There is lack of proper clarity in the Government FDI policy and this has delayed the entry of the retail giants like Wal-Mart, Ikea, Tesco in India. As a result the existing domestic retail players in the country are only competing with each other. This retail competition has taken a whole new shape for the last few years. The new competition is about capturing the online retail space in the country as much as possible. This is because the increasing dependency on computers of the Indian middle class segment has given an opportunity for online retailing business in India to become popular. Internet has transformed the retail experience for consumers by activating their emotions and sparking the desire to buy through imagery, videos, virtual try-ons, real-time feedback, free home delivery and getting the ownership of goods in discounted price. It is evident that this newest trend in the buying pattern of the consumers are opening new ways for the retail companies to sell their product through internet, but at the same time it is becoming a serious threat to the conventional model of selling products through physical shops.
As a result several small shop retailers have come together in order to protect their rights and have urged the government for a protection from the e-commerce companies. Most of these conventional retailers are getting affected by the predatory pricing done by the online retailers. This predatory pricing is helping these online retailers to provide goods to the consumers at a highly discounted price which is in turn helping them to supersede their other counterpart in terms of doing business.
According to a report in The Business Line newspaper about India’s e-commerce, there are no established players. This is due to the reason that most of them are creating the market from scratch. If a player grows slowly, a competitor is likely to take advantage by sneaking past the former entity. Under such a situation, there will hardly be any player who can remain significantly ahead of the competition. As a result many acquisitions and mergers are taking place like, Flipkart has acquired Electronic retail, Zovi.com has acquired Inkfruit, Myntra has acquired online fashion brand Sher-singh etc. Mostly, the e-commerce industry in India is undergoing a bigger consolidation stage in the recent months and is supposed to continue in the coming months also. This is mostly due to the non-performance of several online portals in the recent past. Although many small online portals have failed, still the industry is expected to grow at a rate of 40% with many small players entering the field regularly.
The e-commerce companies basically follow two supply-chain models. One is the Inventory model where the company has its own warehouse to store the goods. So the products the consumers see on the website page are already available with the company, which in turn helps the company to deliver the goods faster to the consumers. Companies like Flipkart are following this model. The other model is named as Drop-ship model, where the company provides an online platform for the buyers and sellers to meet. These companies will not have a warehouse, which will affect the delivery time of the goods. But due to the availability of millions of buyers and sellers, the choice available for the consumers is much wider than the inventory model based sites. Companies like E-bay and Junglee are following this model. The consumer will take the decision to choose between faster delivery and wider choice.
In recent times the biggest talk in the online retail segment is the entry of Amazon in India as the company has been offering its retail online store in India. As per the government policy no foreign firm can be engaged in the E-commerce business in this country. So Amazon is taking a different approach to do business here. The world’s largest online retailer is planning to tie up with Shoppers Stop, Crossword, Spencer’s Retail, Woodland, Future Group and other leading retail chains in India to sell their wares through the Amazon India marketplace. Basically, it will provide a platform for selling goods online to the top retailers through its sales channel.
As per the market research firm Forester Research, the present size of the Indian e-commerce market is $1.6 billion and it is expected to grow to $3 billion in 3 years and might reach $15 billion by 2020, where it is expected to contribute 4% of GDP. The key to success in this field will depend on catering to the Indian consumers who connect to the internet via mobile phone because 80 million consumers with personal computers are going to be superseded by 200 million (Forecasted figure with CAGR of 46%) smart phone users by the year 2016. The number of smartphone users in the country over the years is given in the chart below. The number has been increased with a CAGR of 46% in the last 3 years. It can be forecasted that with this growth rate the country is going to have 300 million smart phone users by the year 2017.
Now all depends upon the various players of the game, both domestic and international. How they transform themselves with the changing world, and come up with innovative and attractive marketing schemes to gain the biggest share of the pocket of this new clan of online shopping lovers.
This article was written by Souradeep Basu, Senior Analyst with DART Consulting.