It’s no longer a surprise that ecommerce has become an indispensable part of the lives of majority of Indians. With traffic issues plaguing the cities and time becoming a more precious commodity than ever, ecommerce shopping is allowing people to shop from the comfort of their homes, offices without breaking a sweat in the real world. The jaw-dropping discounts, offers makes it an ever more attractive choice.
Currently pegged at $30 billion, the Indian ecommerce market is expected to be worth $200 billion by calendar year 2026, according to a report by investment bank Morgan Stanley.
Titled India’s Digital Leap – The Multi Trillion Dollar Opportunity, the report mentions that India’s e-commerce market will grow 30% CAGR (compounded annual growth rate) for gross merchandise value to be worth $200 billion by the year 2026. The report further highlights that this growth in ecommerce will help in growing market penetration to 12 per cent in the next nine years, versus the 2 per cent figure that we have today.
Throwing light on what will cause this spike in growth numbers for the Indian ecommerce sector, the report said that increasing number of internet users, all of which will be new to e-commerce, will help lead this growth.
In 2016, India had a total of 60 million online shoppers, which is 14 per cent of the internet user base of the country. According to Morgan Stanley, this figure will rise to to over 50% in another nine years i.e. by 2026.
“Our analysis of some global eCommerce companies highlights that two-thirds of the growth in their eCommerce sales happened due to new users coming online and shopping, while the balance was driven by existing online shoppers buying more frequently and/or driving up order values,” the report said.
Generally, when starting something new, people take time acquainting themselves to the concept and adjusting to it. Same goes for Internet shopping. It has been observed, once a consumer has been online for more than five years, they are more likely to do at least some of their shopping online. Currently, this is only 30 per cent of India’s 432 million internet users.
While on the face of it, the 30 per cent figure might seem very discouraging but it is not. Considering the country’s population and the fact that bulk of the addition in the internet base of the country has happened in the last 3 years, courtesy smartphones boon, the 30 per cent performance isn’t that bad and is only slated to increase in the coming years.
According to industry experts, year 2019 is going to be a very crucial one for the Indian ecommerce industry as that is the year we can expect India’s internet usage to reach maturity. Some believe that 2019 can be an inflection point for India’s ecommerce market.
Morgan Stanley believes that the growth in the sector will still be led by the so-called “horizontal” e-commerce players, including Amazon India and Flipkart.
“If I look at the way e-commerce has evolved globally, it is generally the horizontal e-commerce players who have dominated,” Parag Gupta, executive director, Morgan Stanley, said in an interview to a news publication.
He further added, “We have seen this in the US and China. So I believe the situation should not be very different in India, because the categories that become large in e-commerce generally happen to be those that can be dominated by horizontals—which is electronics and fashion.”
This is precisely why horizontals e-commerce players are attracting the highest funding rounds even after the sector went through a relatively less active 2016 and a flurry of potential consolidation in the market.
“Generally, the funds are now going to segment leaders, and this is across segments,” Gupta said. “The investors who are investing in the Indian internet space are coming with learnings from other markets such as in China and the US. They have all learned from the opportunities and more importantly from their mistakes which they are unlikely to repeat in India. One such mistake is trying to compete against each other, burn a lot of money for a few years, and then eventually consolidate. If the same is to happen in India and there is some commonality in the investor base, then consolidation could be a logical outcome and could happen much faster.”
Flipkart, which is considered as the most successful Indian startup till date, has acquired a unique status in the $30 billion Indian e-commerce market. The company, which is currently in its tenth year of operation and enjoys a customer base of 100 million users has built the reputation of being an Indian e-commerce major by being customer centric and providing them with stupendous discounts and offers year after year.
SoftBank’s $2.5 billion investment in Indian ecommerce giant Flipkart is the largest PE investment ever recorded in the Indian subcontinent. In August, Flipkart raised the second portion of its Series J funding from SoftBank Group. The $2.5B investment by the Japanese telecom and internet giant was a part of its $93 billion Vision Tech Fund, which is considered as the world’s biggest private equity fund.
Not only have Indians adopted ecommerce shopping with open arms, they’re also warming up to the concept of digital payments on these platforms. Till a couple of years ago, cash on delivery (COD) made up for over 60 per cent of ecommerce sales, which has now come down to maybe 55-60%. Further, the share of UPI and digital wallets has also increased to 4-7 per cent. Till a couple of years back, that figure used to be just about a percent or two. Hence, one can say this for sure, that once the preferred mode of payment, COD has now given way to other forms of digital payments on ecommerce platforms.
This development was first reported in Live Mint.
[Image: Marketing Land]