Indians click with online shopping
Shopping online in India has long lagged behind the huge uptake that has been experienced in western markets.
That is beginning to change as more and more Indians are taking to the the web to make purchases, analysts and retailers say.
But, there are still a myriad of factors holding back a sector that has enormous potential for growth. These include concerns about the security of payments to restrictions on foreign investment that prevent overseas retailers such as Amazon, which launched its Indian edition in last Wednesday, from selling its own products directly to customers in India.
"I think the biggest factor that is holding back the industry is the number of people who have access to internet or are transacting online," says Pragya Singh, the associate director for retail at Technopak, a consultancy in India.
Although India has more than 1.2 billion people, only about one tenth of them are estimated to be active internet users. Just a fraction of those users are actually making purchases online.
In April, 24.84 million Indians accessed various online retail websites, according to the Internet and Mobile Association of India.
"There's a mental inhibition factor," says Ms Singh. "People in India are not used to buying things online. Obviously, this is changing fast now and that is why this is on a high growth trajectory but it will take time. A lot of businesses have been trying to change this mindset over the last five years."
The value of India's overall e-commerce market last year was US$10 billion, according to Technopak. But the the "e-tailing" market was just $600 million, the consultancy notes, saying "e-tailing" is defined as a part of e-commerce that involves the sale of merchandise and does not include services such as airline ticket sales and job portals.
As the number of internet users in India increases, e-tailing has the potential to grow more than a hundredfold over the next nine years to reach a value of $76bn and provide about 1.45 million jobs by 2021, according to Technopak.
There needs to be a change in attitude towards the online sector right up to the government level if its growth potential is to be fulfilled, says Ms Singh.
Online shopping "is different from retail and it needs its own set of policies and considerations," she says. "It needs to be looked at through a different lens than retail. Foreign direct investment is not allowed in online retailing directly to consumers.
"Having said that, players are allowed to operate either as wholesalers or in a marketplace model, like an eBay kind of model, where you are not the seller but you are facilitating the buyer and seller to come together," she adds. "Obviously every retailer would like to be in a high growth market."
The US online giant Amazon, for example, last year entered India through the launch of Junglee, which allows consumers to compare prices of products sold by various retailers, but users cannot buy directly from the website. Amazon.in sells books and DVDs on behalf of local retailers rather than its own products. Foreign online retailers, including Amazon, have been lobbying for the regulations to be relaxed.
The government only opened up the brick and mortar multibrand retail sector to foreign direct investment of up to 51 per cent in September. This was met by fierce opposition from those who argued that it would result in the closure of many of the traditional "mom and pop" stores that are so prevalent in India.
The absence of foreign companies in the online retail space has opened up the market to a flurry of local players, with mixed results. While some start-ups have come into the market only to later close down because of an unsustainable business model or an inability to secure funding, others including Flipkart.com are now well-established.
Nyassa, an Indian luxury beauty product brand, is one example of a company that has managed to revolutionise its business by selling through online marketplaces in India.
"Without any effort and just by listing our products on 16 websites, we are doing as much sales as my retail store," says Ishween Anand, the founder and owner of Nyassa.
"Europe had seen Amazon and all these companies more than a decade ago. India has woken up, but that has happened in the past couple of years," she says.
"If I look at 2011 and 2012, I remember having to tie up with a new online portal every month, because there would a new one that just got funded and was eager to start the business. They would start off just focusing on a category and six months later suddenly they're selling everything," Ms Anand says.
"People are taking their time to understand how this entire business works."
Ms Anand says some of the websites sold the products without making money by offering free delivery on small ticket items.
"There are all these websites that are offering free shipping, so obviously they are not very profitable initially because it's all a customer acquisition game," she says.
For retailers, online portals gives them the opportunity to reach areas of the country where they do not have stores.
"That gives us a chance to go to all the tier two cities, like Pune, where these people have all the money but they do not have access to high end malls," says Ms Anand.
Neetu Bhatia is the co-founder and chief executive of KyaZoonga, one of India's leading e-commerce websites for entertainment and sports ticketing, which launched in 2007 and is backed by a $22bn hedge fund based in New York.
Online retail "has changed dramatically in five years", says Ms Bhatia.
"Online was a black hole five years ago. We're at that cusp where we're going to start to see the hockey stick [curve] happen because you've got the broadband penetration that's continuously going to come in and hopefully a user base that's going to become the third largest internet market in the world and people are going to want to transact online. It's taken the US, I would say, a good 12 to 15 years to get to a point where it's become a more mature online market."
Companies in India will have to continue to evolve as the online space develops.
"All these players are still experimenting, tweaking their business models, learning what is right," says Ms Singh. "When they started off, they realised that people in India didn't really like paying through a card, so they started offering cash on delivery. It obviously was a less efficient model, but it worked.
"Then people wanted easy return policies," she adds.
"So these retailers were working with the consumers to figure out the best way to go about it. It's too early to say who is doing well. All of them are just trying to evolve and adapt to the scenarios and just trying to become profitable in the process," Ms Singh says.
"The ones that emerge strongly will be the ones that are able to adapt to the Indian consumers and break out of the price wars which earlier were the norm."
Updated: June 9, 2013 04:00 AM