According to data from Forrester’s Consumer Technographics® Asia Pacific Online Benchmark Survey, 2016, in the past three months Amazon has, for the first time since 2014, surpassed Flipkart as the preferred online retail destination for consumers in India’s metropolitan areas. Amazon’s takeover has been rapid: 30% of respondents in our 2014 survey reported buying from Amazon; this year, 76% said they did. Compare this with Flipkart’s essentially flat growth: from 63% in 2014 to 68% in 2016. Snapdeal remains far behind both Amazon and Flipkart.
The web impacted more than a third of total retail sales in 2015 and will impact 48% by 2020. Smartphones are becoming consumers’ most widely used mobile device, and consumers are using them to find information about a product irrespective of their location. They use them to research products, even when they are shopping in physical stores; to compare prices with online retailers; to check specifications; and to read user reviews. This behavior is making the web a more powerful medium — one that retailers can no longer ignore. We expect web-influenced retail sales in Asia Pacific to reach $2.1 trillion in 2020, up from $1.2 trillion in 2015.
South Korea leads in web-impacted sales . . . High penetration rates for the internet, smartphones, online retail, social media, online payment options, and messaging platforms are powering the web’s impact on retail sales in South Korea. Similar factors mean that Japan, China, and Australia closely follow South Korea in terms of web-impacted sales.
The Indian government issued new guidelines for FDI in eCommerce on March 29, 2016 to provide clear definitions for the sector and to remove ambiguities in the law that companies have been using to get foreign investment. Here are some of the key changes and my thoughts on their impact:
The government has defined an eCommerce entity, a marketplace model, and an inventory-led model. For the first time, the government has given clear definitions to remove the ambiguity in this sector. It also makes clearer the government’s position on the business models that online retailers are adopting. Online retailers are increasingly adopting an inventory-led model, as it gives them more control over supply and speeds the route to profitability. By not allowing FDI in the inventory-led model, the government has made it more complicated for online retailers looking to become profitable in the near term to support their valuations, go for an IPO, or raise funds.
100% FDI is allowed in the marketplace model. Allowing 100% FDI in the marketplace model largely maintains the status quo, as most online retail companies like Amazon, Flipkart, and Snapdeal are funded through the marketplace loophole; these companies position themselves as technology facilitators for the buyer and seller. The new guidelines will help boost investment in marketplaces, as not every investor has felt confident about investing via a loophole. This is good news for the leading marketplaces that are looking for more funds to grow their business; they can now approach a new set of investors who were waiting for this clarification from the government.
Brazil remains the largest, but slowest-growing, online retail market. The online retail market in Brazil is double the online retail markets of Argentina and Mexico combined. But the ongoing economic crisis in Brazil is hurting its online retail market and causing a slowdown. We expect online retail in Brazil to grow at a compound annual growth rate (CAGR) of 10.5% from 2015 to 2020, compared with the CAGR of 28.3% witnessed from 2010 to 2015. Customers are spending less on both offline and online retail, which affects the overall growth rate and penetration of online retail, particularly in non-metropolitan areas. A lack of regulations and an unfavorable tax regime make it difficult for online retailers to expand beyond metropolitan areas.
The retail market in India is going through a very interesting phase. Online retailers are flush with funds and spending aggressively on acquiring customers and building infrastructure, while organized retailers are trying to come out of their “wait and see” mode before online sales start hurting them in categories other than music, books, and mobile phones. The Indian online retail market is the fastest-growing market in Asia Pacific, although it is still very small compared to China and Japan. According to the recently published Forrester Research Online Retail Forecast, 2015 To 2020 (Asia Pacific), we expect it to grow at a CAGR of 44% from 2015 to 2020 to reach $75 billion. We also predict that:
The influence of the Web on retail sales will increase. Less than 2% of total retail sales in India are online, but the Web’s influence is much bigger. Customers are using the Internet to research products (even when they are shopping in physical stores); to compare prices with online retailers; to check specifications; and to read user reviews. This is making the Web a powerful medium, one that organized retailers can’t ignore. As such, we expect to see organized retailers undertaking more online activities in 2016.
Last year, the number of smartphone subscribers in the world surpassed the number of feature phone subscribers. We expect the share of people using smartphones to grow at a rapid pace through 2020, when 87% of all mobile subscribers will have a smartphone. Several factors will drive this trend, including the falling average selling price of smartphones, the increasing availability of low-cost data plans, greater 3G penetration, and the continued rise of mobile messaging apps, social media, mCommerce, and mobile apps. The majority of new smartphone subscribers will come from Asia Pacific and Africa; the opportunity that developed markets present to handset manufacturers is primarily in the form of handset replacement. According to our recently published Forrester Research World Mobile And Smartphone Adoption Forecast, 2015 To 2020 (Global), in 2020 there will be more than 5.4 billion active smartphones in the hands of more than 3.6 billion subscribers across the globe. Some of the implications of rapid smartphone growth are as follows:
Shortening the smartphone replacement cycle in developed markets.In most developed markets, smartphone penetration is saturating; vendors are expected to launch programs like Apple’s iPhone Upgrade Program to increase smartphone sales by shortening the replacement cycle. And it’s not just the US; handset manufacturers or telcos may launch similar programs in other regions with high smartphone penetration, including Australia, Canada, France, Germany, Hong Kong, the Netherlands, Norway, Saudi Arabia, Singapore, South Korea, Spain, Sweden, the UK, and the United Arab Emirates.
Apple and Google have recently announced the total number of app downloads from their app stores over the past 12 months. Apps downloaded by by iOS users crossed the 100 billion mark in June 2015 — 25 billion of those in the past 12 months — while Android users have downloaded more than 50 billion apps in the past 12 months. Google did not announce a cumulative download figure, although we know that app downloads passed 50 billion in July 2013. It took Android almost 57 months to cross the 50 billion milestone, compared with about 59 months for Apple. Android app downloads have overtaken iOS app downloads due to the rapid adoption of Android-based phones in emerging markets. However, this does not include Chinese app stores serving Android users, such as 360 Mobile Assistant, Myapp, Baidu, MIUI, Wandoujia, Huawei, and Anzhi Market; our just-published Forrester Research Mobile Application Spending Forecast, 2015 To 2020 (Global) indicates that these entities will account for more than half of the expected 226 billion app downloads in 2015.
Less than 1% of total retail sales in India were made online in 2014, but the impact of the Web on offline sales is much greater. The emergence of smartphones and the mobile Internet is playing a much bigger role in influencing the purchase decisions of online users. Customers are using them to research products, even when they are shopping in physical stores; to compare prices with online retailers; to check specifications; and to read user reviews. This user behavior is making the Web a more powerful medium — one that retailers can no longer ignore. It is most influential in categories like computer hardware and software, media, footwear, apparel, and consumer electronics, as these contain a greater number of online-savvy retailers. We recently published the Forrester Research Web-Influenced Retail Sales Forecast, 2014 To 2019 (India), which reveals that:
$70 billion in offline sales in India will be influenced by the Web in 2019. This is more than twice the volume of total online retail sales in India, emphasizing the importance of the Web as a way for retailers to connect with customers.
Alibaba has an ambitious goal: becoming the first company to exceed $1 trillion in gross merchandise value in the next five years. To accomplish this, Alibaba is looking to expand in emerging markets, as developed markets like North America and Europe are mature and have high barriers to entry. Emerging markets with rapidly growing smartphone penetration, relatively poor offline retail experiences, challenging logistics environments, and limited online payment infrastructures are ideal targets for Alibaba’s expansion.
The mobile marketplace is a huge opportunity. Forrester expects mCommerce in India to top $19 billion by 2019— an attractive opportunity for players like Paytm, which currently counts more than 25 million users. Forrester expects that the number of online buyers in India will rise from 36 million in 2014 to 125 million by 2019.
On November 20, Google released a report on the findings from a survey it conducted in collaboration with Forrester on online shopping trends in India. The report highlights what’s driving the growth of eCommerce in India, including mobile commerce, female shoppers, and the growing number of people in tier two and tier three cities making purchases online. However, the report also noted some barriers to online retail in India, such as its poor showing regarding customer satisfaction and trust; to make further progress, eCommerce firms must work hard to improve in these areas. The report’s key findings involved:
Mobile shoppers. Mobile is driving the market, especially in tier two and tier three cities in India. Half of the online shoppers in tier three cities are already on mobile, compared with just one-third in tier one cities. The percentage of online buyers making shopping queries from a mobile device has grown from 24% in 2012 to 57% in 2014. Forrester forecasts that mCommerce in India will reach $19 billion by 2019.
Women. Women are far more active buyers than men in tier one cities. They outspend men online by two to one, and one-quarter of women in tier one cities make mobile purchases.
New buyers. More than 70% of people in tier one and tier two cities who do not currently make purchases online are expected to do so in the next 12 months.
New growth areas. Home furnishings, cosmetics, and baby care are the next areas of growth for online retail after the success of online retail in the consumer electronics segment.