Many experts have made estimates about online retail by 2020. The estimated sales are promising when compared to the $30 billion the ecommerce sector reached in the last financial year 2015-16.
The estimated amounts above represent the gross sale of fashion, electronics, books, furniture and other household products, online groceries and health and personal care products. However, these gross sales amounts do not consider discounts, order cancelations and product returns.
What’s contributing to Indian Ecommerce Growth?
Each of the organizations which have made these estimates have similar claims regarding the factors that will drive Indian ecommerce growth. The factors include:
– Increase in spending income
– Rise in the sale and use of smartphones and mobile internet
– Limited availability of retail stores
– Improvement in ecommerce infrastructure like payment methods and logistic options
– Continuous flow of capital
Will Indian online retail mirror China’s? Yes and No!
Morgan Stanley says yes!
Morgan Stanley claims, India’s online retail progress will be just like China’s over the last couple of years. In its 2016 ecommerce report, the securities house stated, electronics and fashion were the largest online categories in China. Online purchases in these categories grew to 30% in just three years from less than 6% in 2010.
In India, online penetration for these two categories was 3-5% by 2014; however, Morgan Stanley expect the growth trajectory to mirror that of China. Come 2020 this percentage should should be 25-30% for these categories, resulting in an online market of $88.5 billion combined, said their report.
Morgan Stanley also said, China may witness an Internet penetration rate of 59% in 2018 and in India this will be achieved by 2020.
UBS says, no!
In 2015, UBS reported, “Our discussions with industry participants and investors suggest that there is a wide range of estimates for market size, implying very different growth rates. The robustness of some of these estimates leaves a lot to be desired, in our view. For example, a common view is overlaying China’s growth trajectory onto India to arrive at India’s market size based on the comparable expected Internet penetration trajectory. This is flawed, in our view, given different income levels and consumption trends in India.”
Ecommerce investors disappointed by the reality!
Many investors poured funds into Indian ecommerce on account of the promising comparisons made with China’s progress and likelihood of India catching up. Now they are skeptical and even disappointed.
With an excess of $9 billion as investments in 2014, investors started pulling out their money last year. December’s online retail sales in the preceding year were more than those in April. The main factors causing this dip in demand were:
- Lack of fresh funds
- Cut in discounts and advertising
- Hold on marketplace sales (on account of FDI ruling)
It was believed that consumers would keep coming back even after discounts were pulled. A wide product range and the convenience of doorstep delivery were supposed to keep consumers compelled, a Flipkart investor said. Etailers are still looking for alternative that will produce the same response discounts do.
Google says lack of discounts is not an issue!
Extreme discounts may have been what got ecommerce attention, but Google’s 2020 digital retail report says, about 90% consumers are willing to look beyond discounts. If value adds like hassle free returns, speedy delivery and extended warranty are available, they would keep shopping online.
The report also said, online marketplaces need to shift their focus from growth to profitability because ecommerce growth will continue. It’s long term ecommerce profitability that’s absent.
Could the same discounts that made ecommerce popular be its downfall? Also will India ever be at par with international online retail?