The growing e-commerce web is good. For everyone.

From organized retail to small traders; e-tailing has critics everywhere. However, it is possible for all these players to not just co-exist in India but also complement each other. E-commerce has opened up new channels, choices and segments for both buyers and merchants.

India offers a conducive ecosystem for e-commerce to thrive – homegrown tech entrepreneurs and global giants alike. Copious capital has followed the opportunity; according to investment advisory firm Grant Thornton, 2014 saw $3.3bn in M&A, PE and VC activity in e-commerce, four times more than in 2013.

E-commerce in India has helped in myriad ways beyond deep discounts. Firstly, consider consumer choice, which isn’t only about having choice of vendors or the convenience of anywhere buying. Monopolistic dealers no longer dictate availability or pricing. Buyers in smaller cities are now at a level playing field on availability – any time, any place and reasonably priced products. This has opened up choices for thousands.

Second, look at category explosion. Though electronics and appliances dominate online retail’s Gross Merchandise Value (GMV) of INR 60,000crs with 51% share, followed by fashion and apparel (30%) and books (7%), myriad new categories are becoming accessible. Tickets, furniture, food, eyewear…once never amiable to selling online are now common purchases. Even insurance is now routinely bought online and at a lower cost. New segments are getting co-opted by e-commerce regularly; Snapdeal has sold apartments and vehicles online; many e-tailers have partnered with government agencies to help artisans sell wares. This expansion has led to an increase in the number of monthly transactions from 4mn in 2012 to 12mn currently. In future the highest growing categories are likely to be healthcare, education and food. The trend is also aided by rapidly evolving technological capabilities like virtual fitting rooms and other augmented reality services that provide an immersive buying experience.

The third major benefit has been the growth of aggregators. A step above the market place model, aggregators help car owners, homemakers, mom n’ pop stores, artisans, workmen, etc. to market services online. This leads to better price discovery and utilization of idle assets/time; a win-win. Think about what food e-tailers (holachef, foodpanda, spoonjoy, etc.) have done for a talented cook – price discovery combined with talent discovery! Or what an olacabs/uber has done for a car owner. Or the impact of the hyper-local strategy of grocery aggregators on local merchants. The trend is commonly referred to as ‘uberization’ or promoting the shared economy – products/services made available when required and if willing.

Lastly, e-commerce is creating new segments. Growth of C2C and C2B is a good example. Sites such as olx, quikr, carwale are indispensable for buyers and sellers. Transparent price discovery obviates middlemen capitalizing on market opaqueness.

Apart from these tangible benefits, e-commerce addresses a structural need. India does not have a thriving organized retail sector – there is unorganized retail and there is e-commerce, with little in between. Both cater to a product and customer category that sometimes overlaps but as of now is largely distinct. Distinctions have begun to blur as e-commerce provides a selling platform to 1,25,000 small merchants, the majority of whom are located outside metros. E-commerce enables them to run a profitable business with increased reach. With problems of labor, land acquisition and permits, the organized retail segment may remain subdued. E-commerce hence can help fill a vital – this is recognized by offline retailers, most of whom are preparing their online strategy.

For e-commerce to achieve its potential, it needs large scale capital infusion. FDI in B2C commerce is a logical source since sophisticated investors bring developed market experience as well as patient capital. This capital would help improve logistics and infrastructure, increasing volume and magnifying employment opportunities at both e-tailers and small-scale retailers in an economically efficient manner. For consumers, increased capital would help improve choice and the user experience through technology.

The current focus of e-tailing giants and minnows is on trying to change consumer habits through ease of buying, discounts and choices to create loyalty. Their strategy is to grow the tiny wallet share – each of the estimated 38mn Indian online shoppers buys on average under $200 of goods annually in 220mn transactions whereas the average Chinese purchases $1,100 worth annually from Alibaba alone. With this kind of potential, it’s clear that the future of buying is online; for Indian retail to leapfrog into its next growth phase, e-commerce hence needs to be nurtured forcefully. That will be just as well. 

Source : Kalaari Blog
Published on 10 July, 2015

Image: iStock, DrAfter123

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