E-commerce: Watch out for more twists and turns

As e-commerce players in India race to acquire customers, they will need to keep an eye on their precarious bottom lines as well as on their deep-pocket rivals.

E-commerce: Watch out for more twists and turns

Globally, customers are increasingly accessing products and services through the e-commerce channel. The internet provides a platform for businesses to scale rapidly; the speedy convergence of mobile, social media and big data are altering the way business connects with customers. This channel is expected to disrupt the conventional ways of doing business. Three basic trends along with key challenges for the Indian e-commerce industry are described below.

Rapid growth in size of the e-commerce industry. A study conducted by KPMG in India and IAMAI estimated that e-commerce is expected to contribute around 4% to GDP by 2020. The e-commerce sector in India was in infancy for the larger part of the previous decade.

However, in the last four to five years, the market has witnessed an explosive growth from $3.8 billion in 2009 to $13 billion in 2013 but that seems to be only the tip of the iceberg. While the internet penetration of 17% in India is low; the absolute number of internet users at approximately 30 million is high. This connected user base presents a great opportunity for e-commerce.

Additionally, factors such as changing lifestyles, device convergence, rapid urbanisation, growing aspirations of ?rurban? India and increasing affinity to organised retail are fueling the growth of e-commerce.

Innovation and churn in business models to continue. The unprecedented growth in this sector has attracted the attention of various industry analysts who have often debated on the mantra for success in this space. Young entrepreneurs and seasoned players have been experimenting with various business models in their quest to crack the code. Both inventory-led asset heavy and marketplace models co-exist here, and there seems to be enough space for niche players as well as players with diversified offerings to position respective value propositions and be equally accepted in the market. This phenomenon may continue till equilibrium sets in. This equilibrium can be characterised by predictability of outcome for buyer and clarity and stability of the regulatory system to offer a level playing field for various players with different business models. Whatever be the model, the customer is expected to be the beneficiary.

While customer acquisition is of importance, their loyalty and experience should be on par as well. The industry awaits the ever-elusive equilibrium while companies jockey for wallet/mind share. E-commerce players are expanding their product portfolio and many are introducing flash sales at jaw- dropping discounts to build their customer business newsbase.

Customer acquisition remains a top priority for e-commerce players

as a way to demonstrate scale, loyalty and retention, and to sustain in the competitive market. Many companies are already innovating and adopting distinct business practices in order to stay in the game and succeed. Policies around same-day shipping and 30-day return policy can be viewed as steps

in this direction. Personalised shopping experience, exclusive product launches, real time information on new deals or order status have been introduced from the perspective of customer centricity.

Challenges for the sector

Notwithstanding the hoopla around e-commerce, certain fundamental issues plague this industry. As existing players and new entrants race to acquire new customers, often the hook used to attract them is deep discounts on products. This tends to affect the already precarious bottom line. In addition to this, a number of international players are setting or planning to set up shop in India. These players often enter the market with deep pockets and lots of operational experience. The pure-play e-commerce players are also challenged by the entry of brick-and-mortar retailers into the online space. Many of these players are part of big conglomerates and have deep pockets. Further, they have an existing customer base and an established supply chain backbone which can be major areas of concern for pure-play e-commerce players.

The existing taxation norms for e-commerce are complex and open to interpretations. Revenue attribution becomes difficult due to lack of clarity on permanent establishment regulations for e-commerce. Inter-state taxation rules have further added to the confusion. Also, restrictions on foreign direct investment (FDI) in e-tail seem to be restricting the access to much needed capital for investments in technology and fulfillment services. The industry is also saddled with several infrastructural issues. Limitations in enabling ?last mile connectivity? and a weak logistics infrastructure is possibly restricting the growth of this industry.

This sector is being watched not only for the huge latent opportunity but also for the structural improvements that the new government may bring in. There may be changes and churn in this sector but the sentiment seems positive.

Ashvin Vellody

The author is partner – management consulting, KPMG in

India. The views expressed here are personal.

business news

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 04-11-2014 at 05:25 IST