A billion dollar e-commerce opportunity
India (INDA) is the fastest growing e-commerce market globally, and just behind China (FXI) and the United States (SPY) in size. Further, as per a report by Forrester research, by 2021, one-fifth of retail sales will take place online in the Asia Pacific region. As per the study, online retail sales in Asia-Pacific is estimated to grow at 15.6% CAGR to $1 trillion by 2020, from $539 billion in 2016. The e-commerce industry as a whole in India is projected to grow to $100 billion by 2020, compared to just $30.0 billion in 2016, according to research company IBEF.
As per a report by the Internet and Mobile Association of India, online population in India is expected to touch 500 million by the end of 2017. Amazon CFO Brian T Olsavsky recently mentioned at an earnings call, “We continue to be encouraged by both the response from customers and sellers (from India). As far as level of investment is concerned, it is certainly one of our important investment areas. We see a lot of potential for the country and our business there.”
Even though Internet penetration in India is currently much lower than China and the United States, it is growing at a fast pace. But, with nearly 70% of India’s population living in Tier III cities, it would take longer to beat matured markets.
Satish Meena, Analyst at Forrester Research, warns that India will take more than 10 years to reach the level of the US and China markets in online retail. “About 70 percent of our population still lives in tier III cities and beyond. Our customer is different: they will evolve at their own pace, in the next 10 years, with more disposable income,” he says, adding that China has a mature market.
Additionally, payment mechanisms are still far from maturity in India and most people in the country still prefer “cash on delivery” to online payments. The proportion of credit card users is also relatively much lower in India. “For purchasing high-ticket items with discounts, online channel was the only option for many. These are people who are mostly used to online banking, but the rest of online shoppers are not willing to move in that direction. At least 100 million more users will on board online shopping in the next four years. E-commerce firms will have to attract them through CoD,” Satish mentioned.
Many Western brands like Amazon (AMZN), Alibaba (BABA), and Shopify (SHOP) are investing in India and giving fierce competition to local players like Flipkart and Snapdeal. So who will come out victorious in this e-commerce battle?