After defying gravity for long, online sales in India are beginning to feel the heat of recession. Ecommerce has seen its slowest growth in the last couple of quarters. Early indicators from the latest industry studies confirm that online commerce might have grown much slower than the 30% projected earlier.
With the declining cost of PCs and increasing penetration of the internet, the growth of ecommerce in the country was widely expected to grow unabated for long. Hit hard by recession and increasing cases of data frauds and terrorist activities, ecommerce growth is weaker than ever. Far from purchasing expensive home appliances and other electronics products on the internet, tech-savvy buyers are confining themselves to the online purchase of small value gifts, apparel accessories, books to name a few.
Studies conducted by IAMAI and IMRB show that ecommerce, which was expected to reach Rs 9,210 crore by 2008?a 30% growth over the previous year?might have just missed the mark. Tarun Abhichandani, insight director, IMRB says, ?Previous research had estimated the market size for ecommerce industry in 2007 at Rs 7,080 crore. With the continued anticipation of growth, the industry was expected to grow to Rs 9,210 crore last year. However due to recent global downturn, the industry might have fallen short of this estimated figure.?
Though the worst hit sectors are undoubtedly online travel and hospitality industries, non-travel has not completed been left unscarred.
For instance e-tailing, according to some players in the market, have not shown a downtrend, ?except for the days when Mumbai was under siege,? says Uday Sodhi, senior vice-president (interactive services), Rediff.com.
According to IAMAI, e-tailing was expected to grow to Rs 1,105 crore in 2007-08, up by Rs 255 crore than the previous year. But it is possible that e-tailing might not have grown as expected.
eBay claims to have earned high profits in 2008 and the revenues earned in the third quarter of 2008 amounted to $1.38 billion, thus recording 4% year-over-year growth. eBay offers three formats of selling products online: auction format, fixed-price format and classified and has 85.7 million active users worldwide and over 2 million registered users spread across 670 cities in India.
It is true that online activity has indeed surged year after year, riding on the twin benefits of reduced cost of PCs and increasing penetration of internet. Diptarup Chakraborti, principal research analyst at Gartner says, ?PC penetration has increased to 32 per 1,000 people since the last year?it is a 9% growth over 2007?. This has increased the number of active users of internet too. According to IAMAI, an active user is one who has used the internet at least once in the last one month. Last fiscal, the active users have increased to 32 million users from 21.1 million users in 2006-07.
The big question is if online retailing has gone up at the same pace? Surveys conducted by Juxt Consult have shown a steady decline in the number of online buyers in all the four quarters of 2008. Sanjay Tiwari, director, Juxt Consult says, ?80% of the active users either search or buy products on the internet. This makes the online shoppers? base in India as large as 28 million. However, of these 28 million online shoppers, only 28% (7.97 million) end up buying online. The rest 72% of them (20.07 million) only search for products, but do not buy them online. Effectively, this means that only one out of four online shoppers actually buy products on the internet.?
Compared to 2007 when the number of active online buyers stood at 6.16 million, the base of active buyers has grown by 1.81 million to reach 7.97 million last year. However, when compared to the level of PC penetration in the country, this growth can only be described as average. ?This average growth is also indicated by the fact that the base of online buyers among the regular internet users has just grown from 10.78 million in 2007 to 11.23 million in 2008,? says Tiwari.
Most retailers confirm the surge in sales, typically seen during festivals. ?Rakhi saw a surge by 45% and Diwali recorded a two times greater sale in 2008,? says Indiatimes head of ecommerce, Ashish Vijh. Nevertheless, he could not deny the obvious that during the third and the fourth quarters when global recession and terror attacks shook India, people restricted their purchases and few did shift towards lower ticket value items.
On the other hand, saleraja.com saw a dip of 20% in growth in the third quarter, as compared to 50-60% growth in the other quarters. Sumit Gupta, account manager, saleraja.com says, ?With September witnessing the Delhi bomb blasts and November the Mumbai attacks, these two months were really low periods.?
October was the best month and so were July and August. ?I think it is more of a seasonal rise and fall of traffic as per festivities,? he adds. Despite the external environment, infrastructural barriers and security issues, industry majors are insisting that missed targets last year could just be a blip. They will have to wait for festive season in second half of the year to confirm if growth will be back in 2009.