India has for decades relied on the un-organised sector to meet its daily necessities for things like groceries, medicines, daily essentials etc. Then gradually came players like Bigbaazar, D-Mart and Spencers with their value proposition of from a pin to a color TV in one shop. Then just less than a decade back came the E-commerce space which showed promise with their value proposition of reaching consumers in just a click of a button. Delivering products and services to the doorstep at the convenience of the consumers.
India retail has tremendously evolved today with multiple portals and unlimited options available to the consumers to choose from. But one thing which has not changed is India's dependency on the un-organised sector and the local vendors.
Indian retail space is huge with a whopping over $600 billion as of 2015-16. This space is set to almost double to 1 trillion by 2020, recording a staggering 12% growth YoY. The most striking part of this statistic is E-commerce industry is still just at an infant stage recording just $15 billion in revenues as of 2016. That's not even 10% of the total retail industry. The fact still remains that even today, the un-organised sector is still the majority of the revenue provider to the GDP and caters to more than millions for their basic daily needs.
Today E-commerce spends heavily on Advertisements and marketing creating a perception of how well connected and how big of a contribution they hold towards the retail sector. But this is far from the truth. In India, where there is more than 2.5 crore of merchants(local and others), Flipkart, Snapdeal and Amazon combined don't even have over 2.5 lakh vendors/ merchants on their platform. The business model they have is that they use the same vendors over and over again and don't believe in an organic growth by multiplying their vendor/merchant base. Looking at absolute numbers 2.5 lakh vendors out of 2.5 crores is not even 1 percent of the market catered there. This, in turn, affects their delivery and reach. The E-commerce portals are well connected in Tier-1 and Tier- II cities but fail to deliver with the same commitment in the Tier-3 cities and villages. India has over 2000 villages and thought mobile and internet penetration has picked up, still has to heavily rely on the local vendors and merchants. Another point where the E-commerce needs to work on is their logistics. Today all the major E-commerce platform gave their logistics arm like Flipkart has E-kart etc but their delivery model is not up to mark with many delays and various duplication in products which we read in the news. Their logistics though well structured simply can't cope with demands of over 2000 villages and that too just with a vendor base of 2.5 lakh. Turning back to logistics, from a very primal and basic standpoint, one simply cannot wait for days for something of a basic necessity to reach him.
In terms of profitability and sustainability, most of the E-commerce portals are running losses and are way off from even breaking even. Their business model revolves around multiple rounds of funding from VCs which does not have long-term sustainability. In spite the e-commerce space registering a high level of growth, the overall structuring and profitability still need to start picking up. Un-organised retailers can rarely afford such luxuries and need a more sustainable business model.
In the wake of the recent news with Snapdeal getting acquired by Flipkart and other expansion plans in the E-commerce sector, the need of the hour from the E-commerce space is to tap into the unused 2 crore vendors and optimise their service to reach out to the end consumers. The majority of the India lives in Tier-2,3 cities and the villages. If a sustainable model in terms of logistics is planned it would be more relevant.
In conclusion, the retail sector is quite humongous in India and going to grow at an exponential pace. Not just the E-commerce space but now with FDI in retail there will be many more global investors who will pool resources to come to India to the Walmart and Target. The E-commerce space and the un-organised sector will co-exist as they have markedly their own set of the consumer base and the demarcations are quite prominent. The thing with the expansion of the E-commerce space is that this space and its growth is well documented and advertised in India whereas the rate at which the un-organised retail expands still is not captured in essence It is still a grey area and the metrics which capture these are not well formed. Eventually though in the future, The E-commerce space and the un-organised retail will join hands to deliver the best quality and to this huge billion large population, that is the only way the retail will be able to flourish and reach all the 2000 villages.
The article has been penned down by Bharat Mandot, CEO and co-founder, Jhakaas Technologies.