History
While most of the world was celebrating the new year 2019, retail e-commerce players in India were trying to figure out ways to comply with a new policy. This policy was planned to have holistic growth approach for smaller players in India. While e-commerce players have survived policy shock, times ahead are expected to be even more challenging. They have lost many exclusivity deals. The major revenue earner electronics space is no more a safe bet anymore.
Walmart made its grand entry by investing heavily in Flipkart, with its long-awaited India arrival. Previously it tried various means to enter the market and failed badly. With a set market and completely online strategy, investment in Flipkart might turn out to be a good bet.
Retail e-commerce has enjoyed an early boom, but the times are changing now. We have seen good consolidation happening in this space. Flipkart acquired Myntra and Jabong. Shopclues is in discussion of acquisition with Snapdeal. Since customer base seems to have been saturated acquisition spree is expected to continue. Also, it is becoming highly affordable for e-commerce players to keep shelling out higher discounts.
Smaller players like Shop-Clues, Craftsvilla, Voonik, Wooplr and Elanic, basis a report by Economic Times, are planning to shut down. These could become easy acquisition targets. These small players have a small customer base. Also, for smaller players, without economies of scale, delivery cost is a challenge.These small players end up spending roughly Rs 65 on product delivery and Rs 75 on reverse logistics. Basically spending Rs 140 for no business. Such a steep cost hits the business hard.
Competition has become even more challenging with Chinese giants like Aliexpress shipping their products to India. The Indian government has been quick to respond to such imports and has become vigilant on such transactions.
What about sustainable Growth?
Its been close to 10 years for e-commerce in India and the real struggle has just started. A financial analyst who was initially gung-ho has started giving out cautious statements. Morgan Stanley has revised its estimates for the Indian e-commerce sector, citing a number of reasons for doing so. It now expects the Indian online retail market to touch the USD 200 billion mark only in 2027, as against its initial estimate of 2026. While all reports talking of top line, bottom-line still remains a big question. Heavy discounts and high customer acquisition costs may work in short run. When we look at it from long run standpoint, these costs are unsustainable.
Economies of scale and efficiency could help with a reduced average fixed cost per transaction, However, if that was the case, most prominent players in the US would have been profitable by now. Amazon retail took close to 15 years for its first profit. This is despite enjoying a formidable market share in the US.
Many players have made strategic focus shift on payment front. Most players now have their own digital wallets or are high on UPI. This shift in strategy is mainly because of maximum transactions still being cash on delivery. Loyalty and stickiness is another strategic goal, however, users still opt for cost-effective deals over small cashback incentives.
Road Ahead
Now that Reliance is anticipated to have a grand entry in Indian markets, disruption is due. Reliance has disrupted Indian telecom markets earlier and is certain to make a big bang in retail e-commerce space as well. Reliance retail has a significant presence in India. It has acquired big brands, has tie-ups with the likes of Marks and Spencer. To aid its digital journey, it has acquired a virtual assistant specialist Haptik.
With the Modi government 2.0 in place, they will work on the agenda of reviving small retailers business. This idea might further lead to difficulties for e-commerce players.
For sustainable growth and turning profitable e-commerce players will have to find their niche. This niche should be so strong that they can defend their business. Should also have a limited number of players in their niche. And most importantly provide enough business to be even relevant.
Also Read — Is India ready for Walmart
References
https://dazeinfo.com/2019/02/21/india-ecommerce-market-growth-2027/
http://www.forbesindia.com/article/10th-anniversary-special/ecommerce-what-the-past-10-years-mean-for-the-future/53513/1
economictimes.indiatimes.com/articleshow/69350876.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
https://www.pwc.in/research-insights/2018/propelling-india-towards-global-leadership-in-e-commerce.html
economictimes.indiatimes.com/articleshow/68288868.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
https://go.forrester.com/blogs/indias-ecommerce-firms-brace-for-additional-losses/
economictimes.indiatimes.com/articleshow/69140573.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
