We have seen a phenomenal increase in the traffic and sales right from the first hour of the festival wherein the premium brands have seen the maximum traction. Revenue during the festival has increased five-six times more than a usual day. said Manu Kumar Jain, co-founder of online lifestyle store Jabong, which was among the many e-commerce firms which hopped onto the online shopping festival platform.
The concept of a one-day online sale originated in 2005 in the United States where many online shopping sites offer discounts on CyberMonday, the firstMondayafter BlackFriday, the day that follows the US Thanksgiving Day. Going by the number of consumers that Google claims shopped online, this year the three-day event which started on December 11 and was later extended by a day, got 2 million unique visitors of which over 30% were first-time buyers. Last years one-day GOSF saw 1.2 billion consumers of which 50% were first-time buyers. The shopping festival helps in getting first-time buyers online. The great deals and discounts act as a good catalyst that brings many Indian consumers online, said Rajan Anandan, vice-president and managing director, Google India. In fact, the organiser says that e-commerce players witnessed daily sales jump up by three to four times this year at GOSF.
While we have seen maximum increase in sales of shoes and apparel, an interesting insight is that the number of male shoppers have overtaken the number of female customers during GOSF. We have also observed an increase in time spent on the website per customer and increase in pages viewed per customer, said Jabongs Jain.
Tata Value Homes was certainly an unlikely participant at GOSF. Said Brotin Banerjee, managing director and CEO at Tata Housing, Increasing demand for portable and online transactions by consumers was one of the reasons to participate in GOSF.
While GOSF has been one of the main reasons why we see more and more Indians succumbing to the joys of shopping online, the otherwise wary Indian consumer stumbled upon e-commerce a couple of years back. According to Internet and Mobile Association of India (IAMAI) Digital Commerce 2013 report, India had 33.8 million active internet users as of 2012. Of this, 19.6 million users looked for information, of which 14.3 million shopped online. The report further suggests that the digital commerce industrys revenues have increased from R19,249 crore in 2009 to R47,349 crore in 2012. While online travel accounts for 71% of total digital commerce pie, e-tailing (which consists of consumer items such as books, apparels and footwear, jewellery, mobiles, cameras, computers (desktops/ laptops/ net books/ tablets), home and kitchen appliances, home furnishings, vouchers/ coupons, flowers and toys, gifts) accounts for 16%. As per the report, the e-tailing category has grown from R1,550 crore in 2009 to R6,454 crore in 2012.
Points out Pragya Singh, associate vice president, retail and consumer products at Technopak Advisors, As organised retail failed to spread its wings across the country, being only 8% of the total retail category, e-commerce has helped in filling the gap. Secondly, e-commerce helps in fulfilling the aspirations of consumers living in smaller towns and cities as most of the time they have either limited or no access to brands. Thirdly, the convenience of shopping online, which helps in saving a lot of time, has aided in the growth of the category.
As a matter of fact, today e-commerce is no longer the secondary medium of shopping, and has established roots across the country. The category has reached the stage where people now go offline, that is, retail outlets, to check out the product and then they buy it online. For example, in case of apparel and shoes, consumers generally go to the physical retail to verify their size, said Nitin Bawankule, industry director, e-commerce, Google India.
The money plant
Even as the category continues to grow, it is evolving at every step. So far, India has seen e-commerce players mainly operating on two or three business models. The first is the pure marketplace model followed by e-commerce companies such as eBay and Alibaba.com, where vendors or third parties are allowed to directly sell their goods and services to consumers. While sites such as eBay and OLX follow a more hybrid model, that is, a mix of consumer-to-consumer and business-to-consumer, Alibaba.com is a site where vendors sell their goods and services directly to companies. Next, there are players such as Jabong, HomeShop18 and others who follow the inventory lead model, wherein all the goods are stocked beforehand at their warehouses. We like to stock the goods in our warehouse and send them directly to consumers, as the goods are packed with Jabongs label. And that is very important as packaging the goods under the Jabong label helps in increasing brand recall. Otherwise, if a brand sends the product in its own packaging it does not have the same impact leaving the customer at times confused whether the good was sent by Jabong or the company directly, said Jain of Jabong.
Interestingly, in the last one year the category has seen the emergence of a new business model called manage marketplace. This is a new hybrid model that allows e-commerce companies to ink deals with brands and they procure the product from the brand after an order has been placed on their site or tie up with a logistics company to directly procure the goods from the respective brand and deliver it to the customer. As e-commerce is an evolving category, players are trying out various models for a sustainable business. They may find yet another operating model which could be a spin-off of the existing ones, said Rajat Wahi, partner, KPMG in India.
Deals and discounts have played a crucial role when it comes to selling goods and services online. The price war in the virtual world has been a global phenomenon and has helped e-commerce players to notch up customers speedily.
In India too, players have not shied away from offering enticing discounts to consumers; however, that has also impacted their profitability. If selling products and services on thin margins has allowed them to grab eyeballs, their balance sheets have continued to bleed. Singh of Technopak Advisors says that till a year back, e-commerce players survived on deep discounts. However, they have now realised it is not a sustainable model and are exploring various options to ensure consumer loyalty.
According to industry estimates, the average revenue per user (ARPU) for the electronic goods category is R4000-5000, with apparel and healthcare following at R1500-2000. Next, the ARPU for baby products is about R1200. Interestingly, e-commerce players who are at the top of the heap, generate 50% of their revenue from repeat buyers. The cost of acquiring a consumer was higher earlier but that is not the case now, at least with us. We have certainly seen a decline in that. For example, if it was R100 per customer earlier, it is now R30-40, said Vikas Ahuja, chief marketing officer, Myntra. Nevertheless, there are still times that we feel that contextually it makes sense to press the accelerator and go and acquire at a higher cost for a brief period. The GOSF, for example, is a great opportunity to acquire new customers.
Sundeep Malhotra, founder and CEO, Homeshop18 goes on to say that the websites daily transactions have increased by 50% in the last one year.
For a majority of the e-commerce players, about 60% of their revenue come from tier II and tier III cities. Limited reach of physical retail and the convenience of shopping online are some of the reasons why people shop online. Online retail is growing in popularity as more consumers from non-metro cities recognise the convenience of shopping and transacting online and the ability to get easy access to a huge variety of products at great deals. According to the eBay India Census 2012, India has 4,306 e-commerce hubs out of which 1,015 are rural hubs and 3,281 are Bharat hubs (tier II and III cities), said Deepa Thomas, e-commerce evangelist, eBay India.
As e-commerce players begin to look beyond the virtual price war, services, both before sales and after sales, is going to be next giant leap for them. In fact, portals such as Amazon India and Flipkart have already taken the first step towards it with the launch of a new scheme called guaranteed one-day/ two-day delivery in select cities, which promises to deliver the product at the doorstep of the customer on the same day on payment of R90-99 as delivery charges. Our vision for India, in line with our global vision, is to be the most customer-centric in the market and enable customers to find, discover and buy anything online. With Amazon.in, we endeavour to build that same destination by giving customers more of what they want, low prices, vast selection, fast and reliable delivery, and a trusted and convenient experience, and provide sellers a world-class e-commerce platform, said Amit Agarwal, vice president and country manager, Amazon India.
Others, too, are playing catch-up. For example, in May this year, Myntra.com had introduced a revised product exchange offer for all its customers, enabling a buyer to exchange an item for another size, without having to return the product first and then re-order it. Once a customer sends in a request, Myntras delivery team will deliver the new product and collect the one to be exchanged during the same visit.
Again, Snapdeal launched a new feature called Trustpay, which guarantees full refund if the vendor concerned falters in its commitments. For instance, if the order is not dispatched within three business days of the promised shipping date, the company will return the money.
David Abikzir, chairman of Bangalore based strategic and management consultancy firm Nymex Consulting says that e-commerce players in India will taste sustained success when they begin to sell the business instead of the product. As many e-commerce portals sell the same products, if your portal is the product, you will bring a different experience to your clients and they will come back for it! The portal is no more a tool to sell products but it becomes the product itself you need to sell, said Abikzir.
Analysts believe that it is here that digital will play a big role in helping e-commerce players create a loyal consumer base. E-commerce players too have upped their ante when it comes to the digital game, with Flipkart inviting software coders to build new applications on its technology platforms. Next, HomeShop18 claims to be creating technology that will help the site provide personalised recommendations for customers based on their purchase history. The web needs to be more interactive. Features such as video demos of product, virtual trial rooms will replicate the offline shopping experience and will build in more confidence. For example, we revamped the Homeshop18 website a few weeks back, by introducing new features like video demos for many products and voice enabled search. The customer feedback has been phenomenal for these added tech features, said Malhotra of HomeShop18.
Interestingly, industry observers say that even before the web reaches out to the Indian consumer, the mobile phone would have already caught hold of her. As per industry estimates, while more than 40% of queries come through the mobile phone, currently 15-20% of consumers transact online through it. This has not escaped the notice of e-commerce players and other stakeholders. And, if on one hand, e-commerce companies such as Flipkart and OLX have latched onto this opportunity by launching mobile applications, mobile service providers have introduced new schemes and plans to further drive data consumption. For instance, Airtel has introduced a new scheme, My Airtel, my plan, which allows a postpaid customer of Airtel to create her own calling plan as well as data plan. Mobile commerce is growing at a faster rate than e-commerce. During weekdays consumers tend to use the mobile phone to search for a product but they make the final buy through the office desktop. In contrast, the volume of transactions via the mobile doubles in the weekend, said Abhay Johorey, head, Airtel Online.
The Planning Room
In the rush to catch the consumers attention, e-commerce players have been reaching deep into their pockets to fund their marketing and advertising plans, which has further resulted in drying up of their funds, making it more difficult to raise the next level of funds. Generating the next level of funding has become even more difficult for smaller players as venture capitalists are now investing their money where the return on investment is more probable. Much of the money is now being in invested either in big e-commerce portal or niche portals, explained Singh. Online lingerie store Zivame was recently in the news for raising $6 million in a round led by Ronnie Screwvalas Unilazer Ventures and participation from existing investors, IDG Ventures and Kalaari Capital Partners. Prior to this, Zivame had raised an undisclosed amount in its Series A funding from IDG Ventures and Indo-US Venture Partners (now Kalaari Capital) in March 2012. In some cases, the funds are also used to bolster the back-end operations.
Generating a series of funding provides more room to play, which further allows one to innovate frequently, be it in case of payments or services. For example, after cash-on-delivery became a huge hit, credit-on-delivery was introduced as a new way to make payments. People who are usually wary of making an online payment, are more than willing to swipe their cards on the visa machine, which is carried by the delivery boys, added Ahuja of Myntra.
Then there are times when an e-commerce player raises funds to increase its valuation in the market, so that the promoter can make a quick exit if required by selling his company to a large group. This year, Flipkart was constantly in the news for raising a series of funds. In October this year, barely three months after Flipkart.com raised $200 million, the online retailer received another large infusion of $160 million, most of it coming from new investors. Since 2009, investors have poured roughly $550 million into Flipkart. The money in the latest round was put up by one of Flipkarts existing investors, Tiger Global Management Llc, as well as new investors Dragoneer Investment Group, Morgan Stanley Investment Management, Sofina and Vulcan Capital Management. Flipkarts other investors include Accel Partners and Iconiq Capital, and MIH (a part of South African media company Naspers Group), who along with Tiger Global had invested $200 million in the company in July. At that time, Sachin Bansal, CEO, Flipkart in an official statement said, We are excited to work with a group of investors who strongly believe in our business strategy and are completely aligned with our long-term goals. Indias e-commerce market is at a critical inflection point and this additional capital will allow us to further expand our leadership position.
Wahi of KPMG goes on to say that e-commerce players enter the market with the aim of building the business overnight. The objective is to raise money quickly and grab a bigger chuck of the market by huge spends in advertising and public relations (PR) so as to acquire customers at a faster pace and creating a higher enterprise value in the market. In many cases, e-commerce businesses which create a lot of buzz in the market, irrespective of their volumes/sales, do their IPOs (initial public offering) to capitalise on this, explained Wahi.
If 2012 set the tone for mergers and acquisitions, this year too saw a few smaller players being acquired by the bigger ones even as a few shut shop. It is important to note that most of the websites that closed down their operations were lifestyle stores. The Indian government's announcement that it was allowing FDI in multi-brand retail but not allowing any investment in e-commerce has had a huge impact on the category. Out of the 200-odd e-commerce start-ups started in India in 2012, around 100 so far have gone bust. Most of them have consumed their capital or the amount they received from the venture capitalists; a few decided to close down while others were forced by their investors to get acquired and merge with a category leader, added Abikzir.
Wahi of KMPG in India goes on to say despite all the problems the industry continues to face, e-commerce is booming. In the future, categories such as food and online shopping of groceries are going to start, further driving growth in e-commerce. Also, in the short term, single category operators are expected to do better in terms of profitability due to simpler models and low overheads, he added.