Monday, March 26, 2012
Small-town India fuels rise of online shopping
This was before Verma discovered online shopping. Six years ago, he first used Flipkart.com, currently India's largest online retailer of books and has been hooked to it ever since. Now he buys almost all his books and gadgets online.
"It is convenient," Verma says. "You get stuff at competitive prices that you will not find in local stores."
A new report by the Boston Consulting Group says online retail in India could be a $84-billion industry by 2016 --more than ten times its worth in 2010 -- and will account for 4.5 percent of total retail. E-commerce entrepreneurs and experts say small-town India will play a big role in the online bonanza.
Balendu Shrivastava, Group Business Director, Internet & Mobile Association of India, says more than 60 percent of online shoppers would come from beyond the top 8 metros by the end of 2012.
Organized retail is hardly a pan-India phenomenon and large chains make up less than 10 percent of the market. As a result, smaller towns often don't have access to the merchandise available in metros such as Bangalore or Mumbai.
Internet and online retail sites have emerged as the great leveller. India has become the third-largest Internet market, based on the total number of users, and 60 percent of these come from smaller towns.
"Internet penetration ... has allowed online consumers to actually get access to the same selection, pricing, discount and deals, that so far was available to their cousins in larger cities," says K. Vaitheeswaran, CEO of Indiaplaza.com.
Besides books, online shoppers in India buy goods such as lingerie and jewellery, said Kunal Bahl, co-founder of Snapdeal.com.
"Where will you find Victoria's Secrets in place like Bhatinda?" says Bahl, whose site offers daily deals and is considered India's Groupon.
"However, Bhatinda is also very rich and people have aspirations to these products," he said, referring to India's rising middle-class.
India has one of the world's youngest Internet population, with 75 percent of users under 35, and many of them have much more disposable income than their parents did.
For many Indians, booking railway tickets online was their introduction to Internet shopping. The government railways ticket booking portal irctc.co.in and travel firm MakeMyTrip Ltd, which is listed on NASDAQ, revolutionised the travel industry at a time when buying train tickets meant waiting for long hours at railway counters.
"I keep telling people that IRCTC created e-commerce in India first," says Alok Kejriwal, CEO of online gaming company Games2win. "...and with that the government solved the biggest problem on earth, and that is buying tickets."
More than a decade after MakeMyTrip was founded, 75 percent of the B2C online market is still dominated by the travel industry, according to a Dec 2011 study by Edelweiss.
But the same study expects the next leg of e-consumption to be driven by apparel, books and consumer goods.
Already, it is the non-travel Snapdeal.com that gets the highest traffic in India among e-commerce sites.
Apart from offering discounted and fast service, such sites have also provided a national platform to regional merchants by selling their products online.
"India is a country of micro entrepreneurs," says Snapdeal's Bahl. "We are enabling these ... unknown brands of local merchants to get access to consumers across the country."
While many of India's e-commerce sites have been inspired by successful models abroad such as Amazon, most have had to improvise to survive locally. The biggest departure from the western model has been offering cash-on-delivery for products.
"A lot of people do not understand how to use a credit card," says Rohit Bansal, co-founder of Snapdeal.
Shashank Tiwari is a 25-year-old mining engineer in Jharkhand. In his neighbourhood, there are no shopping malls, cinema halls or bookstores. He calls it one of the most "backward" districts in India, and none of the online retailers deliver there. He has to travel almost three hours to collect his shipments.
E-commerce companies rely on courier service providers to deliver their goods. An Edelweiss study says that only about 10,000 of over 150,000 pin codes in India are covered by these delivery services -- leaving out a huge chunk of the country.
"Areas not served by logistics companies will not be able to participate in online commerce or else, ecommerce companies will have to extend their backend for additional coverage," the report said.
But reworking the supply-chain can add to the financial burden on e-commerce sites, which critics claim are already unprofitable because of the heavy discounts they offer to attract customers.
"The people who are financing and managing this industry ... have lost track of what real business is," says Kejriwal of Games2win. "The same goods are being sold by zillions of people and there is no price control."
The lack of a money-making business model makes these sites vulnerable to bankruptcy or acquisition. Amazon's entry into India, with the website Junglee.com, makes the competition even fiercer.
Business owners say that Amazon's entry validates the Indian e-commerce industry and they can learn a lot about the business from the world's biggest online retailer.
As the online battle heats up, tech experts say the coming year would be a time of Darwinian struggle, where few winners would emerge.
"Next 12-18 months, you will see a lot of consolidations happening in the industry," says Vaitheeswaran.