Weather, access and traffic make India an ideal market for e-commerce.
Growing Internet access, largely through smartphones, and the increasing emphasis on cashless transactions make it a potentially lucrative market for e-commerce.
The country’s sheer size and its population make it a potentially big market for e-commerce.
Not surprisingly, Amazon, Flipkart and Snapdeal are battling it out for supremacy in this market, estimated to be worth $38 billion this year, according to industry lobby group Assocham. Still, success will be more a function of how these three deal with the regulatory and market conditions than how they do with each other.
India’s policy regarding foreign investment in retail is fluid. On paper, the country allows foreign investment in supermarkets and department stores, although this policy was crafted by the earlier government and the current dispensation in New Delhi, while not keen to undo a reformist policy, has made it clear that it will not sign off on any applications. Its policy on e-commerce is just a little more complex. India allows 100% foreign direct investment in marketplaces, which provide a technology, payment and delivery platform that connects buyers and sellers. And it places curbs on the extent any one seller can dominate the marketplace, and on discounts.
The regulatory regime is likely transient. India should, sooner than later, allow foreign investment in supermarkets and also in e-commerce sites that are hybrid models allowing direct retail and serving as a marketplace (Amazon follows this model in many countries, including the US). But until then, the challenge for Amazon, Flipkart, and Snapdeal is not to fall foul of it.
The situation is exacerbated by traditional retailers who have taken both the legal and the lobbying route to prevent the march of the marketplaces. Some of this opposition comes from small so-called kirana or mom-and-pop stores. And some definitely comes from Indian Big Retail that would like some protection against deep-pocketed marketplaces. Indeed, a Nielsen report in 2015 showed that online retail in India is growing more at the expense of modern and organized retail than at the cost of kiranastores.
That’s the first challenge.
The second is to build a brand and, through that, brand loyalty. Through 2014 and 2015, the marketplaces have been big advertisers on TV and in print, proof that the ability of the digital medium to build brands is still suspect. Despite that, none has managed to build brand loyalty. In part, the marketplaces themselves are to blame.
They have used their capital, including venture capital, to fund discounts—to such an extent that many shoppers have been conditioned to expect significant discounts, sometimes in excess of 50%. To be sure, many have now gone slow on such sales, and will likely go slower, given the new government policy. The brand, and brand loyalty challenge remain.
The third is to get the supply chain and customer service right—not the easiest thing to do when millions of products are being sold to millions of customers across a few hundred cities and towns. Of the three marketplaces, only Amazon seems to have really focused on this, and the results are there for all to see.