Thursday 26 October 2017

Will Indian e-commerce ever match up to the Chinese dragon?

The Indian e-tail market is less than 2 percent that of China, and there are hopes it will catch up. Research, however, highlights the vast difference.
India’s online retail industry has taken up significant space in the investor wallet and mind over the past decade. It has also seen some of the largest funding deals, with Flipkart’s almost-$4 billion funding this year leading the pack. A look at the infographic below will make it clear that India’s e-tail industry is still nascent, and tiny, compared with China’s, the largest online retail market in the world.
It is not just the difference in size of the markets. The consumer base too is drastically different. While China had 460 million online shoppers in 2016, India had only 69 million. By 2020, China will have 660 million online shoppers according to a report by Goldman Sachs, while India will have 175 million according to a study by Google and AT Kearney.
Hope that made foreign investors and companies like Amazon and Alibaba will pump in billions of dollars into the Indian market is strong and the logic straightforward - Indian e-tail is in its infancy and it is best to get in at the ground floor and ride to the top.
A number of India e-tail proponents have, in the past, opined that India today is at the stage China was a decade ago, and that the latter’s super-fast growth came in over the last 10 years. So, India, the reasoning goes, will grow like China did in the last decade.
But will that happen? The Indian e-tail industry’s growth rate came down drastically last year. After growing at 180 percent in 2015, the industry grew at only 12 percent last year, and is projected to grow at 20 percent this year, according to RedSeer Consulting. The industry in China is expected to grow at 23 percent CAGR until 2020. This, despite China being a much more mature market.
A few data points add to the worry that this slow growth is what’s the future of the e-commerce. The average spend per user is drastically different. While the average annual e-commerce spending per consumer in China is forecast to cross $1,800 (around Rs 1.17 lakh) this year, according to data from iResearch Consulting Group, for India this number is between $120 and $140 (Rs 7,800 to Rs 9,000), according to RedSeer Consulting. In 2010, China’s average consumer spend on e-commerce was already much higher at around $600 (around Rs 38,900).
Also, the assumption is that as more Indians get access to internet, more online shopping will be seen. But, India already has 430 million people with access to internet. China has about 750 million. This means about 16 percent of those with access to internet shopped online in India. While 61 percent of those with internet access in China shopped online.
China also had a manufacturing industry boom that led to drastic improvement in income levels across the country. This has not happened in India. China’s GDP per capita in 2007 was around $3,480, while India’s was around $1,860 in 2016.
These issues raise questions over whether e-tail growth will pick up in coming years in India. If it doesn’t, what happens to the billions of dollars that have been pumped in – just Flipkart has raised round $7 billion in the past decade.
Do you think Indian e-commerce will grow like the industry did in China? Share your thoughts in the comments section below.

Wednesday 25 October 2017

Why India's e-commerce pioneer does not see Flipkart turning profitable. Ever

Flipkart's triumph over Amazon India during seasonal sales may still be in the realm of conjecture, but India's e-commerce pioneer is worried for the homegrown online retailer for other reasons too.

The founder of India's first e-commerce platform Indiaplaza does not see Flipkart turning profitable - ever.

"Both are burning cash to acquire customers during their respective sale festivals, but I would worry more about Flipkart," says K Vaitheeswaran. "Amazon runs a profitable business worldwide and has a steady flow of cash to take on newer markets. They can afford to lose money - not Flipkart," he adds.

With e-commerce possibly not the bulwark for the Seattle-based company that runs a successful on-demand cloud computing platform, it may be a tall order for a ten-year-old startup to compete on both financial and technical grounds.

"In addition to AWS, its e-commerce vertical is also successful in many markets across the world," he goes on to add. "And the company will do whatever it takes to win this market too. Even if it comes at the cost of losing money for the next 10-15 years, it will not greatly impact their bottomline anyway," he adds.

According to Vaitheeswaran, what Amazon is spending in India is just a small fraction of what it is making around the world. "It is Flipkart which continues to go into a bottomless pit," he says. "Although they raised $2 billion recently, their spending structure puts them in a difficult position from a financial point of view," he adds.

Why sales are logical, but risky
Vaitheeswaran's entrepreneurial experience taught him that consumers have two kinds of spending habits - one that is need-based and the other which is impulsive. And festive season is when 40% of impulsive buys of the year happen - an opportunity e-commerce players cannot ignore.

"This makes it an apt time for them to acquire new customers, who can be lured with good merchandise at discounted rates," ..  he says. "So on the face of it, it makes sense. But most of them are temporary customers who will move away from the platform when deep discounts disappear," he adds.

He expounds thus: "Say, a company spends a lot to acquire 'x' number of customers. When discounts stop, at least half will go away from the platform. When that happens, the cost of acquiring those customers doubles. Even without that, it is very difficult for a company like Flipkart to ever make profits." 

However, according to the author of 'Failing to Succeed', customers who appreciate the unmatched convenience that an e-commerce platform offers would transact even without discounts and deals.

"These customers prioritise selection and ease of delivery over pricing," he says. "But a sale typically brings in more temporary customers, and that is my worry," he adds.

How to build a profitable business
According to Vaitheeswaran, e-commerce businesses should be built organically. This means that every transaction that is made on the platform should be profitable.

"This can be done by focusing on selection, convenience, delivery and great customer experience," he says. "In other words, a company should build its business based on permanent customers. One cannot build a sustainable business around temporary ones," he adds. 

Secondly, they must ask themselves what they can do to make people shop with them 'instead' on their rival's platform - not 'also'.

"This is the fundamental question which has bogged me for the last 10 years," says Vaitheeswaran. "The answer to that will have a mix of merchandising and convenience and never pricing," he adds.

Thirdly, a company should go back to the boardroom and decide whether they want to make profits at all. 

"I vaguely remember reading something about Flipkart not even planning to make profits, and seeing burning money as part of the strategy. I am not saying that they will make profits if they plan to - but what I know for sure is that they will never stand a chance to make profits if they do not plan it," he says.

Commonly dubbed the founder of India's first e-commerce company, Vaitheeswaran seems absolutely sure that its top rival in India will continue to provide outstanding customer experience. "They are not going to run out of money. More importantly, the key reason why Amazon has succeeded in building non-ecommerce businesses as well is because they truly are a tech company. They are creating things and innovating along the way - Flipkart is not," he says.

He also does not see Flipkart growing a profitable global business outside its turf such that they will be able to subsidize its e-commerce business in India.

"Flipkart essentially has been reproducing and in a sense copying what Amazon has done in other parts of the world," he adds. "And even if it were to branch out to non-ecommerce businesses, I cannot see Flipkart creating a business that is so innovative which the Amazons or Googles or Microsofts of the world have not thought of already. It may be possible theoretically, but practically impossible," he further adds. 

Saturday 21 October 2017

How India's E-Commerce Players Prepare For The Diwali Shopping Frenzy

The advent of e-commerce in India has redefined the way Indians celebrate their average festival. In the last few months of the year, e-commerce majors such as Amazon, Flipkart, and Shopclues compete with one another by luring customers with attractive sales and offers. Over the years, this has led to an enhanced level of high efficiency in logistics players that are working day and night to ensure packages reach customers anywhere in India on or even ahead of time.
Amazon’s The Great Indian Festival Sale and Flipkart’s BigBillionDays kicked off the festive season rush earlier this year. Relentless sale offerings by almost every major e-commerce player have inundatedIn the last few months of the year, e-commerce majors such as Amazon, Flipkart, and Shopclues compete with one another by luring customers with attractive sales and offers. Over the years, this has led to an enhanced level of high efficiency in logistics players that are working day and night to ensure packages reach customers anywhere in India on or even ahead of time. the market as India celebrates some of its marquee festivals such as Dussehra and Diwali in the last few months of the year. Research by CouponRaja stated that Amazon, Flipkart and Shopclues dominated the festive season sale by comfortable margins due to steep discounts and largescale promotions. Transaction volumes and gross merchandise value (GMV) went up three times this year compared to 2016. Rohit Chugh, founder and CEO of Logicserve Group that operates CouponRaja says, This year's Diwali sale so far is testimony to the fact that online shopping is here not only to stay but also to grow rapidly. The developments in connectivity, reach, logistics and regulation are contributing to the evolution of e-commerce in India.”
Strengthening Logistics During Festive Season
Even as e-commerce sets new benchmarks for sale margins, this growth has been possible due to seamless planning and high-efficiency distribution networks. Akhil Saxena, vice-president of customer fulfilment at Amazon India, said, “We work backwards from the customer to ensure we are well prepared for the significant increase in volume we experience during the festive season. A significant chunk of our investments goes into building the logistics and fulfilment infrastructure in India, providing our customers with a fast and reliable delivery experience.”

Amazon India has invested in developing fulfilment centres across the country – in 2016, there were 27 of them with a storage capacity of 7.5 million cubic feet in 10 states. Today, they have 41 centres in 13 Indian states with a collective storage capacity of 13 million cubic feet. Ahead of the festive season, the company also expanded its service partner networks by 40%.
Logistics companies in India are constantly under pressure to deliver goods to consumers on time or even earlier than the expected date, for which a hassle-free logistics network is required. This has paved the way for high level technology innovation, designed to handle large volumes of demand during the festive season. Kapil Mahajan, chief information officer of Safexpress, which services e-commerce companies like Flipkart and Jabong, says, “The past couple of months have been very busy for us. We anticipated large sale volumes so we have streamlined operations to handle big loads.”
Safexpress, like many leading logistics companies in India that serve e-commerce companies, work with a sufficient load buffer during Dussehra, Diwali and Christmas. Mahajan believes technology plays a major role in enhancing efficiency of operations, especially with the use of systems such as waybill generation systems for invoices, real-time information sharing, GPRS-enabled smart delivery devices, transhipment route optimization and barcode identification.
Overcoming Challenges

Despite the intervention of advanced technology platforms, some challenges persist. Heavy rains in Bangalore and Hyderabad over the past month threw traffic out of gear and ruined the condition of several major roads, affecting planned operations of many logistics companies. Nishith Rastogi, CEO of Locus, which provides optimized algorithms to manage logistics for companies, says, “Some situations are unprecedented such as bad weather. The goal should be to anticipate such problems and map out back up plans. For instance, during heavy downpour, arterial roads will be clogged so our GPS systems instruct drivers to take a slightly longer but congestion-free route to reach their destinations. When technology takes over manual decision-making, load balancing is done more efficiently and with lesser bias.”

Tuesday 10 October 2017

Online groceries is the next battleground for e-commerce firms

BigBasket has its task cut out as Flipkart and Amazon are planning to enter the online groceries market in a big way, given the potential it holds. Photo: Hemant Mishra/Mint
BigBasket has its task cut out as Flipkart and Amazon are planning to enter the online groceries market in a big way, given the potential it holds. Photo: Hemant Mishra/Mint
Bengaluru: Even as Chinese e-commerce giant Alibaba Group Holding Ltd nears a deal to invest in BigBasket, the largest Indian online groceries start-up is set to face its toughest test with the expansion of Amazon India and the launch of Flipkart’s grocery business later this year.
According to experts tracking Indian e-commerce, online grocery sales have taken off slowly and grown sluggishly, and is forecast to barely reach $1 billion in 2017, according to market research firm RedSeer Consulting Pvt. Ltd. But given the high order volumes and repeat purchases of groceries, the sector is expected to be a key battleground for online retailers; the largest internet investors in India are betting that online groceries will turn into a multibillion-dollar category over the next three to five years.
“The online grocery space will be a big battleground in the near future—and given the high volumes of orders and repeat purchases in this space, it doesn’t make sense for any top online retailer not to have a presence in groceries,” said a partner at a top venture capital firm, which has a corpus of about $100 million. He requested anonymity.
In a report last week, RedSeer said that while 2016 was a challenging year for the online grocery segment, sales are likely to rebound by the end of 2017.
“After a challenging 2016 year, 2017 is on track to be a robust year for E-FMCG/Grocery market with 60% y-o-y growth likely. Sales have been driven largely by volume growth—which points to growing acceptance and penetration of online grocery among consumers. Additionally, AOV growth has also been significant, driven by increased share of cosmetics and other premium products in shopping basket,” said RedSeer.
FMCG is short for fast-moving consumer goods, jargon for products such as soaps and shampoos that sell quickly. AOV stands for average order value.
Despite the fact that the online grocery space has been slow to take off, India’s largest online retailers Amazon India and Flipkart are ramping up their plans for the sector. While Amazon India is already present in the consumer goods business, Flipkart is preparing to launch the grocery offering by the end of the year, after delaying it due to preparations for its flagship festive season sale, Big Billion Days.
During recent interviews and conversations, top executives at Flipkart indicated that the firm’s approach to groceries will be somewhat similar to that of BigBasket—and different from the strategy adopted by arch-rival Amazon. While Amazon offers a two-hour delivery service through its Amazon Now mobile app and encourages customers to buy staples on its platform as and when they need them, BigBasket encourages its customers to stock up on their weekly or monthly purchases at one go. Flipkart is attempting to replicate the latter approach and may launch a private label for groceries like BigBasket, according to two executives aware of the online retailer’s plans.
In February, Mint had first reported that Flipkart CEO Kalyan Krishnamurthy was betting big on groceries, hoping that sales of everyday household items will keep shoppers coming back to the company’s platform. As part of this plan, Krishnamurthy brought back two executives, Manish Kumar and Nitin Rajput, to help launch the new category.
Separately, BigBasket is currently in talks to raise roughly $200-300 million from Alibaba and digital payments start-up Paytm, even as it prepares to fight Amazon and Flipkart, according to two people aware of the discussions.
A Flipkart spokesperson declined to comment on the online retailer’s plans for the launch of its grocery business.
An Amazon India spokesperson said the company will continue to increase the number of products available on its platform. “We aim to be the ‘everything’ store—where customers can find any and all products that they are looking for,” she said.
BigBasket co-founder and CEO Hari Menon did not respond to an email seeking comment on the latest fundraising talks.
In a July interview, Amazon India’s head of consumables business, Saurabh Srivastava, had indicated that the company would invest heavily in the sector and launch in more cities over the coming months.
“The food ecosystem needs investment, technology and infrastructure—and since the government was interested in making sure that companies come in and invest in (building) that, we believe that there is value that we can add as a strong technology company,” Srivastava had said.
While investment in online groceries is one thing, making money from the business is another thing altogether.
“It’s very hard to make money in groceries, even with a private label approach like BigBasket. For any retailer to succeed in this space will require consistent investment and growth for a 5-10 year time frame,” said the venture capitalist cited earlier.

Friday 6 October 2017

Here is what may be in store for Flipkart, Amazon, Uber, Ola and others in India

The government is working on creating a model regulatory framework for e-commerce firms and cab aggregators for regulating the online marketplace.

ravi shankar prasad, e commerce, online marketingMinister of electronics and IT, and law Ravi Shankar Prasad.
The government is working on creating a model regulatory framework for e-commerce firms and cab aggregators for regulating the online marketplace. “E-commerce is rising in India phenomenally. It is being driven by rural aspirations and this component is around 56-60% of the entire e-commerce business. My department is framing a model e-commerce regulatory framework,” minister of electronics and IT, and law Ravi Shankar Prasad said on Thursday at the Express Group’s Idea Exchange programme.

He further said: “At times an initiative comes about and the law follows. But my take always is that if you start talking very much in regulatory terms at the outset, the flow ebbs. That’s how I see it. But since e-commerce today has come to stay, law must follow”.
Asked about the charge of predatory pricing in terms of rates of items such as smartphones selling at a cheaper price online than in offline stores, he said the job of the government is to forge some degree of consensus.
“It is not just the IT ministry’s domain, other ministries like commerce are also involved. Here, the issue is also about predatory pricing and the consumer getting better deals,” Prasad added.
On the progress in talks with Apple about the company’s plans for manufacturing handsets in India, he said it is a work in progress.
“The IT, finance and corporate affairs ministries are working on it. Let the process go on. As I have said earlier, India is a huge market and while you expect Apple to come here, Apple also needs to understand that India offers a big market and already so many iPhones are being used here,” the minister said.
Asked whether the government will look at the situation differently in Apple’s case since it is a company which is making hi-tech products, Prasad said it is a decision which is to be taken after discussions with other ministries.