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5 things you didn't know about India's e-commerce industry

Things are not as great as they seem, but the industry is poised to grow significantly

Shishir Asthana  |  Mumbai 

The Singles' Day sale was originally named because the date Nov. 11 has four singles (11/11)—was started as a joke between university students, but com later converted it as a day when singles can shop.
 
Late on Tuesday, came close to generating double digit sales on Singles Day, clocking an impressive $9 billion (Rs 55,000 crore), and beating its own record of $5.9 billion last year. 
 
But to really put those numbers in context, consider this: India’s entire industry was worth only $11 billion in 2013. Of this, a mere $2 billion was from sales of physical goods, whereas most of Alibaba’s $9 billion in sales came from actual goods rather than services.
 
In a report on e-commerce, however, broking firm Motilal Oswal says that this is just the start of a multi-year growth for the sector in India. Indian retailers, therefore, do not have to be too concerned as despite strong growth in USA and China, e-tailing is still only 5-6% of total retail sales there.
 
Here are five interesting insights from the report.
 
1. India is almost 10 years behind China in the space. China’s inflection point was reached in 2005 when its size was similar to India’s current market size. Thankfully for India the dynamics currently are similar to what existed in China then – growing broadband penetration, acceptance of online marketplaces, and lack of physical retail infrastructure in many places.
 
2. Forget the Flipkarts, Snapdeals and Amazons. Travel is where the real money in India’s is. Online travel accounts for nearly 71% of business in India. This business has grown at a compounded annual growth rate (CAGR) of 32% over 2009-13. E-tailing, on the other hand, accounts for only 8.7% of organised retail and a minuscule 0.3% of total retail sales. Even within sales of physical goods, books are a mere 7% of total book sales, mobile phones are 2% of all handsets sold, and fashion goods sold online are just 1%. Online jewellery sales account for only 0.2 per cent of all jewellery sold. Motilal Oswal, however, expects e-tailing to pick up with a focus on fashion.
 
3. is an outlier when it comes to margins and making money in the ecosystem. The Chinese company makes an operating profit of 40% compared to industry standard (US and China) of 8-10%. Travel sites typically make 2.3%. Amazon, the industry pioneer, is yet to achieve healthy profitability even after two decades of dominance. Indian players, the report points out, are not even thinking of profitability yet. It’s a game of market share and market penetration, causing all serious players to have a war chest ready for when the industry scales multiple times.
 
4. For every Rs 100 spent on e-tailing, Rs 35 is spent on supporting services like warehousing, payment gateways, and logistics, among others. Delivery costs a platform owner 8-10% implying significant burn. Though 50-60% of delivery logistics today are handled by large e-tailers themselves, this proportion may reduce going forward as the participation of lower tier cities picks up. Presently, aggressive pricing in India is leading to e-tailers making losses on every segment. For a Rs 100 sale of a book, the e-tailer incurs a loss of Rs 24, a loss of Rs 13 in mobiles, and Rs 8 in apparel. 
 
5. Demand in India exists across 4,000-5,000 towns and cities, but there is no significant presence of physical retail in almost 95% of these. High real estate cost is one of the main reasons why organised retail is unable to expand at speeds expected earlier. Real estate as a percentage of sales is 14 times higher than in the US. For large retailers in India, it is 7% of sales as compared to 0.5% for Walmart. 
 

First Published: Wed, November 12 2014. 17:02 IST
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