India has a booming retail market worth about $500 billion, but the market size of its e-commerce industry is only $10.3 billion with 81% of that total coming from travel transactions and 6% from product purchases.
However, e-commerce is likely to enter a high-growth phase in the coming years and travel will continue to lead as new business models emerge, according to B.N. Satpathy, economic adviser at the Department of Information Technology.
The federal government is working on a new information and communication technology (ICT) policy to propel the growth of low-cost, internet-enabled and handheld devices.
“India is poised to be one of the top e-commerce hubs as number of internet users increases. This will bring in a new revolution in retail industry,” he said, adding that e-commerce globally was now estimated to be worth at least $700 billion.
Accelerated innovations have expanded the online retail market to $241 billion in Europe, $176 billion in the United States, $76.4 billion in China and $10.3 billion in India. The Indian retail industry is currently estimated at $520 billion and e-commerce is a sub-set of it.
With high GDP growth, a young population with a median age of 25 years, large and relatively insulated rural tracts, coupled with people’s hunger for achievement, the country is projected to witness maximum growth coming from small towns and cities.
At present, small towns contribute 40% of all e-commerce transactions due to increasing broadband penetration.
India also has the second fastest growing travel market globally, estimated at $42 billion. Of this, the online travel market is expected to grow from $2.9 billion in 2008 to $7 billion by next year.
E-payment systems are also expanding for products such as mutual funds and insurance, and government bodies also are increasingly adopting this route for both accepting and making payments, according to Amrish Rau, vice-president and country manager of the data aggregator First Data Corporation.
Other promising segments include digital downloads and paid content subscriptions.
However, Indian e-commerce companies have been incurring huge losses by selling products at heavily discounted rates as a way to build up the market base.
The industry has suddenly become crowded with all players chasing the volume game and leaving no money on the table. With the cost of acquiring a new customer ranging between $15 and $20, many have shut up shop and the rest are trying hard to keep afloat.
The business model is slowly finding acceptance with people ordering even groceries, vegetables and meat online. But even after 12 years, none of the e-commerce companies makes money and no one has any idea when they will break even.
The business model is slowly finding acceptance with people ordering even groceries, vegetables and meat online. But even after 12 years, none of the e-commerce companies makes money and no one has any idea when they will break even.
Industry watchers are optimistic that online shopping may reach $40 billion by 2025.
Indiaplaza was among the first to go online and began operations in 1999 with warehouses in five cities, trying to cater fast services to new customers. By 2002, founder and CEO K. Vaitheeswaran realised that the only way to make his new business profitable was to start sourcing products from vendors and do away with the warehouses. So he closed all of them.
Most e-commerce players agree is that the high operational efficiency and a strong back-end are the most pressing needs for the industry to gain more credibility.
Myntra.com, a retailer of branded garments, shoes and accessories, whose CEO Mukesh Bansal is optimistic that like global e-commerce, the Indian counterpart will also be profitable in the next two to three years. But huge discounts are a risk that needs to be managed properly or else it will spell doom for the industry.
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