The Indian eCommerce landscape, over the past one decade, has attracted great interest from the industry and financial institutions. Looking at the explosions happening in the industry, a lot of speculations have been made around the future runway of digital retail by industry experts, players and the public. While many of these are affirmative towards the outlook, some are still atypical and have multitude questions on the existence and operation of this ecosystem. Some of the prudent questions that irk the eCommerce industry are:
i. Will the industry, at the current CAGR of 45 per cent till 2018, be able to reach the milestone as expected?
ii. Will these eCommerce companies be able to hold on to the impetus they have harvested over the past few years?
iii. How will the supporting segments such as logistics, payments, technology and regulations managed to sustain and grow the chunk of the eCommerce wave?
Such sky-scraping expectation from the Indian eCommerce industry is a result of its exponential growth and success across the globe. However, it needs merit in understanding the eCommerce ecosystem in the countries that India is most often compared with – China, Russia and the US. Can India learn from these countries? Have India already surpassed these country? Or will like do, in the years to come?
Internet base vs eCommerce consumption
Though Indian internet user base has now surpassed the US, but China still leads the race. As per a recent report by a professional services firm Ernst & Young, only 14 per cent of the over internet users prefer shopping online while the numbers splurges to 30-35 per cent in Brazil and Russia and a whopping 55 per cent in China. A large chunk of internet users in India are still using internet for several activities other than online shopping, such as social media, video streaming, email and browsing etc and who use internet shopping are purchasing low-value products and services. Indian eCommerce portals are primarily being used as a platform to research big-ticket size products, but not to purchase them there. Comparatively consumers in countries like Brazil have much higher tendency to buy expensive items in segments like electronics, consumer durables, home appliances, furniture and jewellery.
However, increase in disposable income and exposure to international brands will surely propel spends in eCommerce industry in the years to come. With more and more consumers drifting towards online shopping, Indian eCommerce is estimated to cross $28 billion mark by 2020.
Still India is way behind in eCommerce consumption compared to countries like China and Brazil. This does not mean that opportunity available for online retailers of the country is not significant? With an exponential rise in smartphone penetration across the country, not only does India have more internet-enabled mobile connections than Brazil and Russia combined but also the time spent online using mobile is also the highest. This will surely pave way for online retailers in order to tap new urban population including new adopters, but rural customers will still take to come under the eCommerce fold.
How is India different from China?
Ecommerce boom in China was a result of spectacular boost in retail consumption and purchasing power. But when it comes to India, the industry was and is still betting on the internet and technology advancements. Currently, India has about 341 million internet users out of which only 55 million are avid online shoppers. In China, the numbers are quite different. China has about 564 million internet users out of which 242 million prefers shopping online. This wide gap is the main reason why India still has a long way to go in eCommerce consumption. A recent report by Kotak Institutional Equities says that even by 2025, Indians will spend less on apparel/ household goods/ personal products, as proportion of their overall spends, compared to China’s spend in 2013.
Future growth is still gradual
The report also said that eRetail in India will surely grow, but China-style growth rates will be tough to emulate. As India millennial consumers are shifting gears towards online shopping, the industry will undoubtedly find more takers as organised retail penetration is still challenging in tier II and III cities. Conversely, it is expected that unlike China, eCommerce growth will be more gradual in India. In order to be more prominent, Indian online retailers will have to work on changing consumers’ buying behaviour in terms of making them more habitual to buy big-ticket items and online transactions. Changing customer behaviour is directly proportional to trust-factor which is very low when it comes to online shopping. Counterfeiting, piracy and payment shams have been a major challenge in Indian eCommerce industry and thus, online retailers need to bring in a lot of assortments in their mechanism to get that gigantic cut of the overall retail pie of the country.