Retail E-Commerce war has been started, who will win this war?

1. State of Retail E-Commerce in India
RAJAN KUMAR UPADHYAY
Wednesday, July 17, 2013
Rajan24oct@gmail.com

2. 1State of E-Commerce in India and Its Global Reach
Contents
State of E-Commerce in India and Its Global Reach .....................................................................................2
Retail E-Commerce in India a closer look......................................................................................................4
Key Takeaways..............................................................................................................................................6
E-Commerce in India in growing fastest in global perspective.................................................................6
Indian consumers has inflated expectations ............................................................................................7
Localization/Supply Chain is critical..........................................................................................................8
Inventory Aging is critical..........................................................................................................................9
Key Players..................................................................................................................................................10
Measuring E-Commerce Success ................................................................................................................12
Essential factors for growth of E-Commerce in India:................................................................................12
Retail E-Commerce war has been started, who will win this war?.............................................................13
Notes...........................................................................................................................................................15

3. 2State of E-Commerce in India and Its Global Reach
State of E-Commerce in India and Its
Global Reach
Retailing in India is one of the pillars of its economy and accounts for 14 to 15 percent of its GDP.The
Indian retail market is estimated to be US$ 450 billion and one of the top five retail markets in the world
by economic value. India is one of the fastest growing retail markets in the world, with 1.2 billion
people.
At 151 million total Internet users, the Internet penetration in India remains at 12.6%(See figure 1.1). India
now has the 3rd largest Internet population with 151 million in the world after China at 568 million and
USA at 254 million (in 2013). Considering the annual rate of growth 41-43% India is expected to cross
375 million unique internet users by end of 2015.
Figure 1.1
Along with growing Internet population E-Commerce has been significant growth globally. Both travel
and retail have grown faster than several other categories in India.

4. 3State of E-Commerce in India and Its Global Reach
Figure 1.2
Retail has grown 43% and reaches 60% penetration among online users, but is still below world
averages. This shows the immense potential that the retail category holds in India with online retail
filling the distribution and convenience gap.
The ecosystem to support growth in online retail has also evolved including improvement in logistics and
awareness among brands in making the products available online.

5. 4Retail E-Commerce in India a closer look
Retail E-Commerce in India a closer look
Retail category penetration has increased to 60% reach and has grown to 47.9million unique visitors a
month. The growth has come across all retail categories and most of them show promising transactions
and conversion rates along with growth in visitors. The top retail sites (See figure 1.4) in India have each
seen a growth of over 100% in the last 12 months.
Figure 1.3
Figure 1.4

6. 5Retail E-Commerce in India a closer look
Amazon is the most visited retail site with most of the traffic slipt among Amazon.com and
Junglee.com.
Flipkart leads the way among the online retailers in India with 7.4 million unique visitors a
month, growing at 431% annually.
Snapdeal has been close second with 6.9 million uniques.
Jabong and Myntra have been competing closely in the lifestyle category with over 5.3 million
uniques each.
HomeShop18 has over 4 million uniques a month.
Figure 1.5
Apparel has been the most growing category in retail and covers 13.4% reach of entire retail
traffic.
Comparison shopping continues to dominate and has growth of 75% YOY and it will continue to
grow as more categories of retail to come online
Travel category has shown this trend with high overlap among OTAs and this trend is expected
among online retailers as well.
Consumer goods, sports/outdoor products and retail food sub categories have also shown
earlygrowth signs. Consumer goods being a popular category among horizontal retailers are still
way below global averages.
More retailers online have heavily depended on online marketing to scale. The online marketing spends
across all content categories and effective marketing campaigns reaching out the right target
audiencehave increased visitation and hence conversion among retailers.

7. 6Key Takeaways
Key Takeaways
E-Commerce in India in growing fastest in global perspective
Indian consumers has inflated expectations
Localization/Supply Chain is critical
Inventory Aging is critical
E-Commerce in India in growing fastest in global
perspective
The trend of online shopping is set to see greater heights in coming years, not just because of India’s
rising internet population, but also due to changes in the supporting ecosystem. The E-Commerce
market in India is smaller than in other markets that Forrester forecasts in Asia, but it is growing the
fastest. Retailers have a sizeable opportunity as the online population starts to spend more and buy
more frequently online.
Figure 1.6

8. 7Key Takeaways
Indian consumers has inflated expectations
Indian consumers have very high expectation from the retail industry on the other hand retailers in India
are doing whatever is necessary to drive consumers to shop online. Consumers want to see good deals
backed by free or very low cost shipping along with flexible payment methods like COD, EMI etc. E-
Commerce business must understand local E-Commerce trends like localized payment & fulfillment
options are particularly essential in India.
Figure 1.7

9. 8Key Takeaways
Figure 1.8
To attract consumers to shop online majority of E-Commerce companies offer COD (cash on delivery).
Now this comes with big problems
- High rejection rate (30 - 45%)
- COD service costs & High commitment with the logistics partners leads to major capital
investments
Due to aforementioned reasons, COD is extremely costly and unsustainable proposition for sellers.
However, considering the low penetration and growing competition, COD is here to stay at least for
another few years. Indian consumers are spoilt for choices and it is going to be very difficult to change
their habit.
Localization/Supply Chain is critical
Inadequate supply chain infrastructure, complex taxation laws, high levels of intermediaries, product
proliferation and lack of supply chain visibility are a few supply chain challenges faced by the retail
industry in India.
Though retail in India is making progress and is expected to grow more than $879 billion by 2018, The
break-up of typical supply chain costs in India is as indicated in the figure below. This clearly indicated

10. 9Key Takeaways
how over 55% of costs come from transportation whether outbound or inbound. Other major costs
include inventory carrying costs and warehousing costs.
Figure 1.9
Considering the fact that Indian logistics and supply chain market is not yet well organized & almost 40%
of E-Commerce companies have their own branded delivery network.
Company’s major focus is shifted towards order fulfillment and further it adds additional cost of
maintaining control, operation etc. On the other hand these own branded delivery network are not very
cost effective because of lesser volumes.
Inventory Aging is critical
Inventory Age i.e. Days in inventory (DII) is an efficiency ratio that measures the average number of days
the company holds its inventory before selling it.
Inventory Age = Average Inventory level / total cost of goods sold per year
Majority of E-Commerce companies operating in India are logically based on an inventory-led business
model.
“Unsold inventories gives losses and increase a big cost to the companies’“

11. 10Key Players
Inventory Aging is critical for the OWH E-Commerce models. Cost of maintaining inventories are very
high in India considering the following facts
- Consumer base in India has very much segregated localization and due to adequate transportation
problems E-Commerce companies prefer to keep distributed ware house at various location to increase
their reach to end consumer. Maintaining these warehouses has big operating cost.
- Poor infrastructure, High Rentals, Lack of technologies & environment differences are bigger thread to
inventory aging
Many E-Commerce companies try to reduce their inventory exposure by using some restoration
technique for example SOR (sales on return). The sales-on-return basis is a working capital management
technique or negotiation style that assumes that the e-commerce company is buying an item from a
supplier and in case the product is not sold within a stipulated time, the supplier will take the item back.
Another practice that is in vogue is to create a back-to-back arrangement, i.e., get a customer order and
then procure the item and ship it to the buyer. These practices are fine when you are doing small unit
shipment per day but beyond that, it is not sustainable.
SOR & back-to-back restoration techniques are not sustainable. Majority of E-Commerce companies buy
advance inventories or start holding inventories for the sale every year. On an average they left 13-16%
unsold inventories at end of year. These unsold inventories furthermore give losses and add 3-5% toll
in terms of cost.
Key Players
Top 5 E-Commerce companies in India
FlipKart.com
Flipkart.com is an e-commerce website founded by SachinBansal
and BinnyBansal in 2007. Both are from IIT Delhi Alumni and also
worked in Amazon.com.
Flipkart.com ranks #502 in world according to Alexa traffic rankings.
In Google page it ranks #6. It formsadvertising revenue of $4.8
million. It receives 2.2 million page views in a day and generates
$6,574 in advertising revenue every day. Moreover it has certain
losses 0.60% in traffic ranking. Loading time of an average page is 2.1
sec as it is much faster than 29% of sites around the world. The
mode of payments include Credit card, Debit card,Net banking,e-gift
vouchers, cash on delivery.

12. 11Key Players
Ebay.in
eBay is an online shopping website a consumer to consumer
corporation which helps the people and businessman to buy and
sell products worldwide. It is operated to almost 30 countries.
eBay ranks #544 among Alexa traffic ranking. In Google it has
pagerank #6. The advertising revenue inculcated was about $4.4
Million. Moreover it receives 2 million pageviews per day which
generates $6,066 in the advertisement revenue. Recently it has
shown 15.13% growth in traffic rank. The pageloading time is upto 2
sec which is likely faster than 24% sites across the world.
Snapdeal.com
Snapdeal deals with online marketing of products including
Mobiles, Electronics, Fashion accessories, Apparel, Footwear, Kids,
Home and Kitchen, Sports, Books; and services like Restaurants,
Spas & Entertainment. It was launched by KunalBahl, a Wharton
graduate and RohitBansal, alumnus of IIT Delhi, in February 2010.
It ranks #576 in the world as per Alexa traffic ranking.It ranks # 5 in
Google PageRank. The advertising revenue is about $4.2 million. It
receives 1.9 million page views in a day and generates $5,729 in
advertising revenue. It has suffered loss of 4.16 % in traffic ranking.
The loading time of an average page is 1.6 sec which is faster than
46% of sites across the world.
Jabong.com
Jabong is a fashion and lifestyle e-commerce owned by Rocket
internet. Jabong retails apparel, footwear, accessories, beauty
products, fragrances, home accessories and other fashion and
lifestyle products.
Jabong.com has a Google page rank #3. The advertising revenue is
about $2.4 Million. It receives 1.1 million page views per day
generating $3,310 in advertising revenue. It shows 7.69% growth
rate in traffic rank. The page loading time is 1 sec and is faster than
56%sites around the world.
It is an online shopping commerce for Home; Lifestyle & Fashion e-
retailer founded in 2009 BigShoeBazaar.com has a user base of
about 1.5 million people. Yebhi.com offers lifestyle & Home
products and products from a range of some 250 brands to its
customers dealing in Shoes, Apparels, Bags, Mobiles, Cameras,
Sunglasses, Watches, Home furnishing, Home decor, Home ware,
Lingerie and Fragrances.
It ranks #1,782 among Alexa traffic ranking. It ranks #4 in Google
page ranking. Advertising revenue is about $1.4 million. It receives

13. 12Measuring E-Commerce Success
617,284 page views per day generating $1,852 in advertising
revenue. It has recently shown 6.70 Growth among traffic ranking.
The page loading is about 2 sec which is faster than 39% of sites
around the world.
Measuring E-Commerce Success
As per current trends none of the E-Commerce players will operationally break even before 2019.
The question then is how to differentiate the winners from the laggards. Based on expert opinion
the following may be used as surrogate success criteria
a. Transactions per Day An E-Commerce player which can consistently grow and cross 15000
Tx/day by 2013 will be well poised to succeed in the long term
b. Customer Acquisition cost. A consistent linear reduction in Acquisition cost demonstrates
Customer satisfaction and repeat purchase. This would be essential to scale
c. Team A Company which can hire and retain top level vertical specific domain experts will
naturally scale well.
d. Gross Merchandise Volumes Growth in GMV is a good sign; however this needs to be
tracked in conjunction with changes in Unit Profitability
Essential factors for growth of E-
Commerce in India:
Customer convenience: By providing Cash on delivery payment option service to customers.
Replacement guarantee: Should have Offers like 30 day replacement guarantee to their
customers.
Reach: Enabling mobile-capable sites and supporting M-Commerce services.
Location based services: Since customers these days are always on the move, promoting the
right product at the right time and location becomes an integral aspect
Multiple payment option: Cash On Delivery, standard credit cards, debit cards and bank
payments option should be there.
Right content: Getting the right content and targeting customers with crisp and relevant
information is of utmost importance to users on the move.

14. 13Retail E-Commerce war has been started, who will win this war?
Price comparison: Providers offering instant price comparison are highly popular amongst the
price conscious customers.
Shipment option:FREE &Low cost shipment should be there. The convenience of collecting
orders post work while returning home should be there.
Logistical challenges: In India, the geographical spread throws logistical challenges. The kind of
products being offered by providers should determine the logistics planning.
Legal challenges: There should be legal requirement of generating invoices for online
transactions.
Quick Service: Timely service provided by the company.
Terms and condition: T & C should be clear & realistic.
Quality: The product quality should be same as shown on the portal.
Customer care Centre: A dedicated 24/7 customer care Centre should be there.
Retail E-Commerce war has been
started, who will win this war?
As we discussed above preliminary challenges are keeping cost of product competitive by reducing
inventory aging & setup up right expectation of the consumers by low cost fulfillment with quality
product.
SnapDeal.com, eBay.in acts like a huge marketing platform for other sellers/merchants/brands. It does
not stock, it just has strategic alliances to fulfill the demand of customers. The biggest drawback of such
model is that, there is low or no control over customer experience, however, being international player
like eBay.in can scale up much faster.
While writing this document I realized that Amazon has also launched their localized services in India as
amazon.in, as we know that amazon is the biggest global E-commerce player with biggest global
market share. Probably they will have to go for some merger and acquisitions in India for mass
customer acquisitions in order to compete with well established brand like flipkart, eBay, Jabong etc.
Flipkart, Jabong and myntra doing well in the marketplace, but they majority of business model is based
on inventory-led that requires a high infrastructure and operating cost. These companies have major
advantage over customer experience, quality of products etc. Recently FlipKart& Jabong has started
their marketplace with controlled inventory, yet far from making significant revenue.
In Today’s aspects it is very difficult to say who will sustain in the market and who will win this e-
commerce war? However some companies discussed above has made their presence and growing by

15. 14Retail E-Commerce war has been started, who will win this war?
leaps and bounds. Coming future we can expect some big players to come and raise the competition
in between. At the end Indian consumers will be pampered more and expect to get better and better
deals.

16. 15Notes
Notes
State of E-Commerce in India and Its Global Reach and Figure 1.1 & Figure 1.2 (Prepared Remarks in
http://en.wikipedia.org/wiki/Internet&http://en.wikipedia.org/wiki/Internet_in_India#Internet)