A Snapshot of the e-retailing industry

In the coming 15 years India will see a rise in people opting for online retail. The past year’s e-commerce sales were approximately $16 billion with chances of market expanding up to seven times higher, according to Morgan Stanley. This has attracted an influx of investment in e-commerce firms, opening up the market for new players to set up their bases.  Online retailing has had a heady impact on the sales turnover of brick and mortar stores, urging traditional players to opt for digital counterparts of physical stores.

Growth Factors

The current business environment in India is coercive enough to enhance the growth of the online retail in India. Key factors that can contribute to the growth of online retail in India include -

a)  Increase in the number of Internet users and online buyers:  According to a research done by Google, the number of netizens from India is expected to reach 500 million by 2018. An   estimated increase of 5 million internet users is recorded, on a monthly basis. One can contribute the boost in internet users to the intensive promotion of broad band connectivity across the country. Currently, the broad band connectivity is around 15.13 million with Government taking initiatives to increase it by 214 million broad band connections. Digital connectivity is the word of the century and is going to thrive well into the next decade.

b)      Smart phone revolution and Mobile Internet:  India is one of the markets witnessing an escalation in smart phone customers, from 51 million to 104 million by the end of the year. This forms about 10 per cent of the total mobile users in the world, currently. The availability of cheap smart phone, paired up with expansion in broadband services has led to this upsurge, especially in Tier ii and Tier iii cities. Also, affordable 3G and 4G mobile data networks enhance the customer transaction through access to mobile based apps. These applications enlist the use of interactive features to provide an augmented consumer experience.

c)       Increase in Cashless transactions:  Retail electronic payments have risen to INR 33.8 lakh crore in the current year as compared to INR 50,000 crore. Credit card transactions have seen a leap during this period and reached the mark of INR 1.2 lakh crore. In the case of Debit transaction there was an increase of over 15 times, valued around INR 74,300 crore in the current year. Convenience can be counted as the driving force, with people opting for online purchases, from the comfort of their home. Availability of foreign products at local price acts as an added influence, leveraging the market scale in favour of e-retail.

d)      Rise in disposable income and Rapid urbanisation:  Annual disposable income in India is expected to increase at CAGR of 5.1% and expected to be USD 3823 by 2018. According to Census, urbanisation showed an exponential growth rate of 2.76%. We have around 337 million people who live in urban areas. With increase in Indian economy and an influx in jobs, the standard of living has seen a hike. Coupled with that, escalation of purchasing power, a rise in social fluidity and intrinsic digital dissemination amongst urban and semi-urban markets has promoted the consumption of e-retail from a luxury to a viable amenity.

Challenges for online-retailers in India

Although online retailing is surging towards progress, there are multiple challenges for e-retailers to keep in mind :-

a)      Logistics: Effective logistics play an instrumental role in measuring the operational success of e-retailers. Retail in India is large and fragmented, handicapped with poor infrastructural facilities. Hence, timely delivery and other priority based services are the biggest challenges for online retailers in our country. Added to that, cost of logistics in India is high, owing to lack of any regulatory body. Limited airline fleet size, which can hinder the priority services like same day delivery for customer, has bogged business down for logistic companies.

b)      Customer Trust and Loyalty: Even with the inclusion of trusted players Flipkart, Myntra and Jabong, majority of the players are not up to the mark. This can be contributed to poor procurement of product and faulty customer service. Many e-retailers jump into the digital boom, without prior knowledge of customer service. Hence, such players drive customers away from e-retail in total. The entry of foreign online retailers like Amazon, Net-a-Porter and Asos has forced Indian players to enhance customer loyalty. Flipkart has started an initiative called Flipkart first which provides same day delivery, priority customer services, free shipments and exclusive offers. Such facilities provide an unmatched customer experience, spreading a positive buzz, to win back customers.

c)       Overcoming touch and feel mental barrier of Indian customers: Inspite of all the progressive reforms taken to improve retail scenario, India is essentially a traditional market.   Indian customers play due importance to quality inspection, prefer to touch and feel products before purchase. This is a big challenge faced by online retailers. Majority of the older generation find these brick-and-mortar enterprises credible, despite price parity being much lower on e-retail sites.  Online retailers are trying to denounce this barrier through adding more specifications about the products. They also share customer testimonials to bolster their credibility.

d)       COD and Returns management: Cash on delivery has slowly risen up to be the trump card for e-retail, being the most preferred mode of payment by online customers. This may act as an added enhancement for online purchases, yet certain critical issues remain for retailers. Many of the logistics providers come with extra surcharges, affecting the retail business in long run. Hindrance in transmittal of the Cash collected by logistics providers can reduce the working capital for online retailers. Online retailers lag momentously behind, when it comes to Returns Management with some of the logistics players lacking the capacity to handle the returns. Reforms are being made in terms of nominal surcharges and better returns management.

The stabilisation of e-retailing is primed to play a pivotal role in bringing sustainability and economic viability to many factions of the economy. It will provide both employment as well as support to such infrastructural factions including logistics and telecom, through creation of demand. The e-retailers would bring confidence among the online customers with punctual delivery of goods; enabling discounts for bulk purchases and reducing delivery charges. With these outlooks, e-retailers should move ahead into a profitable future.

Author : Amit Daga

Published by: SME World in January 2017 edition