Indian E-tail Market to be Worth USD 12 Billion by 2016 says anEdelweiss Report: Key Challenges on the Way

E-commerce has been the buzz word in India over the last 12 months. A number of new players have entered the e-commerce and e-tail space and the existing players have attracted funding or have got acquired.

A recent Edelweiss report estimates that over the next 4 years (by 2016) India’s e-tail market will be valued at over USD 12 billion. In 2011 the value stood at USD 950 million. If we go by the projected value, then about 2% of overall retail sales will be represented by the e-tail market.

The same report says that only 30% of internet users in India are online shoppers, which means that there are about 30 million online shoppers. This number is increasing at 1.5 million per month. So, by end of 2012 the number online transacting users will be significant enough. The Edelweiss report projects that total number internet users will be 336 million by 2016 and amount of time they spend online will quadruple in the same period.

The Indian consumer prefers to do a thorough research before shopping online. After the Indian government introduced online railway ticket booking through irctc.co.in, the travel sector experienced an upsurge in online transactions. That momentum is still going strong, with the online travel space accounting for 75% of the transactions in the online B2C category. The non-travel sector is growing as well, but not at the same pace.

If we take a look at the Chinese e-commerce story, we see that the over 85% growth the industry experienced between 2005 and 2010 was to a large extent due to two key reasons. Firstly, the e-commerce players advertised heavily and consequently educated the market. Secondly, they introduced innovative payment methods like, cash on delivery (COD) and prepaid cards. They also managed to garner trust among the consumer about online shopping.

Most Indian e-commerce players already offer COD and prepaid cards is also available in the market. Yet, why is the adoption of online shopping still lagging behind? Indian consumers are still skeptical about online transactions. Also, opting for COD often leads to delay in receiving the product, which further leads to loss of trust. The reason why the online travel sector has flourished in India is because there is no physical exchange of goods!

This leads to another crucial point. With e-commerce growing in the country the logistics sector will have a great opportunity. The Edelweiss report says that 5%-15% of the value of goods sold online is spent on fulfillment. The logistics industry will attract capital over the next few years, because their performance will be directly linked to the performance of the e-commerce industry. Currently, even the biggest courier company caters to only 10,000 pin codes in India, from a space of over 150,000 pin codes. So the scope for expansion is huge.

Fetise.com had tied-up with Gharpay, a doorstep cash payment network, to introduce something called ‘Cash Before Delivery’. On paper this can solve some of the working capital and cash flow issues of e-commerce companies, but will consumers accept such a mode of payment. Or will some other innovative payment methods be introduced in the Indian market. We will just have to wait and see.