Internet
has become an integral part of the Indian consumers which serves as an impetus
to the growing e-Commerce market in India. Factors from low broadband
subscription rates, favourable demographics to convenience of online shopping
drive this sector to make inroads into the Indian domestic market and compete
with the traditional retailers.
According
to a PwC report, online giants Flipkart and Snapdeal, despite enjoying billion
dollar valuations, are no match to the traditional retailers who would continue
with their dominance in the domestic market. The online stores, by 2020 would
account for only 3% of total retail market. Let’s look at some intriguing
points:
§ In 2014, online retail was 0.4% of total retail
market share which is hardly accountable as compared to China where the online
share is around 7-10%
§ Cash on Delivery (CoD) services is a preferred mode
of payment in India unlike the developed countries and imposes a substantial
financial cost onto the online retailers. Also, the cost of acquiring a
customer rises due to competition from other online companies with more funds
§ The other hurdle being Logistics; goods in India are
generally shipped through cheap third party carriers. To deliver orders outside
major cities, companies often need to rely on individual/local couriers who
tend to be unreliable at times and if the company thinks to develop their own
logistics arm, the problem of massive capital expenses adds to the already
increasing costs
§ While entrepreneurs and financial investors alike
are excited by the growth in this sector; companies will need to address issues
around legal exposure in agreements or arrangements, inefficient
anti-corruption framework, imbalance between FDI norms vis-a-vis adequate
entity controls, etc.
§ According to RNCOS, a research and consultancy firm,
the online retail market is projected to grow at a CAGR of 40-45% during
2014-18. According to Google, by 2020, the Indian e-commerce
industry is expected to reach US$ 30-40 billion, from US$ 3-4 billion at
present. Also the retail market in India would reach US$ 1 trillion by 2020
§ Some of the challenges the e-Commerce industry faces
are as follows:
o Absence of e-Commerce laws
o Low entry barriers
o Customer Loyalty
§ On the other hand, traditional retailers enjoy
penetration within every corner of India largely due to the unorganised retail
sector (local general stores, convenience stores, etc) which contributes to
around 90-92% of the total retail market; the organised retail sector
(supermarkets, hypermarkets etc) contributes the remaining 8-10%
§ With the increasing use of internet and the
expanding Indian middle class with smartphones, e-Commerce companies are
targeting mobile users with their online shopping mobile applications
Understanding
the plethora of points suggested above, the e-Commerce industry in India is in
its nascent stage. It remains to see how the obstacles are overcome. Can the
players in the industry sustain the sky-rocket valuation they currently enjoy
to tame the traditional retailers or is it just another bubble waiting to
burst??
-Pratik Naik
SIMSREE Finance Forum
2 comments:
Very true! The internet is playing an integral role for people. They love to shop online. My uncle Dr. Aloke Ghosh says that we shouldn’t completely depend on the internet as it is affecting the life of traditional retailers.
Yes you can say that, but the online retailers offer huge discounts and the convenience of shopping on the go which is something people want these days. Also the massive amount of funding is another reason which is helping their cause.
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