Media is replete with stories of how India’s ecommerce market has caught the fancy of investors, not only from India but globally. Amazon announced it will invest US$5billion in India, Walmart is in talks with Flipkart, while Alibaba and Rakuten are hunting for office spaces to scale their operations in the country. However, amidst all this fanfare there is a bitter reality which often gets overlooked.
Despite 370 million Indians connecting to the internet, only 20 million people shop online regularly, according to RedSeer Consulting, a research and advisory firm. To be clear, a person who shops online at least once a month is tagged a regular shopper. The number increases to 50 million if quarterly estimates are considered. So the ecommerce boom has been a limited edition success which does not represent the majority of India, as it is often portrayed.
“India is an amalgamation of small markets and hence ecommerce companies in India cannot think of it as a single market,” says Tyagarajan S, former CEO of Chalkstreet, who has worked with both Amazon and Flipkart. He says ecommerce in India has so far seen only limited success.
Tyagarajan says that though Flipkart, Amazon, and the likes have been able to somehow crack the urban market, there is a lot that needs to be done as far as smaller cities are concerned, and this requires a different mindset. “For the top 10 to 15 cities in India the market is more or less the same. However, what works in Hassan [a district in Karnataka] might not work in Ratnagiri [a port city in Maharashtra].”
The growth potential is huge though. The Reserve Bank of India has laid the groundwork in the form of the unified payment interface. The government is encouraging growth of mobile payments. With the launch of Reliance Jio, high-speed connectivity is all set to grow further.
Ecommerce investments are based on the premise that the growth will be driven from the hinterlands of India – second-tier cities and beyond. The ecommerce market in India is set to reach US$120 billion by 2020, with 65 percent of it driven by the second, third, and fourth-tier cities, according to Ashish Jhalani, founder of eTailing India.
Only 30 to 35 percent of the revenue for the big three players – Flipkart, Amazon, and Snapdeal – in India are generated from the small cities. Hence, the market is up for grabs for companies looking to create a niche for themselves. The likes of Shopclues, Naaptol, StoreKing, and Voonik are on it already.
According to Shopclues, one of the leading players in the small city segment, it needs different DNA. Radhika Ghai Aggarwal, co-founder and CBO of Shopclues, says that marketing and operational capabilities have to be tweaked to meet the specific requirements of shoppers in those areas.
“For advertisements, we use a lot of print and radio. We offer them merchandising experience by organising Sunday flea markets where goods are sold at wholesale prices. Here everything is priced under the 1,500 rupees range,” says Radhika. That’s US$22.
Even the mobile shopping experience needs to be such that people are able to relate to it, she adds. “We have a very light app, keeping in mind that people will probably have a three to four-inch screen sized phone. Many have told us that our app looks chaotic as too many items are displayed on the home page, but this is what people from second- and third-tier cities want. Rather than spending time searching for a product, people want options right in front of their eyes,” Radhika says.
Go after the common man, and woman of course
Further, it makes sense for these companies to adopt different strategies to create a niche for themselves.That’s what women’s fashion store Voonik does by offering a wide variety of affordable products, concentrating on Hindi-speaking parts of the country. “Targeting a beachhead segment and later moving to adjacent segments is the right strategy. We went after everyday women who is typically looking for unbranded everyday fashion. After becoming a leader in women’s fashion here, we then launched an app for men. Here again we have targeted the common man instead of metro-centric males,” says Sujayath Ali, CEO and co-founder of Voonik.
Sujayath is happy concentrating on small cities as he feels they’re effectively three times the size of premium segments. “While Myntra, Ajio, and Abof are all fighting for a pie in the premium market, we are going after the mid-tier segments. With the launch of ultra-cheap 4G plans and smartphones, we are already witnessing the value segment growing exponentially,” says Sujayath.
We aim to be ‘the voice of rural India’ by enabling the retail stores to become online supermarkets.
In fact, companies are trying out new things to cater to those who do not have an internet connection or are not comfortable with online shopping.
Storeking, a rural retail commerce provider, is tying up with smaller grocery shops in smaller cities and setting up kiosks where customers can come and select a wide range of products. The customer pays the local retailer for the order.
Assisted shopping, please
“The hinterland of India consists of about 650,000 villages with 850 million consumers who have limited or no access to technology. Every town or village has an established retail store though. We are tapping this huge network of retail stores across the second- and third-tier markets,” says Sridhar Gundaiah, founder and CEO of StoreKing. “We aim to be ‘the voice of rural India’ by enabling the retail stores to become online supermarkets.”
Two other big factors slowing down India’s ecommerce boom are last-mile delivery and the high failure rate in online payments.
“Delivering products in rural India is not as easy as in the urban areas. Accessibility into the interior areas becomes a challenge,” Sridhar says. “This is something that large ecommerce companies have not been able to achieve. We may feel that with the rise of online shopping, the relevance of brick and mortar stores has come down. This may be the case only with the urban areas of India. In smaller towns and villages, it is still the retailer who plays a key role in making products available for consumers.”
Assisted shopping is something Indian ecommerce players can look at to tap more and more customers. “Basically, in small cities not everybody is comfortable with the internet. Hence, assisted booths are there wherein a customer gets help to find the right product by people managing the booths. This has been a big success in China,” says Mrigank Gutgutia, engagement manager with RedSeer Consulting.
The giants are coming
The likes of Amazon and Flipkart are also leaving no stone unturned to reach people outside the top cities.
Snapdeal, for instance, has introduced Snap-lite.
“The lighter version of our web app aims to deliver an enhanced experience to customers by allowing them to access Snapdeal through a browser tab, without the need to install an app. Besides saving space on customers’ phones, it also provides them a glitch-free, smooth experience even in low-connectivity network areas,” says Tony Navin, senior vice president of partnerships and strategic initiatives at Snapdeal.
Amazon latest ad in India is an attempt to reach out to the third-tier cities. The ad states that fashion is universal and belongs to everybody from Paris to Varanasi. So the question is whether small players will be able to maintain their momentum when bigger companies get more and more aggressive in reaching out to the smaller cities?
Sujayath is confident. He says Myntra can never operate in the price points Voonik is operating at. “Even while targeting smaller cities, Myntra can still offer only premium branded collections. Compared to Myntra, Voonik’s conversion is 40 percent higher, cost of servicing an order is 50 percent cheaper and contribution amount per order is 40 percent higher. Myntra has to first get to these levels to start operating at the value and mid-tier segments. It also runs the risk of alienating its current use base if it moves away from brands,” he says.
Experts, however, hold a different view. “Irrespective of where the market is today, in the next four, five years, the industry will consolidate to two-three players for 80 percent of the market. For the balance 20 percent of the market share, vertical specialists of the likes of Pepperfry, Koovs, and so on will fight,” says Ankur Bisen, senior vice president of Technopak.
Sandeep Ladda, an ecommerce expert at PwC India, echoes the views of Ankur. “In the current market scenario when valuations are not holding up, the market will see consolidation. There are no questions on that. If a company wants to stay relevant it has to create a niche for itself. It is difficult but not entirely impossible,” he says.
Tyagarajan from Chalkstreet has a few suggestions for ecommerce companies aiming to capture the rural and semi-urban market of India.
- Localize language for both customer-facing as well as merchant-facing parts of the platform.
- Assemble local products by bringing local merchants on board in a marketplace model.
- Build platforms that work under the constraints of poor connectivity and insufficient access to the internet. Models like “lite” versions of websites or even caching significant amount of information where there is access to faster internet and allowing the customer to browse offline.
- Support small sellers through easier access to credit for working capital.
- Adopt fintech innovations that make it easy to work under the constraints of small-town India. The new digital stack of payments will enable a lot of customers in middle India to skip credit cards and directly move to a cashless digital payment model. However, innovation is still required from payment layers to bring this alive for these shoppers.