An analysis of the e-commerce growth in India

By: Mayur Saraswat, Head Sales- Digital, TeamLease Services

With Walmart acquiring majority stake in Flipkart, everybody is watching this sector with hope and optimism. E-commerce, which has been the poster boy of Indian’ economy despite its high failure rate in India, will continue to see increased investment and interest in the future and will continue to grow. Indian e-tailing is expected to grow to USD 200 billion by 2026 up from USD 15 billion in 2016 (Morgan Stanley estimate) and account for 12% of India’s overall retail market.

Growth will be aided by several factors including rising internet penetration, drop in data access costs, shift to smart phones, flow of credit to consumers and micro enterprise increase in domestic consumption, affluent middle-class and rising income and aspiration levels in India’s tier II and III towns. Amidst all this – few other things will shape the E-commerce landscape of India and in turn aid growth & market expansion for the incumbent players. April 2018 exited with 1054 million users on telecom services reflects a true potential to e-commerce business. Private equity and venture capital investments in the e-commerce industry in India touched a record US$ 11.2 billion in the first half of 2017, a 41 per cent rise over last year. Currently, ecommerce has 1-1.5 million transactions daily. After 100% FDI under automatic route is permitted in marketplace model of e-commerce, while FDI is not permitted in inventory based model of e-commerce, Government has started  thinking of national ecommerce policy for legal framework to address the challenges of the sector.

Marketing will continue to be key to success as companies will need to continue their investments in acquiring customers and driving up their Gross Merchandising Volume (GMV). In-doing so they will need to invest in newer forms of marketing – Performance marketing being one. After-sales, services & customer care will continue to be critical – as a means to ensure customer retention and loyalty and it has to go hand-in-hand with the sales and marketing efforts. In a crowded market-place e-commerce companies cannot afford to have a dis-satisfied customer – given the likely fallout of the same on social media, which can dent the e-commerce brands image. Whilst big players are now investing into CRM and customer delight – all other players have to follow suit.

The future will also see increase leverage of technology. Live Chat bots and virtual assistants like - Siri, Google Voice, Alexa and Echo are fine examples of what 2018 will offer. It will likely help businesses handle real-time customer queries and offer product recommendations. Elsewhere, across the globe e-commerce and retail firms are increasingly leveraging data to get closer to their customers and influence their purchase decisions. In India too, we will see an uptake on Big-data as more and more companies will invest in the same and use predictive analytic tools & data models for improving sales and marketing effectiveness. This will also increase reliance on data service & data analytics provider and also e-commerce companies will look at hiring more Analytics & Big Data professionals on their rolls.

One of the key challenges for e-commerce players has been to bridge the digital-physical divide. Despite an uptick in e-commerce buyers – and plethora of products/services now being offered online – the ecommerce companies do struggle to achieve conversions. They will need to ensure that customers get to experience similar touch and feel that they would in a real-world and this is where Virtual Reality along with AI technology is increasingly becoming relevant. Already we have examples of e-commerce companies such as Carat lane and LensKart offering extensive virtual shopping experience to their customers – but we will see more of this in the time to come.

Along with all this, the e-commerce companies are beginning to look at actively expanding to tier II-III cities. Thanks to demonetisation, there is significant increase is usage of digital payments in the tier II-III towns, which makes it possible for e-commerce companies to aggressively tap these markets. Also most ecommerce companies have strengthened their delivery network and reach in these cities, so they are able to effectively service these markets and even offer Cash on Delivery option. The expansion to tier II-III markets will not only result in top line expansion for these companies but also help create sales & logistics related jobs in these markets – as there would be need for delivery boys & sales guys to do merchant acquisition. Logistics sector will also get benefited by ecommerce that will generate 1 million jobs by 2022 in last mile delivery.

E-commerce which is now ripe for consolidation – will see likely increase in M&A activities. Indian e-commerce market saw M&A deals worth $2.1 bn in 2017 and six transaction worth USD 226 million during January and April 2018 and the mother of all deals the Walmart- Flipkart deal pegged at $16 billion. This has important consequences for the India market.