Some bitter-sweet pill has just been served to the Indian digital retail business, or e-tail as it is popularly known.
If the bitter part be served first, per capita spending in the Indian e-tail space will grow single digit, and well below the country’s projected GDP growth. The sweet part is that by 2020, the overall e-tail business in India is expected to grow four times by value, while the number of online buyers will grow by 2.5 times.
According to the “Digital Retail 2020” study by Google and consulting firm AT Kearney, the value of online purchases by Indian consumers will increase to $60 billion (Rs 4 lakh crore) with 175 million Indians buying stuff online from the current total annual e-tail business of $15 billion (Rs 1 lakh crore) and 50 million buyers. The report also said that 9 out of 10 online buyers will continue to shop online even without discount, provided sellers offer a wide range of branded products that makes the overall shopping experience more convenient. This should come as some comfort to the e-commerce businesses such as Flipkart, Amazon and Snapdeal, which are facing some policy decisions by the central government that is trying to clamp down on deep discounts offered by the online sellers.
Over the projected period, digital retail would account for a fourth of the overall retail business from around 15% at present, the report added.
While the overall business growth projected over the next four years promises exciting days ahead, the per capita spending would have grown by less than 15% over this period,k or around 4 percentage points a year for the next four years, which is well below the country’s 7%- plus average GDP growth projected.
Ajay Gupta, partner in A T Kearney and co-author of the report, said that the cheaper products jumping into the e-tail bandwagon would in part explain the projected single-digit growth in per capita spending. This would expand the overall range of products sold online and reach a much larger number of buyers.
The report also projects that the two-thirds of all that is sold online will be bought by a third of the total number of projected online buyers.
“Some of the areas that will accelerate and support profitability include a focused approach to drive deeper engagement with 60 million high-value customers as they will drive two-thirds of the total spends on e-tailing,” said Rajan Anandan, vice-president and managing director of Google, South East Asia and India.
The report recommends that to reach the projected numbers in terms of value of merchandise and number of buyers, the number of sellers will have to grow by five times over the next four years.
“As the internet continues to grow, digital presence is paramount for brands and organised retail. It will influence 50% of all purchase decisions be it in discovery or comparison. Our data reveals that majority of buyers will continue to purchase online even if there are no discounts. With the right game plan and focussed efforts, the e-tailing industry will grow at a healthy CAGR of 40%+,” said Gupta.
Over the next four years, the share of e-tail spending by women would have more than doubled from the current 20% to 42% in 2020, the report said.
This projection has been made on the assumption that more women will have access to plastic and online money and become more trusting over sharing personal data online in the coming years. The authors of the report said that the late adoption among women in buying online in a way follows the same delayed pattern seen in women having internet access.
According to the report, lifestyle (apparels and accessories) as a category will overtake consumer electronics to become the largest online category by 2020 at 35% of the total online spends. Consumer electronics will be at 20% by 2020.
Omni-channel presence will become very important in home and furnishings, lifestyle and consumer electronics category to serve the need-gaps of non-buyers. In home and furnishings, over 60% buyers wanted physical stores to be able to see and test the product before buying. In lifestyle, 40% respondents said that the offline stores will help in alteration of clothes, and for consumer durables 60% buyers wanted salesman guidance for installing and using the product.
By 2020, 55% of online volumes will be driven by cashless transactions. Mobile wallet share will double by 2020 to reach 15% from the current 8%. The base of online sellers will need to grow by more than 5 times to cater to the increase in demand from users across geographies and improve delivery capabilities.
The report was compiled by combining primary research of over 3,000 consumers, qualitative interactions of over 60-plus consumers and AT Kearney’s proprietary model predicting e-commerce spends across categories, income segments, and geographies in 2020. Respondents comprised 1,380 online buyers and 1,380 non-buyers , sellers and non-internet users across 20 cities in India, including metros and tier 1, 2 and 3 cities.