Can eCommerce ever become a threat to physical retail?

Can eCommerce ever become a threat to physical retail? This question has been there in the retail eco-system since quite some time and industry experts have often churn out their own version of eRetail vs. Retail.

Some time ago, CEO of Niti Aayog, Amitabh Kant made a statement about survival of physical stores and said that the brick and mortar business in India may cease to exist in the current form by 2023.

Kant said, "India is the only country with billion mobile phones and biometrics. In the last 6-7 months we have added almost 28 crore bank accounts. In the last 45 years we have given license to 19 banks, but in the last nine months we have given licence to 23 payment banks, and many of them are telecom companies including Paytm and Airtel. The brick and mortar sector will go dead.”

Sensing the competition, physical retailers and malls have tweaked their mode of operations by focusing more on touch & feel, consumer engagement, great services. A bevy of funds are being poured into digital market, mergers and acquisitions are the hot-cakes and every quintessentially offline retailer is also going online, Lacoste, Amul and Swarovski being the latest names.

However, the big question here is that has eCommerce ‘really’ become a monster that would take up the retail industry by storm, thus leading to digitization of retail.

Is eCommerce really becoming a giant?

Despite of market vouching for the potential of ecommerce, heavily backed by the rising base of smartphone users and internet penetration, the stark reality is that even by 2025, eRetail will contribute to a mere 8 per cent of the total retail in India.

Addressing the war between eRetail and Retail at a conference on Redefining Retail, Sanjeev Gupta, Additional Secretary, DIPP, Ministry of Commerce and Industry said, ‘The fact remains that eRetail will continue to be a miniscule even in 2025 at 8 per cent.”

Presenting figures, Gupta said that out of total $ 728 billion in 2016, the share of eRetail is at 2.2 per cent making it around $16 billion. “By 2020, we are talking about crossing 50 billion threshold in eRetail which would make it 4.5 per cent. In 2025, estimated 150.8 billion constituting to around 8 per cent of the total share,” he added.

The dynamics of rising internet penetration

As per internet live stats, against 721.4 million in China, we are 462.1 million in India thus securing 2^nd position in terms of number of internet users whereas US is way behind with 286.9 billion. Though the trend is clear that we are surging ahead with numbers, but still eRetail is in doldrums and despite of the second largest internet user base, eRetail here is still at 2.2 per cent and was 0.8 per cent in 2014.

The reason is that internet penetration includes 2G as well. We are way behind when it is about 3G and 4G and that’s why it is a challenge.

A bevy of eRetailers are doing mobile apps, and a number of them are going for app-only model. Myntra did the same, but was quick to switch back to the desktop site within a short span of time. Again the question here is should we necessarily be doing only the mobile apps? Given the telecommunication infrastructure in India, app-only model is a fancy but away from reality model in India.

Emphasizing on this issue, Gupta said, “Whenever it is a question of sales, we tend to be graphic-intensive with lot of pictures, reviews etc. which requires 3G necessarily.”

Despite huge change in demographics, a major India resides in rural areas, where signals alone are an issue, forget about 3G and 4G internet. IMRB study with RAMI suggests that internet penetration in rural area is 13.7 per cent. That is a good number however the fact remains that they are taking into account any kind of internet access by anyone at any point of time including usage of whatsapp, facebook and 2G connections.

Moreover, studies say that a majority of eCommerce activities in India consist of bill payment and travel booking. Given these statics and the dynamics of internet penetration, eRetail is not going to become a threat for retail anytime soon.