Monday 29 June 2015

E-commerce set for a rejig

The dynamics of the Indian e-commerce universe will perhaps begin to change in 2016. While most major groups of India Inc, including the Tatas, Reliance Industries and Aditya Birla, are expected to fully roll out their online retail ventures by the end of the current year, experts believe the impact of their entry into a world now dominated by pure-play internet businesses such as Flipkart, Snapdeal and Amazon will be felt in the second half of 2016. But, any change in the e-commerce pecking order linked to market share could take anything from three to five years, according to analysts.

Even as the big groups have years of experience of doing business aided by deep pockets as well as telecom services under their banners, they are likely to miss the nimbleness of the new-age players operating in the Indian e-commerce space, pegged at around $4 billion or Rs 24,000 crore (without counting online travel, financial and a few other services). Only if the balancing act goes right, the traditional brick and mortar businesses, aspiring to have an online edge, may succeed, argue industry watchers. They also point out that Chinese e-commerce leader Alibaba, through its play in Noida-based mobile wallet platform turned into a full-fledged e-tailer - Paytm - will be the one to watch out for.
Vijay Shekhar Sharma, founder of One97 Communications which runs Paytm, told Business Standard that Paytm was all set to be one of the top players in e-commerce by end of this year, not withstanding the entry of large brick and mortar groups into the area. Since its foray into e-commerce in April 2014, Paytm has touched an annual run rate GMV (gross merchandise volume) of Rs 9,000 crore, according to Sharma. (Run rate is an estimation of future financial data assuming the present trend continues.) Paytm is targeting Rs 25,000 crore to Rs 30,000 crore GMV by end of 2015. The Alibaba factor will help - in fact founder Jack Ma is likely to be in India around the end of July to announce concrete India plans, it is learnt. In February, Ant Financial, the finance arm of Alibaba, had invested about $500 million for a 25 per cent stake in Paytm.

Even as Paytm, along with Alibaba, is aiming to be among the top, experts said whatever the level of competition, market leader Flipkart is unlikely to allow anybody else to grab its place anytime soon. A major advantage with Flipkart is that while its chunkiest segment is electronics and mobile phones, its fashion business got a push with the acquisition of Myntra last year. Electronics and fashion are the primary categories in e-commerce now. Sources in Flipkart had indicated earlier this year that the company was looking at doubling its GMV from $4 billion Rs 24,000 crore) to $8 billion Rs 48,000 crore) by December 2015. Some reports suggested that the company could exceed its target by year-end.

According to Mukesh Bansal, who founded Myntra and is now part of the core management team at Flipkart, the e-commerce leader in India was expected to hold 70-80 per cent of the market in the next four to five years. From holding an estimated 50 per cent of the market share now, Flipkart-Myntra is jointly targeting that goal, sources said. Incidentally, Alibaba's market share in Chinese e-commerce now is around 80 per cent.

Where does Amazon, which is fighting Walmart's online thrust in the US, stand then in the rejigged e-commerce space in India? A top executive with an e-commerce company argued that Amazon was not seen as an aggressive player in India. He added that Amazon has been successful in the US but not much outside the home country. Although it's too early to conclude on who will be the winner, Amazon's position on competition has been constant. Amit Agarwal, India head of Amazon, replying to this newspaper's query on whether the company aspired to be the number one player in this country, said recently, "We are very focused on being a customer-centric company. We want to be the number one company from that perspective. If you take a long-term outlook, that should translate into other meaningful outputs that you are talking about.''

Even if the traditional brick-and-mortar businesses make their e-commerce foray in the next six months, the current online players will continue to raise more capital and go on with their billion-dollar sales for some time, according to Arvind Singhal, founder, Technopak, a retail consultancy. Execution of the e-commerce business by the big groups will determine whether they would succeed or not, he said, adding that consumers will have a good time with far more deals and better services over the next one year or so. "The real action will unfold in the second half of 2016, with an all-out battle for the digital wallet of the consumer.'' Also, Singhal said a comparison with Amazon-Walmart competition in the US was not fair because Walmart has been an extremely strong player in America, while physical retail never took off in India.

Besides coming as a bonanza for the buyer, offline's entry into online would also mean high growth for e-commerce, KPMG's Mohit Bahl said. It may also bring more stability in the business model in e-commerce. Perhaps, the large businesses will evolve their own approach, rather than sticking to the GMV and run rate format popularised by the current lot.

As for the traditional businesses, they are mostly experimenting with e-commerce. Future Group founder and Chief Executive Kishore Biyani, after recently acquiring a majority stake in Bharti group's retail business EasyDay, said, "For us, it is all about selling a product to the consumer … by whichever means. You could use technology or physical stores. Globally, the best models that are scalable and profitable are a combination of physical and digital - omni."

Reliance Retail, the only one in this industry to make a profit, is planning its "next phase of building a high-growth trajectory supported by e-commerce and larger geographic coverage," RIL chairman Mukesh Ambani told shareholders at the company's AGM earlier this month. He pointed out that the group would leverage Jio (the group's telecom venture) as well as its physical retail, to create a differentiated e-commerce model for India.

The Aditya Birla group, also spotting opportunity in e-commerce, got online grocer Zop Now as its technology partner recently. The group might go beyond food and grocery, too.

The Tatas, too, are working on its online business, though not much is known about how it will unfold except that it will be in the marketplace format and will be launched under Tata Industries, a subsidiary of Tata Sons. But, it is Ratan Tata, the chairman emeritus of Tata Sons, who has been in the news for the past one year for making investments in his personal capacity in a series of e-commerce companies such as Snapdeal, Paytm, Urban Ladder and Bluestone.

  • Reliance Retail is planning its 'next phase of building a high-growth trajectory supported by e-commerce and larger geographic coverage'. It would leverage Jio (telecom arm) and its physical retail to create an e-commerce model
  • The Aditya Birla group, also spotting opportunity in e-commerce, got online grocer Zop Now as its technology partner recently. The group might go beyond food and grocery, too
  • Tata Industries, a subsidiary of Tata Sons, might enter the online business through a marketplace format. Ratan Tata has invested in e-commerce companies such as Snapdeal, Paytm, Urban Ladder and Bluestone

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