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Is International Shipping likely to bring along any Significant Change in the Indian E-commerce Scenario?

Eager to test the waters in India’s burgeoning e-commerce industry, some of the largest US based retailers – JC Penney and Macy’s are placing stakes on selling their products through e-commerce portals in India. In fact, eight US departmental stores have commenced shipping to India and are now accepting payment in rupees. Further, their strong intent to explore the Indian online marketplace is evident through their promotional strategies such as ‘Exclusive India’ pages on their official website.

International shipping will enable JC Penney, Macy’s and other US based brands to build upon its existing customer base beyond the US, by exposing their product offerings abroad. In fact owing to their strategies such as low international shipping rates, efficient delivery channels and guaranteed landed costs, Shipments by international retailers have picked up significantly in the past six months. As e-commerce is becoming popular, many people are buying online from these sites. Also, the growing breed of globetrotting Indians who are aware of global trends and wish to own popular US brands are lapping up the opportunity to own their favorite brands.

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Nevertheless, the share of e-commerce business for these sites is low. They are yet to clock in impressive sales figures. However, given the current restrictions in FDI in multi-brand retail, shipping to the country without establishing a business presence can be counted as a smart and low-investment move. Further, these retailers have an opportunity to gauge market demand before they contemplate setting up business operations in the country.

With a few US based retailers setting their sights on the Indian market, the obvious question doing the rounds is “Will they cut into the market share of e-commerce biggies such as Flipkart, Myntra and the smaller India based e-commerce portals? The answer is “No”. Despite a few favorable factors, the likes of Macy’s or JC Penny are unlikely to affect the existing Indian e-commerce market dynamics.

There are a plethora of reasons to justify this viewpoint. First, the tax related charges and additional shipping costs charged by the US based retailers are quite high. As a result, the consumer ends up shelling an amount that is 4 or 5 times the original value of the product. In comparison, the local e-commerce retailers offer products at costs that are 40-50% lower than their original value.

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A few may justify the high costs as essential to acquire “not so available’ brands. However, such justifications will be soon rendered irrelevant by the alliances between Indian e-commerce majors and International retailers. For instance, Product discovery portal Yebhi.com has announced its partnership with international fashion retailers, bringing their range of products to the Indian users. Shoppers can now browse through the collection of multiple international retailers along with products being offered by Indian e-tailers. Yebhi has currently partnered with 4 international fashion online portals, Asos.com, Macys, Forever21 & Shopbop.com, and plans to add more. Such arrangements will ensure that the Indian consumer has access to international brands at reasonable prices.

Moreover, the Indian consumer, by large, does not harbor fetish for specific brands. Instead, the emphasis is on value for money products. Hence, US based retailers shipping to India cannot expect high volume sales unless they offer prices that are as competitive as the ones offered by e-commerce biggies in India. Nevertheless, a niche segment that is on the lookout for specific brands will continue to drive the business prospects of the likes of Macy’s in India. In future, the phenomenon of cross border online retail is expected to catch up.

This article is written by Pritesh Dalal, Sr Analyst with DART Consulting.

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