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2015 Wrap up : The E-Trail

E-Retai l see ms to be gr owi ng like Pinocchi o’s nose, the New Year should bring hope that the wooden toy turns into a real and cheerful boy.

India is the third largest internet user base in the world with 354 millions accessing it. Even though its penetration is low as compared to US and UK, it is growing really fast adding around 6 million newcomers every month. This inflection along with affordability of smart phones and easy availability of low cost gadgets seem to be a facilitating factor for burgeoning e-commerce companies. Further, this growth story is being fueled by robust investments and M&A activity in the sector.

India’s internet market (gross merchandise value) was about $12.6 billion in 2013 out of which US$2.3 billion was travel related which is almost 70% of total market. CAGR vis-à-vis a global growth rate stands at about 8–10%. Electronics and Apparel remain the biggest selling categories. It is estimated that India Commerce companies combined GMV by close of this year will be over $12billion compared with $45 billion last year.

Last report from Morgan Stanley on E-tail in India revealed that Flipkart, founded in Oct 2017 led the pack with 44% market share at $6.3 billion. Snapdeal, started in 2010 follows at No.2 slot with 32% share and Amazon India launched in June 2013 owns a 15% market share and had touched $1 billion sale last year. Its parent company was started in 1994.

If we have to go by valuation as a significant milestone, in the first quarter of this year, seven Indian e-commerce companies namely Flipkart, Snapdeal, InMobi, Quikr, Amazon India, OlaCabs, and Paytm achieved a billiondollar valuation. While all three top players in online retailing made significant losses in triple digits of Crores (INR) last year, they seem to be on an acquiring spree consolidating players and market. As per analysts, the $200 billion investments in e-commerce last year were driven by sky-high valuations. The valuation of Flipkart sharply increased from $1.9 billion at the start of 2014 to reach $11 billion by the end of the year. It raised $1.9 billion in three rounds of fund raising despite incurring losses of around $4 billion. Similarly, Snapdeal saw its valuation increase from $350 million to $3 billion after raising funds of $850 million. The valuation can play a major role for an e-commerce player irrespective of the profitability of the company.

Pumpkin Hacking

pumpkinFlipkart partnered with Myntra at around $330 million dollars, bought the electronics retailer Letsbuy, the latter ceased to exist thereafter. It also acquired Chakpak, Bollywood content provider, Mime360 (Mallers Inc), a Mumbai based startup that offers exchange platform connecting content owners with content publishers, Weread.com and several other smaller businesses.

Parallel to this, Snapdeal was not far too behind. It had bought mobile recharge platform Free Charge in April for $450 million and in consecutive month it bought mobile technology platform MartMobi. Snapdeal raised around $1 billion in risk capital funding through acquisitions. There are almost a dozen acquisitions since its formation that Snapdeal undertook mirroring a strategic journey as per their business plans. In September 2015, PepperTap raised $36 million from Snapdeal and few others.

As for Amazon, in July it had said it will invest $2 billion (Rs 12,000 crore) in India to expand business, after its largest Indian rival Flipkart announced $1 billion in funding. In 2015, Amazon surpassed Walmart as the most valuable retailer in the United States by market capitalization. Last year it had announced additional US $2 Billion Investment in India.

Retail in India is at over $500 billion mark and consumption is $1.4 trillion. Retail is clearly a subset of consumption. E-tailers must keep the consumption and the consumers enchanted to be able to generate sales and in longer term eye profitability. Growth hack for each player will have to be necessarily unique to avoid bumping into each other. For example, the billion sale day in 2014 is believed to be a great traffic pull for Flipkart that had spent close to 80 Crores in promoting it. This year it is believed it had sold worth $300 million during the five days Big Billion event. This may have been their growth hack so far. Flipkart after electronics and fashion now wants to enter furniture and also improve its supply chain.

Amazon brought globally tested services:
a) Pay with Amazon which addresses payment costs
b) Access to warehouse, space, picking, packaging, delivery, return services for sellers or resellers, if seller has a warehouse, they can use ‘Easy Ship’, its shipping product.
It has already started a separate B2B web platform for mall and modern businesses to buy bulk quantities from them. Amazon also gained significant market share ahead of the key Diwali period this year. Its sales grew more than fourfold in the June quarter owing to unit sales surging more than 500%. India is a volume market. The sales growth numbers also highlight a key part of Amazon India’s customer acquisition strategy of luring online shoppers with lower-priced products such as books, and gradually selling smartphones and then other costlier items. They have grown really fast in India and today they have more than 25 million products for sale on their website which is larger than their major rival Flipkart. Amazon has also entered grocery segment with its Kirana now in Bangalore and is also planning to enter in various other cities like Delhi, Mumbai and Chennai and faces stiff competition with Indian startups. On the other hand, over the past year, Flipkart and Snapdeal have increasingly shifted their focus towards higher-priced products such as smartphones and home appliances. Snapdeal is also focusing on faster delivery. Snapdeal has brought down its delivery time as low as 4 hours in few cities. All the three players are aggressively stocking up on sellers and products.

Basics to stay put, new to unfold

It is given that there should be more variety and more choices at lowest of prices possible. Logistics must be simple to propel ease of purchase and fast delivery. In India, cash on delivery remains the most preferred payment method, accumulating 75% of the e-retail activities. With more and more awareness and credibility being established of alternative methods of payment, we should be able to see this buying behavior also undergoing a gradual change.

Content Marketing, SEO / SEM marketing has seen a new avatar in digital marketing space. Great Online Shopping Festival (GOSF) was kicked off in Dec 2012 when Google India partnered with e-commerce companies including Flipkart, HomeShop18, Snapdeal, Indiatimes shopping and Makemytrip. There has been ambush marketing loud and clear to make things look exciting and thrust sales.

We have seen that during the year round, what trended well vis-à-vis brick and mortar in this sector was availability of wider range of products from direct imports to ones that are long tail in distribution i.e. niche players like BabyOye and Ekstop coming at the forefront and getting acquired. The former got acquired by Mahindra Retail, part of the $17 billion dollar Mahindra Group. Ekstop was acquired by the Godrej Group to complement their offline chain of Nature’s Basket stores. Some remained popular through the year like Urban Ladder, Pepperfry, Peppertap etc. Some like localbaniya and few other food tech startups like Tinyowl and Foodpanda were also in limelight but for not so good reasons.

There is also seen an increased usage of online classified sites, with more consumers buying and selling second-hand goods. Another big segment in e-commerce is mobile recharge with nearly 1 million transactions daily by operator websites. Also, online medicine as a growing category has been well observed. Companies like Reckwing- India, Healthkart, NetMed already selling complementary and alternative medicine. This may be due to the fact that there are no dedicated online pharmacy laws in India and it is permissible to sell prescription medicine online with a legitimate license. Textile and fashion has over 25% sale through ecommerce, Consumer durable still remains elusive at around 3-4% as consumers still feel the need to touch and feel items of high value like refrigerators and air- conditioners.

 

Woodpecking the extra nose

 

Infrastructure has remained of primary concern to both frontrunners and investors in this sector. In terms of data servers and hosting, it is not so great in India owing to security or protection threats. Trends are slowly seen changing with some of Ecommerce companies starting to offer SaaS with minimal one-time costs.

 

Though the sector has witnessed tremendous growth and is expected to grow exponentially, a lot of e-commerce ventures have faced tremendous pressure to ensure cash flows and hence even few promising ones have failed. The sector seems like Pinocchio, when under stress its nose grows out of proportion. Globally Alibaba stock prices plunged on account of slowing growth and questioned accounting policies and business model. Its stocks plummeted from $250 billion to $160 billion this year. The worry is spreading in India, how long can the online businesses continue to bear losses and how much the price subsidy will last.

Overall, the sector must now start to evidently show some healthy signs of organic growth, much more visible in terms of cash flow management and profitability and it should look less like a funding game, a stage set by investors to ripe valuations.

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