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Posted by Satish Meena on October 20, 2014
India’s online retail market is on the radar of global investors and eCommerce players, which have announced investments topping $3.6 billion in the past three months, including $2 billion in Amazon, $1 billion in Flipkart, and potentially $650 million in Snapdeal. Growth in India’s online retail market is powered by its fast-growing smartphone penetration, as customers are increasingly using their mobile phones to buy products online. More than half of Snapdeal’s and Flipkart’s sales and nearly 35% of Amazon’s traffic come from mobile in last few months
While India is still a small eCommerce market, it’s growing at the fastest rate in the Asia Pacific region. According to Forrester’s Asia Pacific Online Retail Forecast, 2014 to 2019, India will have 125 million online buyers by the end of 2019. Forrester expects mobile to overtake PCs in 2016 in terms of sales and reach $19 billion by 2019. Key factors driving mCommerce growth include customer demand and investment from key players:
- More people from tier two, three, and four cities are buying on mobile. Nearly one-third of India’s 1.2 billion people lives in tier one through tier four cities — the near-term addressable market for eCommerce companies. Only 8% of the populace lives in the top eight tier one cities, where eCommerce penetration is already high. Other cities face low PC and broadband penetration but also have fewer brick-and-mortar stores, allowing eCommerce to fill the gap. Smartphones are enabling eCommerce in tier two, three, and four cities where broadband penetration is very low. Mobile phones are the primary purchasing channel in tier three cities, regardless of how frequently a consumer purchases. The use of PCs for online buying is lower in tier three cities than in other tiers; around 62% of online fashion store Jabong’s recent sales and 45% of the revenues of Myntra (acquired by Flipkart in May 2014) come from physical stores in tier two and tier three cities. We expect people living in tier four cities (16% of India’s population) to behave similarly to those in tier three and adopt eCommerce via mobile.
- Vendors are investing more in mobile platforms. Key market players including Amazon, Flipkart, Jabong, and Snapdeal have already promised increased focus on and investment in the mobile space. Paytm is looking to raise $200 million to become full-fledged mCommerce company. Paytm aims to process 1 million mobile orders per day by 2016, up from around 320,000 currently. Another player, Freecharge, also raised $33 million to build an offline-to-online advertising platform to tap the growing mCommerce market.
In order to cater to growing demand and increase the wallet share and penetration of online commerce, these companies have a lot of work to do in IT infrastructure and logistics. eCommerce companies are working on tie-ups with India Post and petrol pump outlets to increase their coverage in smaller cities. But before they can start thinking about profitability, eCommerce players must first cross the barrier of 100 million buyers in India so that they have the attention of a significant chunk of the country’s customers — and mobile is the fastest way to achieve that. The Big Billion Day flash sale was a test of both the demand and supply sides of India’s eCommerce market and have clearly shown that eCommerce companies have their work cut out for them in coming years.
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