Online retail grows in India

26 July 2012

NEW DELHI: Ecommerce sales are expected to rise by more than 30% a year in India going forward, but companies seeking to take advantage of this trend face numerous obstacles.

According to a study by the consultancy, the value of the online retail market expanded by 34% a year on average since 2005, hitting $930m in 2011, although this figure still only equated to 1% of retail sales.

Looking ahead, the organisation predicted that the sector should maintain this growth trajectory, with returns reaching $1.4bn in 2012 and $2.1bn in 2015.

Rising internet penetration, today standing at just 8.4% from a population of 1.3bn, will support this process. Even by the end of the forecast period, a modest 38m people are due to shop online.

The growing availability of debit cards may prove equally beneficial in a market where 90% of retail sales are made in cash, as are 80% of ecommerce purchases, with consumers paying upon delivery.

Some 200m people now use debit cards, up from 50m in 2005/06. Less than 1% of shoppers, however, have credit cards.

More specifically, McKinsey reported that the travel indsutry has already been profoundly influenced by the web, with $7bn of the category's $23bn revenues attributable to this medium.

At present, the two leading internet-based travel providers are MakemyTrip, with a 48% share, and Yatra, on 30%. Elsewhere, 40% of train bookings currently come via Indian Railways' website.

"The online travel market is ideally suited to Indian conditions, because tickets can be downloaded, and thus the sector does not have to deal with the transport and logistical problems that loom so large for other products," the analysis suggested.

In a similar fashion to overseas nations, books, mobile phones, consumer electronics and computer hardware are additional segments that have gained early momentum in the ecommerce space.

This channel remains deeply fragmented, however. The largest players include pure-plays like Flipkart and Infibeam, alongside the digital arms of bricks and mortar chains such as Next and Shoppers Stop.

Competing with these platforms are niche sites including Perfume2order and Caratlane and deal aggregators like Snapdeal and Crazeal. Firms like Indiatimes Shopping also run online hubs for many foreign companies, which then distribute goods directly.

The main consequence of this situation has been fierce price competition, which is doubly damaging given the high cost of distribution, and major logistical challenges outside India's biggest cities.

Data sourced from McKinsey; additional content by Warc staff