Emerging Battle-zones of Indian E-commerce

The recent turmoil in the Indian e-commerce industry and possible erosion of confidence of the startup ecosystem is high school talk now. Firings across the board in marquee ventures funded startups, churn at the top management, rapid valuation markdowns and the worst of all, a paltry 12% growth in e-commerce transactions from 2015 to 2016. All the unintended wrong turn for the e-commerce juggernaut seems to be have been taken. All of this when the industry is still in its infancy with a mere 2% share of the overall retail industry, and an even more minuscule 0.5% of e-tailing. The tremors felt are almost dot-commish.

The question which is begging an answer is, will the big Indian e-commerce gravy train have enough gravy to spice up all the vegetables chopped by investor’s money. What strategy, or which company, will strike that elusive pot of gold for their investors — call it the home-run for the deep pockets worried from Silicon Valley to Shaolin Temple alike. Or rather, the easier little question to answer, where will be the fiercest battles of e-commerce be fought in India?

First things first. The e-commerce market size dilemma. India with its total retail market of USD 800 billion is where China was in 2005, and a smartphone penetration (proxy for internet) of 20% is where China was in 2013, doesn’t fare very badly in its e-commerce numbers. Though the discount wars and a mad chase to gain GMV can be blamed in part for over-inflated assumptions, but even then the numbers of 2016 are quite impressive given the additional handicaps to establishing an e-commerce behemoth in the structure of the Indian retail industry (more on that later). A quick summary of some figures will help clear the cloud.

• 2017 Indian smartphone = 2012 Chinese penetration = 25%
• 2017 Indian retail market = 2005 Chinese retail market = USD 800 billion
• 2017 Indian e-commerce = 2009 Chinese e-commerce = USD 15 billion

So we seem to have done better than at least China, if we take the overall retail market and smartphone penetration as the primary determinants for estimating the size of the e-commerce market. But what is worth really salivating are the following sets of figures:

E-commerce has a strong dependence on the overall retail size and an even stronger dependence on the internet penetration. China’s e-commerce is at 15% of total retail with a mere ~65% internet penetration. Compare that to around 12 to 15% share of e-commerce in overall retail at a near 100% internet penetration for USA or other developed economies. India is expected to achieve a 65 to 70% internet penetration (primarily by smartphones) by 2020 at a level of the economy at half the size of China in 2016. And by 2026–2027 when India reaches a level of economy where China is today, the internet penetration would have fully saturated the country. All of this will happen with a leapfrogging from the 3G era to the higher speed 4G era of data connectivity allowing for much richer interaction over the internet. Further, the organized brick and mortar retail is already in tatters at a mere 10% share of the retail industry. Only one conclusion can be drawn from all of this. India might see an e-commerce boom eclipsing even that of China.

So far so good! The only major deviation from the Chinese script has been that unlike the sudden rush of interest in e-commerce of India, the development of the Chinese e-commerce has been more or less a continuum post the dot-com debacle. There were big bang investments in China in the 2005–2009 period, which, if had strictly followed the cues from e-commerce market size, should have been equivalently replicated in India in the 2016–2020 period. But not all FOMO is irrational. The relatively early move by investors into the Indian e-commerce was indeed justified in the hope of a very obvious replay of the blockbuster of China. Amazon itself made its calculated move in 2013 and had already tested the water earlier in 2012 through the launch of Junglee.

The big jolt which has sent everybody back to the drawing board is the sudden blip of growth from 2015 to 2016 when India is already at such a low base. Of course, there are the easy culprits to blame like demonetisation and lack of easy venture money to burn. But there are winds of something more sinister. Something very pertinent, as to where is e-commerce heading in India and what strategy the aspiring winner will have to adopt.

Before we answer that, lets have a look at the distinctive character of the Indian retail industry, and why will see one of the fiercest technology battles anywhere in the world. Let us go back a decade and pick up almost any reputed research reports on Indian retail by the industry, we will see the broad consensus as below.

Standing here in 2017 the share of organized retail is between 8 to 10%. What was assumed lightly in all those calculations was the effect of ~10 million retail stores of India, the highest retail density anywhere in the world and 3 to 4 times the retail density of China. A 40 million strong retail workforce compared to 10 million in China. The average Indian retailer caters to 3 to 4 times lesser number of families compared to the Chinese counterpart, enabling the small retailer to provide unimaginable guarantees and services even for second and third-grade unbranded products. The well-known example of Indian retailers selling garbage Chinese phones and electronics on personal guarantees is a marvel in itself.

The fragmented Indian retail is engaged with their customers at a level much deeper than any other counterpart across the world. They have a much finer understanding of the tastes, cultural nuances, choices, behavior and patterns of the customer. It is this bonhomie of the retailer with the customer that they were able to check the onslaught of the organized retail. The small retailers came out with all guns ablaze to counter the threat of organized ones. They provided free home deliveries, tracked and matched the prices of the organized retailers, picked up the trending SKUs in large stores, spruced up their own collections, extended long credit cycles to customers, hoarded the discounted products from the competing large store, reached out to customers in their neighborhood with additional services and many more. The end result is that the organized retail sector is yet to be a major force except for isolated islands of success. Most of the top retailers with models directly copied from the developed countries have so far disappointed the investors. The local retailer reigned high and successful in preventing the massacre unleashed upon them.

So how does the above cut-in into the e-commerce story? A similar situation arose at the start of 2011 when signaled by the runaway success of the e-ticketing industry and partly of the online books industry, one after the other e-commerce companies pumped money to take on Indian retail. Discounts, price undercutting, top of the line logistics, endless catalogs, and lots of hot money! Once again the alarm bells buzzed the ears of the timid looking local retailer. While the e-commerce industry has been building its war chest, the Indian retailers themselves were gearing up for an even more enhanced customer service. Soon they rolled out features like unlimited instant delivery for order sizes as low as 5 rupees, started sending the errand boy on neighborhood tours with curated collection of daily use products and rampaged the return back policy of online retailers to invent their own inventory-light models. The e-commerce biggies themselves have been tooling and retooling continuously to increase their assault, retaliated equally by the small retailers who continues to gate keep the mind space of the customer.

But this time we are talking about a different war here. It’s technology against the individual perseverance of the small retailers. What match are swords to the guns? Make no mistake. The small retailers are already leapfrogging the very technological reach and ability that these platforms provide. Since the times of the American and Chinese e-commerce voyage, a lot of water has flown under the bridge. An online store today can be set up for as low as USD 100 and every aspect of the operation can be scaled up as the business increases, complete with listings, videos, payments, and third-party logistics. A near complete penetration of WhatsApp on the smartphones of India is enabling a seamless and uniform platform for both customers and retailers. Retailers are buying and hiring individual technology microservices from countless providers as per their need. Though such strategies are not perfectly geared for shopping, but they provide many relevant features and ease of use hardly yet provided by the incumbent players.

So today we are in a situation that the small retailers, aspiring brands, individual designers, resellers, specialized craftsmen across the country are directly reaching out to their target customers with their curated catalog of products, rather than relying only on a long catalog being currently provided by the e-commerce platforms. They are floating themselves high with videos, pics & gifs, customized details for the individual customer, the right emotional caption through their own apps, progressive websites, threadbare marketing on WhatsApp, Facebook, Snapchat, Instagram, Pinterest and other social networks. In essence if we ask, whether e-commerce is increasing, the answer is yes. It is increasing at a breakneck speed, with a host of advanced cost-effective tech tools at the disposal of the retailer, while the incumbent players of India, for the time being, are making piecemeal improvements in their refurbished Chinese and American template.

What we are seeing is India leapfrogging to carry out e-commerce directly in the omnichannel and direct marketing era, proverbial of the Chinese e-commerce leapfrogging the PC directly to the smartphone era. The brands and sellers are empowered to fulfill the cycle of customer experience from discovery to delivery, utilizing the incumbent e-commerce platforms as just as one of the channels of the many. A new generation of startups and service providers are enabling this transformation. The logistics space has over 50 startups which provide the full range of services from single parcel delivery to bulk containers to every corner of the country. There are more wallets and payment banks than the average smartphone device can support. Innumerable platforms exist to let the retailers create their own e-commerce site from scratch, complete with payments, cataloging, review etc. They are getting creative making advertisement campaigns on tools provided by the likes of giphy, tenor, gifsy etc. Digital marketing firms are providing services and campaigns to reach out to not just e-commerce platforms but the entire social network and internet ecosystem. The QR code-based campaigns which are revolutionizing the Chinese e-commerce space has already started to make its presence felt.

In effect we are seeing a transformation of e-commerce in India from this…

…to this

As the anxious Indian retailer spawns this new framework of e-commerce in India, any serious e-commerce strategy will have to be significantly focused on empowering the sellers and customers to connect to each other in a much more enhanced way than the archaic catalog and logistics service in its current form. The serious players, whether incumbent or new, will have to provide the entire suite of services for meeting customers requirement — through localized social campaigns, AI based voice filters to identify the latest fashion fad at the great Indian wedding, embedding campaigns in trending videos and many more. Only imagination will be the limit. All of this will have to be provided right at the device of the most uneducated and naive retailer. Though most of these services are currently being provided by specialized individual service providers, the winning large player of reckoning will be the one to integrate this full suite of technology services.

The nimble investor in the meantime will keep hunting for the individual enabling layer as well as upping their bets on the incumbents, though none of them are yet in any position of comfort. Till then, happy shopping!