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Indian ecommerce put in perspective

News, 17 February 2015

NEW DELHI: Online retailing in India is set to multiply almost eightfold in the next five years but it will still be a long, long way from threatening the dominance of traditional retailers, a new report has said.

eCommerce in India: Accelerating growth, from consulting firm PWC, confirmed the speed of growth in ecommerce in India, but also put that in perspective by pointing out it would still only account for 3% of all retail expenditure by 2020, up from 0.4% in 2014.

This was, it said, "minuscule" compared to the other Asian giant – online retailing already takes a share of 8% to 10% in China.

The great majority of retail sales in India are made through independent retailers and this will continue to be the case for some years yet: their current share of 91.6% is likely to drop by more than eight percentage points over the next five years to 83%.

Most of that loss in share will not be taken by online retailing so much as by rival modern bricks-and-mortar retailing. The latter's share is projected to grow from 8% to 14% over the same period.

PWC drew attention to the various technical and logistical issues that were hampering online retailers, including poor last-mile connectivity, low profitability, regulatory barriers and a shortage of skilled staff.

The solutions to some factors that initially held back the market have only raised new ones. With Indian consumers unwilling or unable to pay online by card, cash-on-delivery services were seen as the answer but these have imposed financial costs on retailers, the report said.

Profitability has also been affected by the offer of free shipping and a high rejection rate on those cash-on-delivery orders.

A separate report from consumer advice firm Akosha highlighted some of the difficulties that come with rapid growth, as Indian consumers are now filing more complaints against ecommerce businesses (21%) than any other category; telecom attracted 14% of complaints, banking, finance & insurance 11%.

And most of these complaints were related to delays in delivery, delivery of the wrong product, refunds, replacements, cancellations and product availability.

These are also amongst the external and internal challenges facing ecommerce players which PWC identified as being necessary to address to drive future growth in the sector.

Data sourced from PricewaterhouseCoopers, Economic Times; additional content by Warc staff