E-commerce is the future of retail, and is taking giant steps as technology is being redefined with each successive year. But, contrary to popular belief, e-tailing can be expected to actually augment the growth of traditional retail in India along with consolidating wholesale and distribution channels.
The Indian retail market is emerging as one of the most dynamic and fast-paced sector attracting several new domestic and international players. It accounts for over 10 percent of the country’s Gross Domestic Product (GDP) and around 8 percent of the employment. India is the world’s fifth-largest global destination in retail space. The Indian retail market is estimated at Rs 46,15,000 crore (US $710 billion) in 2017, and is expected to grow at a CAGR of 9 percent to reach Rs 1,08,58,000 crore (US $1,672 billion) by 2027. Corporatized retail had only a share of 11 percent in 2017, out of which, e-retail accounted for meagre 2 percent (Rs 92,300 crore). After the implementation of unified taxation under GST regime, it is expected that the share of corporatized retail will increase at higher rate. With increasing penetration of Internet in India, the acceptability of online shopping is expected to grow at a phenomenal pace.
INDIAN RETAIL MARKET
The Indian retail market is primarily dominated by food and grocery (~67 percent) followed by apparel and accessories (~8 percent), jewellery and watches (~8 percent) and others.
India has witnessed a drastic shopping revolution in terms of retail formats, distribution channels and consumer buying behaviour. There has been an increase in purchasing power of consumers owing to the growth of middle class with higher share of disposable income, easy financial options, etc. The consumers today are more educated and well informed thus becoming more experimental and willing to try new products and new modes of purchases.
E-retail is one of the fastest growing formats in Indian retail market owing to the convenient and personalized shopping experience. The Indian e-retail is estimate at US $16.3 billion in 2017 and is expected to grow at CAGR of 45 percent to reach US $49.5 billion by 2020.
E-TAILING IN INDIA
India is expected to become one of the world’s fastest growing e-tail markets, driven by robust investment in the sector and rapid increase in the number of internet users. Under Government initiatives like ‘Digital India’, Internet has penetrated to 400 million users, 48,000 gram panchayats are connected by optical fibres under Bharatnet program and 120.8 million have access to broadband. The increasing spectrum of Internet reach across geographies of India coupled with corporatization of apparel sector is paving way for emergence of e-commerce as a major retail channel in apparel category.
E-tailing evolution took place in India starting with books and media as the key category. Electronics joined the e-tail bandwagon next and apparel, lifestyle were the third product categories. The other categories that have found traction include babycare, home and living, etc.
At present, the e-commerce market is led by electronics category with a share of ~49 percent followed by apparel and lifestyle which is ~25 percent (including footwear, bags, belts, wallets, watches, jewellery, etc.). The adoption of e-tail in apparel and fashion industry is resisted by the consumers’ willingness to touch-and-feel the product before making purchase decision. To address this issue, initiatives like cash on delivery, easy return and exchange, discounts and offers are being implemented to encourage consumers to use online channel for shopping.
E-tailing is in early stage but is growing rapidly and it will be further catalysed with the digital India program and structural reforms like GST implementation. Current share of e-retail in apparel and lifestyle segment is estimated at 4 percent in 2017 and is expected to grow four times from US $4 billion in 2017 to US $13 billion by 2020.
E-retailers have rapidly scaled up their product offerings, providing a wide choice to customers. Several players have adopted marketplace models (pure or managed) which has enabled them to offer more categories, more brands and greater market reach for brands. E-retailers are opting for Omnichannel retail model by opening their physical store to capture a bigger market share. In addition, E-tailers are also investing into studios to improve uniformity in product catalogue for different suppliers, thereby enhancing customer’s shopping experience.
Along with faster and easier navigation, most e-tailers provide detailed specifications of the products to make it easier for consumers to make purchase decisions. For instance, high resolution pictures and zoom in features are provided on the website to showcase the details of the products. Multiple images from different angles enable detailed view of product. Measurement charts assist the customer to make the right fit decision in case of apparel products, etc.
KEY GROWTH DRIVERS OF E-TAIL IN INDIA
Indian online retail has witnessed a surge in recent years and is expected to swell up to ~15 percent of the total retail by 2020 from current contribution of 4 percent (2017) in apparel and lifestyle segment. There are multiple factors which contribute to the growth of e-tail in India.
Growth of digital penetration – India is in the midst of a digital revolution. The number of Internet users is likely to cross 650 million by 2020 and it is expected that half of the Indian population will be online in the next 3 years. Mobiles have become the most preferred device to access internet. The availability and affordability of smartphones with access to cheap internet data coupled with the rise in disposable income is fuelling the growth of digital penetration.
Reach of e-retail channel – In next 3-4 years, more than half of India’s incremental Internet growth is expected to come from rural India. Additionally, the digital user demographic is expected to expand beyond the traditional stereotype, with a significant growth in female and older Internet users by 2020. This will result in a larger market size across different geographies, age and genders and not just a small targeted group. The diversity in the Internet users will facilitate an opportunity for online retailers to expand their product portfolio as per the increasing customer base.
Impact of digital age – Though, Internet has penetrated to 400 million users today, but they are different in usage behaviour and needs. 60 percent of rural Internet users go online using Internet enabled phones and not smartphones. The major use of Internet in rural consumers is limited to entertainment, education and social networking. The online purchase behaviour is best predicted by the ‘digital age’ (years spent online), and not by demographics. With an increase in digital age, the internet users even from rural areas are expected to use e-retail for making their purchase decisions.
Increasing fashion demands in small cities and towns – With the media exposure, rising awareness, growing aspirations and increasing share of disposable income, Indian consumers are looking to get access to global fashion brands. Limited reach of brick and mortar retail outlets of brands in smaller cities provides an opportunity for online retailers. Heavy discounts and promotions, availability of exclusive products, customized experience, availability of global brands, etc. Have made consumers residing in Tier -II and -III cities and semi-urban areas migrate to these online channels.
Improved supply chain and end delivery logistics – E-commerce business is completely dependent on effective supply chain management. Successful supply chain management coordinates and integrates activities like manufacturing, operations, transportation and physical distribution of product with last mile connectivity to end users into a seamless process. For customer acquisition from traditional way of brick-and-mortar channel and their retention, it is necessary to provide customized shopping experience to the consumer by giving several convenience options like various payment options, mode of delivery, point of delivery, etc.
Growth of private labels – With increasing acceptability of private labels among Indian consumers, e-retailers are entering into this emerging segment. The access to exhaustive informative data on consumer’s buying behaviour and preferences have provided an advantage to online retailers in terms of understanding the consumer’s needs. With private labels, online retailers are able to increase their revenues owing to lower distribution overheads, lesser number of intermediaries and negligible marketing cost involved in private labels.
KEY CHALLENGES
Despite high growth, e-tailers face several challenges in the country. Challenges and concerns related to e-tailing in India are enumerated as under:
Competitive intensity – Changing customer preferences and their competitive demand has made e-tailing a highly competitive business which results in cash-burn with regular promotions/ discounts. High discounts by e-retailers to acquire customers have led to unreal customer expectations, low loyalty and losses.
Sub-optimal logistics and infrastructural bottlenecks – Most of the logistics companies do not have pan-India reach. As some regions are not easily accessible, retailers have to cancel such orders due to inability of logistics partners to provide service in those areas. Inadequate infrastructure such as poor conditions of roads, highway, etc., is one of the main challenges faced by the e-retailers resulting in a major roadblock in their growth story.
Inability to convert returns into retails – The conventional brick-and-mortar channel is able to convert the return of product into sales. Consumers when go to shop to return the product, they generally shop for other goods due to easy accessibility to other designs and variety in the shop, which is not the same in case of online shopping.
Different Drivers for online purchase – The purchase drivers are very different across different geographies, regions and population centres. Factors such as promotions, discount and offers are the key driving factor for online purchase across all the regions – metros, tier -I and II cities. But there are other region specific factors such as, availability of new products, better product assortments, easy return policy, express delivery options, etc., which drive growth in different cities and regions. Thus e-tailers have to develop different strategies for different regions and geographies.
CONCLUSION
In the current shopper-centric era, Indian fashion industry is joining hands with technological advancements. Retailers are progressively accepting innovative ideas and tactics to create a memorable and personalized shopping experience, at the same time ensuring lower logistics and operational cost thus leading to higher revenues. With increasing internet penetration, e-commerce is expected to grow at relatively higher rate in comparison to conventional retail channels. With increasing acceptance of private labels within the Indian consumers, e-retailers are venturing into private labels.
E-tailing can play a crucial role in consolidating wholesale and distribution channels, and in developing India-specific business models. By virtue of the advantages discussed in previous sections, e-tailing can bring down the cost of distribution and can complement the growth of traditional retail. In future, e-retail is expected to take a step ahead in adopting Omnichannel retail strategy, capturing higher market share.
