After tottering for some years, e-retailing industry in India is taking wings.
Home-grown players like Flipkart, Myntra, Snapdeal and Jabong have become hugely popular among consumers, which are increasingly going online to buy gadgets to clothes. While Flipkart has crossed $1 billion in gross sales, Snapdeal and Myntra (now acquired by Flipkart) are set to cross this milestone soon.
What is fuelling this boom?
Today's consumer, especially the middle-class urban and semi-urban Indian, is increasingly faced with time constraint. Also, the convenience factor and increased use of plastic money, favourable demographic profile (75% of internet users are aged 15-34), limited geographical reach by bric and mortar model, rising internet and smartphone penetration, and declining data charges are prompting more consumers to buy stuff online.
A recent CARE Ratings report estimated the e-retailing market in India at Rs 5,513 crore in fiscal 2013 growing at a compounded 30.5% rate since fiscal 2008. While the numbers look promising, e-retailing still constitutes just 0.2% of the total retail market, and 2.3% of organised retail in India.
"This is mainly because the Indian e-retailing industry is fragmented with a few large players at the top racing for high valuation. The fight for a larger share of the pie has also led to consolidation. This trend is likely to continue for various reasons including foray of global biggies like Amazon and inability to raise follow-up capital from private equity by majority start-ups," the CARE Ratings report said.
While 100% FDI is currently allowed in business-to-business (B2B) or marketplace ecommerce, restriction on FDI in the business-to-consumer (B2C) space i.e. inventory/independent model has restricted the growth of this segment on account of lack of financial backing required for their expansion plans.
It is for this very reason, industry experts said that Indian ecommerce companies started transitioning to the marketplace model.
According to Flipkart, the top e-tailer, the marketplace model is extremely scalable, especially for an emerging economy like India with such a huge population. "It helps manufacturers and MSME/sellers sell directly to buyers across the country by eliminating the middlemen. This has helped the manufacturing industry as the marketplace model supports the sales of manufactured products and creates huge employment including jobs in ancillary industries," said a Flipkart spokesperson.
However, with the new government planning to open FDI in the inventory-based ecommerce model, the market scenario is set to change significantly.
Sanjay Sethi, CEO & co-founder, ShopClues.com, said, "The government is likely to allow FDI in B2C ecommerce space. This will pave the way for global online retailers to expand their business. A more robust online retail sector will spur manufacturing and help an economic revival. We believe clarity in policy followed by implementation of not only the letter but the spirit of the policy is important. Otherwise we will see pseudo-marketplaces appear which will prevent other players from getting a level-playing field," said Sethi.
However, Flipkart feels the opening up of FDI in inventory-based ecommerce will have no bearing on their business. "Global marketplaces like eBay are already operating in India. Alibaba and Rakuten can enter India, as no regulations prevent them from doing so," the Flipkart spokesperson said.
CARE Ratings, however, cautions that with opening of FDI in B2C model, monopolies of foreign retailers may adversely impact the domestic industry bric and mortar players as well as existing B2C players leading to consolidation in the industry.
"It may shrink the Indian entrepreneurship and MSME sector. However, foreign players' entry with certain riders like mandated minimum local sourcing with MSMEs will lead to increased manufacturing activities," the ratings agency said.
Global ecommerce giant Amazon said opening up the sector to FDI will be good for consumers and Indian businesses. "It would allow us to partner local manufacturers to source products not carried by other sellers on the marketplace, giving Indian consumers unique and wider choices at lower prices. Allowing FDI will also positively impact infrastructure development in the country," said an Amazon India spokesperson.
Industry players are also eagerly awaiting the government's stand on implementing a uniform goods and services tax regime. Developing efficient logistics infrastructure is another area of interest.
"Just around 12% of Indian population is into online transactions against more than half of their Chinese counterparts. Internet connectivity and other logistics infrastructure are still a big drag. This makes servicing in smaller towns a bit challenging. Policy initiatives motivating flow of investments towards building a robust efficient logistics infrastructure will be a great boon for ecommerce," said Sethi.