The Future of Retail is Online

That ecommerce is a sunrise sector in India was known to those who keep tabs on the happenings in the sector. Sales were galloping and companies were being valued at figures that left their brick & mortar cousins mad with jealousy. According to recent reports by the Economic Times, Sachin & Binny Bansal’s online retail arm Flipkart is touted to be valued at Rs. 30,000 crore while Kishore Biyani’s brick & mortar Future Retail is valued at only Rs 2775 crore. This is despite Future having assets worth Rs 11,349 crore in comparison to Flipkart’s Rs 487 crore and revenues of Rs 11,366 crore against Flipkart’s Rs 6000 crore.

The finance minister has taken cognizance of this trend. In the budget, he has allowed online sale of locally manufactured goods of foreign owned companies having manufacturing facilities in India. He has also created a venture fund of Rs 10000 crore for start-ups. A separate Rs 100 crore fund has been started for rural youth and another Rs 200 crore fund especially for Dalit entrepreneurs. A fund of Rs 500 crore has been created for the Rural Internet & Technology Mission. All this will give a further boost to ecommerce in India.

A look at the figures will confirm why investors are bullish on online retail in India. First, let us take the whole retail scenario in the graphic below:

The huge gap, first between organized retail and share of online retail in it and also between overall retail market and online retail, is what excites investors as well as players, including from overseas, who are making a beeline for online retail presence in India. The unorganized retail sector is booming in rural and semi-urban areas, although many retailers are now making a push for Tier III towns as they find a certain class of population flush with cash there. Still, the reach is limited and the logistics are difficult. Online retail seems to be the best way to bridge the gap between the two.

In 2006-7, just $ 2 billion worth of goods were sold online in India. This figure jumped to a huge $ 13 billion in 2013-14, an increase of more than six times in just 7 years. It is expected to reach $ 90 billion in 2020-21. Its contribution to the GDP is also set to rise phenomenally from the 0.69% this year to nearly 4% in 2020-21. Almost all products and services are selling online now, and the most heartening news is that orders are pouring in not just from the metros and other towns but also from rural backyards. Some of this is from young people employed in cities sending gifts back home to family members, but online products are being delivered even to Jhumri Talaiya, to give example of the then village (now a bustling town in the mica mining Koderma district of Jharkhand) made famous by Binaca Geet Mala.

Apart from the finance minister’s push for ecommerce, the mindboggling valuation of Flipkart in its quest for another round of funding has put the focus firmly on online retail. The company was valued at only Rs 15,600 crore in May during its last round of funding. Now, it is valued at Rs. 30000 crore. It must be some sort of a record for an Indian company to have almost doubled its valuation in just one and a half month. The Flipkart success story is bound to inspire many others. It has also forced global giant Amazon to set up India operations in a jiffy.

With increasing efficiency and competition in last mile delivery through burgeoning logistics companies and even small couriers who serve remote villages, the smooth working of cash-on-delivery system to obviate the need for net banking or credit/debit card (this was one of the major impediments to online retail some years back), a population in excess of 1.2 billion that spells a huge retail market, presence of a huge unorganized sector that can be converted and increasing penetration of mobiles and internet, the sky is the limit for Indian online retail.

This has also made India Inc. sit up and take notice. The first giant from India’s cash-rich traditional business groups to announce a foray in online retail is the Kumar Mangalam Birla owned Aditya Birla group. It ventured into retail in 2007 when it took over Hyderabad based supermarket chain Trinethra, and then started its own brand More in 2008. But having analyzed the online retail numbers, the group has appointed the head of its chairman’s office, Prashant Gupta, as leader to make the group enter ecommerce in a big way. Reports are also coming in indicating that the group is likely to sell 25% of its stake in its brick & mortar retail arm. Other groups are likely to follow its lead of entering online retail, making for an exciting time for buyers.

The Modi government is committed to entrepreneurship and this was evident even before Jaitley announced the venture fund measures in the budget. Modi had centralized efforts in entrepreneurship by making Sarbanada Sonowal the minister for skills development and entrepreneurship in his cabinet. This would ease the hurdles for start-ups as previously they had to run about different departments to get work done. Also there were multiple bodies like the National Institute for Entrepreneurship and Small Business Development (NIESBUD) under MSME ministry, National Science and Technology Entrepreneurship Development Board (NSTEDB) under Department of Science and Technology and the National Skill Development Corporation (NSDC) to name a few, under various ministries to handle matters. Now, all this will come under a single ministry.

The only thing that the government needs to do now is to ensure that selection of deserving start-ups and disbursement of funds is not marred by bureaucratic red tape, nepotism and corruption. Innovation and technology are competitive sectors where secrecy also plays a large role. While non-disclosure agreements are largely honoured in the private sector, the same cannot be said of government departments where leakages abound. Start-ups need incubation and handholding. The government will need professionals to handle them. Bureaucrats and their unending forms, questions and red tape will kill the entrepreneurial spirit in the womb.

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