By Sidhant Srivastava

Edited by Nidhi Singh, Junior Editor, The Indian Economist

If this article would have been published a decade ago, a lot of you would have thought that the word ‘tailors’ has been misspelled as ‘tailers’. The E-Commerce sector was still in its nascent stages in India and the concept of e-retail was quite nouvelle.

What is interesting though in India is that the entire evolution of e-commerce happened over the past decade. In advanced markets like the U.S., it took over 50-60 years.

Initially there was organized big-box retail, then catalogue shopping, then TV shopping, Internet and then the mobile shopping. In India, this entire journey is compressed into ten years, and it is moving forward quite rapidly. Industry statistics talk of a 55-60 per cent year-on-year growth, and is expected to grow from from 224 billion rupees in 2013-14 to 334 billion rupees in 2014-15 to 504 billion rupees in 2015-16 as predicted by a report by CRISIL.

 India is at the cusp of a digital revolution. The internet has become an integral part of the growing urban Indian population. Various factorslike declining broadband subscription prices, launch of 3G services leading to an ever-increasing number of “netizens”, urban India’s changing lifestyle, the convenience of online shopping, changes in the supporting ecosystem, have been driving this trend.

The e-retail segment has evolved and grown significantly over the past few years. Cash-on-delivery has been one of the key growth drivers and is touted to have accounted for 50% to 80% of online retail sales. Players have adopted new business models including stock-and-sell and group buying.

As the online retail sector was establishing its presence in the Indian market, there was a skepticism as to whether it will lead to the end of small merchants. Ironically though, these miniscule brick-and-mortar sellers are proving to be the foundation on which the structure of India’s online retail industry is being built.

Earlier companies in the e-retail sector were constructing inventory-led model, where they would buy the goods from the producer, store the inventory in large warehouses and deliver them directly to the consumers. But the government intervened, preventing foreign investment in the inventory based e-commerce model, thus the marketplace model came at the centre of action.

“I don’t think we would have grown this fast if we had chosen another model,” says Sandeep Komaravelly, senior vice president of marketing at Snapdeal, which started off in 2010 as a group buying portal but pivoted to the marketplace model the next year itself. The company expects to sell goods worth $1 billion in the year to March 2015. Such a model is popular in countries like Brazil and China, where small merchants dominate the market.

Flipkart which converted to the market based model just a year ago, believes that growth in this period has been ‘remarkable’. The Bangalore-based company links 4000 thousand merchants to have seen daily shipments jump from 60,000 to over 1.5 lakh in a year.

Even Amazon, which stocks inventory in its home market, the United States, is relying on the merchant marketplace model to grow in India.

Recently, although foreign investments have been allowed in the inventory-led model, but the companies after seeing the success of the marketplace model are so committed to the merchants that they won’t abandon the model, they might shift to a hybrid model.

Companies are already doing this. Amazon, for example, allows the merchants to store products in the company’s warehouses for a nominal fee. It handles packaging and delivery through its own network and through third party logistics firms and is able to deliver the majority of the products the very next day. Snapdeal and Flipkart are working on similar lines.

The phenomenal growth of the e-retail sector is accompanied by certain challenges such as absence of e-Commerce laws, low entry barriers leading to reduced competitive advantages, rapidly changing business models, urban phenomenon, shortage of manpower, customer loyalty.

India now has more than 200 million Internet users, with 89 million users visiting online shopping sites. The challenge though is that the number of people actually shopping is a fraction of that, at 14-15 million. That is because in developed markets, infrastructure was quite developed by the time e-commerce came in. People had credit cards, the market had gone through TV shopping, catalogue shopping, etc. In India, all that is new.

However, e-retail is set to continue on its growth path on the back of the stabilization of the ecosystem and interest demonstrated by VC players, combined with support from the Government of India (GoI).

 Sidhant graduated from IIT and discovered his creative bent of mind towards writing after having a near death accident, he had never thought of taking his writing to a professional level. He started blogging just last year, but got an amazing response to his blogs (http://ihavenothingelseto.blogspot.in), he then joined a fashion and lifestyle magazine as the sub editor. He is more than happy to contribute insightful articles on diversified topics to The Indian Economist.

Posted by The Indian Economist | For the Curious Mind