5 factors that will drive e-commerce growth

Online retail has not only captured a large share of the mind space but is increasing market share rapidly.

From relative obscurity to a potential game changer in a matter of just few years, online retail has not only captured a larger share of mind space; it has been grabbing market share rapidly.

Flipkart, one of the largest online retailers in India, grew five times in volume of products sold between 2013 and 2014.

Snapdeal, another large player, is reported to have grown six times in the same period. Is this growth rate sustainable? Here are five factors that will help online retail grow in coming years. 

Localisation of Internet content 

Google India spokesperson says that web content search in Hindi has grown a whopping 155 per cent in the past year, which is significantly higher than the growth of content search in English.

Hindi content searched through mobile Internet grew at even higher rate of 300 per cent in the same period. Growth in traffic in other languages, too, was impressive. 

Sensing an opportunity, Snapdeal launched its interfaces in local languages. “We launched Snapdeal’s multilingual interface in January 2014 in Hindi and Tamil languages and have seen a tremendous response from customers towards this. We will shortly be adding four more regional language interfaces,” says Ankit Khanna, senior vice-president (product management) at Snapdeal.com. 

Online travel firm MakeMyTrip launched its Hindi app in November 2014 and plans to add four more languages - Gujarati, Tamil, Telugu and Malayalam - in the coming months. 

With incremental growth in mobile subscriber coming mostly from people who are comfortable with languages other than English, online retailers see this emergent segment as new growth driver.

Mohit Bahl of consultancy firm KPMG says localisation of content is a great innovation, which will be helpful in future. For those who have already done it, there will be first mover advantage. Others are likely to follow suit, he adds. 

Growth in cities beyond metros

About 20 per cent of India’s population lives in cities outside of metros.

There are several pointers that suggest this large group of city dwellers have significant purchasing power. Honda, for instance, sells 60 per cent of its Amaze car in tier-II and tier-III cities. These cities account for 55 per cent of Honda’s City models. 

Consumer demand is rising rapidly even in small towns and cities. Talking about the potential of fast-moving consumer goods (FMCG) sector, a 2012 Nielsen report says:

“While metros will remain a staple for marketers and increasing a rural footprint will be critical for volumes in the long run, there is a growth opportunity that is vastly under-rated by many marketers today, which could emerge as a key growth engine for the next 10 years. Middle India, a region made up of approximately 400 towns each with a population of 1-10 lakh, are home to 100 million Indians.”

It further says: “These cities are ready to behave like the metros of tomorrow…The annual per capita FMCG consumption of Middle India towns touched Rs  2,800”, which is much higher than the national average of Rs 1,600. 

The Nielsen report clearly shows that non-metro cities offer a huge growth potential for many companies.

“At Snapdeal.com, we get over 60 per cent of the sales from tier and beyond towns and cities,” says Khanna. Other online retailers have reported the same trend. The contribution of these cities in coming years is set to become even bigger. “In addition to the convenience, another factor that is driving our sales in such cities is that many of the brands do not have footprint in these areas. No physical retailer can have the kind of assortment of products that we have,” observes Praveen Sinha, co-founder of online retailer Jabong. 

Growth of mobile commerce 

Online retailers’ growing reach in non-metro cities is being driven by the rise in usage of mobile internet in the country.

According to Internet and Mobile Association of India, the number of mobile internet users in the country stood at 173 million in December 2014. It is set to grow manifold by 2020.

A Confederation of Indian Industry report estimates that in the next six years, the number of people accessing the internet through mobile is set to reach 600 million.

“This growth will be spurred by a sharp rise in smartphone adoption, expected to reach 50 per cent penetration by 2020,” says the report. “Given the increased mobile penetration and smartphone adoption in these areas, mobile is certainly one of the major factors driving this trend,” adds Khanna of Snapdeal.com 

Growing usage of debit cards for cashless transaction 

There has been a net addition of nearly 140 million debit cards in the country in the past two years.

What is more, the usage of debit cards at point of sale terminals has seen a growth of 86 per cent in the same period. It indicates the willingness to use debit cards for purposes other than withdrawing money at ATMs has increased.

With many online retailers still insisting on use of cards for high value transactions, it is a welcome change. It will allow e-tailers to reach out to many areas and many more customers in coming years. 

Currently, cash on delivery constitutes nearly 70 per cent of all transactions for online retailers. But online retailers say the usage of cards for online transactions is steadily rising. 

Growing investment in logistics and warehouses 

Online retailers say they have extended their reach to “12,500-15,000 pin codes” out of nearly 100,000 pin codes in the country.

There are also reports of online retailers trying to tie up with India Post and petrol pump stations to reach out to more customers. Expected aviation boom in small cities might also widen the reach of online retailers in future. 

With estimated investment of nearly $2 billion in logistics and warehouses by 2020, the reach of online retailers to deliver their products in remote locations is set to increase.

“There are many companies set to invest in specialised logistic services with a view to facilitating delivery of online retailers in coming years,” observes Bahl of KPMG.