Indian e-commerce players bullish

The year 2011 clearly belongs to India’s e-commerce story, both in terms of investments the sector received and actual transactions made by customers. The year 2012, say industry experts, will be about consolidating growth and increasing market share.

Next year will also be about separating men from boys. The challenges that can bring down this growth include a nascent supply chain system, a weak logistics network, quality of services and customer satisfaction.

Experts believe the total investment made in the sector in 2011 would be over $500 million.

The number of users transacting online in India was in the range of eight to 10 million, expected to increase to 39 million by 2015. For the first time transactions happened in categories other than travel.

While scepticism around the industry remains, with a few already shutting shop, many feel the e-commerce story is for real.

"The sector will continue to attract investment, but there will not be a mad rush for it. Next year, the venture capital industry will be slow in investing in fresh e-commerce firms, but you will see an equal amount of funds being invested in existing portfolio firms," said Niren Shah, managing director of Norwest Venture Partners.

Norwest has invested in eight e-commerce and e-commerce-related companies, including Fashion and You, Deals and You and Yatra.

So, 2012 will be a growth story for the sector, but it certainly does not seem like a bed of roses.

Deals and discount site Snapdeal, which claims to have a market share of 70 per cent, says 2012 will be about differentiation. Sandeep Komaravelly, head - marketing and alliances, Snapdeal, said early entrants dug deep into the e-commerce market in 2011.

"Going ahead, the story will be about customer services and quality. Rather for the industry and for us, the challenge will be supply chain logistics and customer services," said Komaravelly.
 

CHALLENGES FOR THE SECTOR

Short to medium term challenges

* Balancing scale aspirations with cash burn out

* Differentiating against hyper competition

* Overcoming basic issues that favour offline retailers like touch-n-feel, delivery and payments

Long-term challenges

* Cash flow 

* Hiring and retaining the best talent

* Innovation and to remain ahead in competition

By Niren Shah, MD, Norwest Venture Partners 

For the site, 2012 will be about expansion, both in terms of reach and product categories. By the end of 2012, it is targeting to have presence in 100 cities, compared to 15 at present. The site, which claims to add 1.5 million subscribers a month and has 300 new deals every day, plans to take its user base from 11 million to 30 million by 2012-end.

"With all these expansion, I think we can look at a revenue of Rs 500 crore for 2012-13, from Rs 150 crore for this financial year," said Komaravelly.

For the big daddy of e-commerce sites, Flipkart, it's all about scale and supply chain and logistics. Among the few firms which have successfully managed to create an in-house logistics team, Flipkart will need to grow this to address the scale it plans to achieve. It's eyeing revenue of $1 billion in two-three years, from Rs 50 crore in 2010-11.

"As far as future is concerned, we'll be looking at bigger investments in our supply chain and technology. This should result in larger warehouses and increased automation of our processes," said Sachin Bansal, co-founder and chief executive, Flipkart.

Present in 12 categories, it wants to diversify further. "We intend to enter into various new categories over the coming year and expand in our current categories as well. Everything, except for groceries and automobiles, is fair game for Flipkart," said Bansal.

Pearl Uppal, chief executive of Fashion and You, feels the e-commerce space, and especially in the deals and discount segment, is getting cluttered. She believes the next 12 years will be crucial, as only a few will emerge winners.

"I think what will also matter is customer loyalty. At present, 70 per cent of our sales come from repeat customer. This has grown from 50 per cent a year ago," said Uppal.

Fashion and You will also invest towards strengthening its supply chain and logistics. "In the National Capital Region, the last mile delivery is under our control and we want to replicate the same in cities like Mumbai and Chennai. Moreover, expanding into tier-II cities will be high on our priority," she said.

Other than logistics, another challenge will be the payment mode. So far, the success stories have been focusing on metros, where the usage of credit and debit card is fairly high. While cash on delivery (COD) has been introduced by many, players might have to focus on this mode more, as they start penetrating into smaller cities.

Aashish Bhinde, executive director - digital media & technology, Avendus Capital, said in his report on the sector: "COD has its own set of issues. First, it comes with a cost, often higher than that of an online credit card payment (due to the collection charge of Rs 35-65 per transaction and a delayed cyclical settlement period that stretches from two to three weeks). Second, it adds another level of complexity to the supply chain in the form of cash handling. Third, and perhaps the most important, it is often indicative of lower buyer commitment - and causes a higher level of returns. But it's a necessary evil."

Agreed Ishita Swarup, chief executive and co-founder of 99labels: "Almost 60 per cent of our transactions are paid through the COD mode." But a much more challenging aspect of online shopping has been getting women customers.

While growth has not been a problem, many are also not over concerned about foreign players entering the space.

"India's e-commerce industry is maturing and I believe we will be able to face the challenge of global players. This is because we understand the Indians' needs well and have been concentrating on catering to their requirements," said Manmohan Agarwal, chief executive of BigShoe Bazaar India and spokesperson of Yebhi.com, a portal specialising in footwear sale.

With an average transaction rate of three a minute, the company had a turnover of Rs 200 crore last year. It plans to increase its revenue three to five times in 2012.

But Swarup says, "Getting brands to take part with the right kind of merchandise is another challenge often faced with a model like ours. Building trust and streamlining logistics are a couple of problems that we are looking into. Though we have partnered with few courier companies, but to ensure the right product reaches the right place at the right time and in the right condition is another major challenge."