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November 25, 2015
The Emergence of eCommerce in India
By: Nipun Mundoor & Dinesh Natarajan

With Thanksgiving around the corner and shopping frenzy reaching fever pitch, targeted ads for slashed prices are a ubiquitous online presence. US markets are gearing up for the start of the busiest shopping season of the year. Online shopping continues to gain share of the total discretionary retail in China, the US and other countries. Capitalizing on these trends Amazon, the largest online retailer in the country posted an anomalous annual profit. More recently Alibaba netted in a staggering $14.3 billion on singles day in the largest online retail promotion in the world. With these two markets approaching maturity rapidly, e-retailers are looking at India as the next target with the top ones engaged in a tough competition.

eCommerce in India is still in its infancy. It totaled $3.5 billion in 2014 up 47.6 percent from 2013. It holds a miniscule portion (1%) of the total retail market. For comparison below are the top 10 ecommerce market statistics for 2014.

Country eCommerce sales 2014 (B) Increase
from 2013
% of total retail sales Top online retailer
China $426.25 35.0% 10.1% Alibaba
USA $305.65 15.7% 6.5% Amazon
UK $82.00 16.5% 13.0% Amazon
Japan $70.83 14.0% 4.9% Rakuten
Germany $63.38 22.1% 7.3% Amazon
France $38.36 12.1% 4.6% Odigeo
South Korea $33.11 13.0% 9.0% Coupang
Canada $24.63 17.4% 5.2% Amazon
Russia $17.47 16.0% 2.2%
Brazil $16.28 22.0% 3.8% B2W Digital


This is partly due to low internet penetration in India (18%) as compared to the US (87%). But also shows the tremendous opportunity for growth in the sector. Gartner estimates the size of the e-commerce business in India will reach $6 billion by the end of 2015. In the month of October this year, [Names Redacted], two of India’s largest retailers announced the “The Great Indian Festive Sale” and “Big Billion Day” respectively, a 3 day extravaganza offering deep discounts. The combined revenue for the events is said to be around $1 billion.

There are other characteristics in the Indian context which stand out the in contrast to the industry in the US. For instance, [Name Redacted] is indigenous to Indian e-commerce. Even though e-retailers are trying to lure them to buy online through heavy discounting, consumers are still wary of making prepaid orders.

In the US, users generally go with prepayment, this is due to the fact that penetration of credit card and electronic payment is highly evolved in the market, while in India, despite the estimated 1.252 billion strong population of India, only 18.8 million credit cards existed in the country, with approximately 331 million debit cards till last year. This might change as the current government is taking initiatives to move the country towards a cashless society. But until then, the popularity of CoD will be dependent on the trust online retailers cultivate with the customers.

Another attribute where the two markets differ is in Logistics. The logistics infrastructure is not up to the mark in India. None of the dedicated e-retail companies have been able to scale up their operations to reach all zipcodes in the country. Yet, in the operating geographies most of the companies offer features such as hourly doorstep delivery and zero shipping costs.

In addition to these, government policies haven’t matured to the online businesses. The issue of Foreign Direct Investment (FDI) guidelines in retail until recently has been unclear, even in that case the policies do not differentiate online business from the traditional brick and mortar. FDI within the business-to-consumer (B2C) eCommerce segment is not allowed whereas foreign investment in the business-to-business (B2B) eCommerce segment is allowed. This means that inventory led e-retailing model cannot attract FDI whereas market-place based e-retailing model can still attract FDI. In light of this, players like 

[Name Redacted] entered Indian markets using the marketplace business model with the supplier storing inventory on the company’s behalf. [Name Redacted] on the other hand, being a homegrown company, follows an inventory-led model and thus has a better control over its supply chain.

Evolving Trends:

  • Grocery retail: One area where India is lacking is online grocery retail. But now there are startups such as [Name Redacted] which are getting traction in the country. The grocery sector in India is still largely dominated by unorganized retail. This is one area which e-commerce would be able to make a difference and eventually take over.

  • Evolution of 3PLs: The growth of logistics providers in India will certainly provide help to the Indian e-retailers. This will lead to rationalizing delivery costs and overcoming infrastructure bottlenecks by allowing for deeper market penetration

  • Implementation of GST: Currently 90% of online purchases in India are fulfilled by air shipping; this is certainly not viable in the long run. The implementation of the Goods and Service Tax (GST), a uniform taxation law across the country, will change the way companies practice warehousing. This will lead to e-retailers moving closer to the consumption centers and thus cutting down on delivery costs.

  • FDI in retail: None of the e-retailing companies are currently profitable. The wafer thin margins on which they operate and the deep discounts they are forced to provide for fear of losing market share has slowed down upgradation of their sub-optimal infrastructure. FDI allowance will certainly reduce the market’s infrastructure woes and lead to more robust supply chains

  • Dynamic Pricing: India is a hyper competitive and a highly price sensitive market. Companies must develop the infrastructure and expertise to achieve real time dynamic pricing and respond to market changes faster. We have been working on price optimization  with e-retailers and have seen a huge impact on their ability to survive while providing the value to their customers. Development of pricing engines will be key moving forward.

With the rapid penetration of broadband services throughout the country, there is flourishing pan-India demand for eCommerce. The next few years will certainly be an exciting period for the industry.

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