Indian eCommerce Party Continues

Anyone who opens the newspaper or browses the internet these days cannot but escape the full page ads and the scrolling content offering mega discounts and other freebies on online shopping sites.

Indeed, the worldwide rush to eCommerce is now catching up in India as well as can be seen from the strenuous marketing efforts and the all out war to beat the competition by offering goods such as electronics, clothes, household items, and even groceries at throwaway prices.

Apart from this, the biggest sales that these eCommerce sites derive are from the airline and train and bus travel sectors that account for nearly 70% of all online sales in India.

Having said that, one must also note that India despite having the third largest internet user base in the world is yet to catch on to the eCommerce boom in a big way. One of the reasons for this is the fact that not all internet users have credit cards or internet banking which are the preferred payment options.

Need for Logistics that are compatible with Indian realities

eCommerce or electronic commerce is the process of selling and marketing online and then delivering the goods physically.

eCommerce typically entails the companies to have a big online presence backed up with an efficient logistics and delivery system. The logistics can be done through in-house staff or outsourced to a third party wherein the vendor uses its own staff to deliver the goods.

While Flipkart which is one of the pioneers of eCommerce in India uses its own staff, some smaller outfits typically use one of the consignment delivery companies such as FedEx for their needs.

In addition, some eCommerce sites also offer the flexibility of the consumers paying on delivery which is done to address both the lack of online payment facilities as well as the mindset of the Indian consumer who likes to see the goods for themselves before paying.

Further, considering the last mile connectivity issues where goods can be delivered late or worse, not at all, this option has indeed become popular.

Are the Discounts being Offered by the eCommerce sites sustainable?

Turning to the discounts that are offered by eCommerce sites, many experts are of the view that such mega discounts are unsustainable in the longer term because of the thin margins and the fact that consumers once used to discounts would shy away from purchases in case prices do go up which eventually they will.

The counterpoint to this from the industry is that they are in a nascent stage and hence, want to attract as many buyers as possible who would then be loyal and future price increases as long as they are small would not really affect the returning customers. However, it is our view that this marketing strategy can be debated endlessly and hence, we want to point that any commercial exchange is in essence a contract of trust between the buyer and seller and hence, as long as both parties are agreeable, this can be sustained.

Some Drivers of Growth of the Industry in India

Let us now turn to some of the drivers behind this phenomenal growth of eCommerce companies in India in the recent years.

• With the availability of 3G and 4G internet on their Smartphones and the eCommerce apps installed with easy payment options, it is no wonder that consumers are flocking to these sites.

• In addition, the Indian economy as a whole is becoming a consumer economy much like the Western countries and hence, the changing demographics where youth outnumber the old means that consumer experimenting is indeed high.

• Added to this is the fact that there are many festivals in India and hence, unlike the West where Christmas sales are once in a year affairs, Indian eCommerce companies can indeed have sales throughout the year.

• With foreign investors pouring in money into the eCommerce companies, they are now investing in large back office and front office setups wherein they can have as good a logistics system as possible given the constraints of the Indian cities where infrastructure is not comparable to that of the West.

• These investments are also making the eCommerce have deep pockets which means that they can continue to offer discounts without suffering losses in the shorter term. However, as mentioned earlier, this bubble might indeed burst if the predictions of further growth do not materialize or if the Indian economy cools down in the medium to longer term.