to 80% of online retail transactions is cash. For one of India’s two large online portals- Snapdeal- the figure is 60%, down from 70%.
This payment mechanism and the logistic infrastructure built for it [courier companies collect cash, retain a 3% service fee] has literally become online retail’s beachhead in India. While this method poses other problems for online retailers, it is going to be an enabler for faster adoption of online retail and e-commerce than anywhere else in the world. Though online retail is just a 0.25% of total retail in India, we ought not to forget that even in the U.S. it is just 9% of total retail, despite the myriad payment gateways and the high credit & debit card penetration. COD, while it hopefully will shrink in the Tier1 and Tier2 cities as the market matures, it will woo a new wave of consumers from the smaller towns to start their online shopping.
And credit cards are not without any role in the online retail wave- annual spending on the 19.6 million credit cards has been on the rise for the past five years [during a global economic slump] and was up 29% in 2013 over 2012. Industry estimates peg online spending to be 30% of annual credit card spends. [This will include travel & tourism, which are part of e-commerce but not part of online retail]. So the affluent lot, whose propensity to spend online is far greater, will certainly fuel the high end of online retail.
Impending Critical Mass
Fund flow and investment are the bloodline of business. And every new sector, for it to take quantum leaps and grow, needs investors at various stages. Online retail in India is starting to see some lead names in global risk capital who have made early stage investments in Indian online retail businesses: Yuri Milner’s DST Global [which invested in Facebook, Twitter & China’s Alibaba], the Singapore sovereign wealth fund Temasek, Tiger Global, hedge fund Myriad Asset Management, German incubator Rocket Internet, Blackrock.
Names and expression of interest are great but it is money that talks, ultimately- and there, a taste of the things to come can be seen from the funds invested by the different global and Indian investment firms in Flipkart, the country’s most active online portal- $770- 780 million in the last three years. So the winds are strong for the wave to happen.
Fanning this further, is the fact that some of these brands are starting to talk IPOs’- initial public offerings in Indian and international stock markets. And names like Credit Suisse, Goldman Sachs and Britain’s Investec are some of the bankers being touted for managing those IPOs’. And the word on the street is that the new government is going to open the online retail sector to FDI- Foreign Direct Investment, as early as July! Personally, I think that’s just the cherry on top, if it happens.
When you look at these five factors and the state of play of each, what are your thoughts? Will there be a wave? When? How ‘Perfect’ will it be? How awesome will the ride be? The surfers’ handbook talks of “assess the situation’ as a key to knowing and being ready [for the perfect wave]. Which is what I have tried to do for potential e-commerce players from the US and Canada, who would like to consider the Indian market, in this 3-minute brief. For a surfer, catching that perfect wave is all about ocean experience, timing, feel, balance and plain old paddling strength. I believe the timing is right. Who’s got the rest?
Water Color Picture Credit: Kara Hizon & http://www.karahizon.com
Title Surf Picture Credit: Photographer Rodney S. Yap & http://www.mauinow.com