Flipkart over metros; Tier II cities are where the big sales lie?

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Demand for online retail is high throughout the country and it is believed that India will be the next ecommerce giant in the world. Many etailers have begun looking past metros and towards tier II and III cities. Why? This is because online shopping in these regions has increased as the number of internet users in the rural areas has shot up.

Ecommerce giant Flipkart has experienced a sharp spike in sales to smaller cities and towns. In 2016 the ecommerce company registered that two-thirds of sales originate from tier II cities and beyond. As a result the online marketplace is aggressively planning its growth in these regions. Logistics network expansion is one aspect it is working on to push its non-metro growth and to remain the largest online retailer in the country.

Ecommerce goes beyond large cities, all it takes is logistics

The chief operating officer at Flipkart, Nitin Seth said, “Ecommerce is no more a large-city phenomenon, our strategy is very focused on middle India.”

And, further stated that 65% of new customers on the platform, during the October sales period, were from outside metro regions.

He also mentioned, “In the next six months (we) will set up 100 (new) delivery hubs.”

This will be achieved by investing in the expansion of Ekart, Flipkart’s logistics arm. The ecommerce delivery company already has 450 delivery hubs up and running.

Experts feel that Flipkart’s venture into tier II cities and the development of its logistics network will be good for the company in terms of cost cutting.

An industry analyst said, “One of the thought process in establishing Ekart was to help reduce cost of delivery in metro cities. They can do the same for smaller cities and ask third-party logistics players to match them, thereby reducing costs.”

Flipkart growth back on track

For most of 2015 and 2016, Flipkart’s gross sales growth remained flat. After an annual run rate from $1 billion in 2013-14 to $4 billion in 2014-15, the marketplace was unable to cross its $5 billion GMV. But with the festive sales in October 2016, the platform’s growth momentum has returned.

Last year in September, the etailer said it had over 100 million customers. According to industry board IAMAI, the nation’s overall internet user base is over 400 million. And, most new users come from rural parts of the country.

Flipkart is also looking to increase the selections available non-metros from under its top- selling categories. These include fashion and lifestyle goods and large appliances and mobile phones.

According to Seth, “Lifestyle, large appliances, (and) furniture will drive the growth. The growth, overall, for the company, and that is aligned with the strategy.”

In January-February 2017 Flipkart claimed 65% of market share for the sale of mobiles.

In July 2016, it acquired around 70% of online retail fashion, when its fashion arm Myntra, acquired Jabong.

For large appliances too, the etailer has been working on a stronger supply chain.

Flipkart went through numerous markdowns due to depreciating investor trust in its capabilities. But, with its sales progress in tier II cities so far, things might look up for the online marketplace. It is looking for a new round of funding with a target $1.5 billion, this little victory may make it look more appealing to investors.

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