Overview The ongoing digital transformation in the country is expected to increase India’s total internet user base to 829 million by 2021 from 560.01 million as of September 2018. India’s internet economy is expected to double from US$125 billion as of April 2017 to US$ 250 billion by 2020, majorly backed by ecommerce. India’s E-commerce revenue is expected to jump from US$ 39 billion in 2017 to US$ 120 billion in 2020, growing at an annual rate of 51 per cent, the highest in the world. (Source: https://www.ibef.org as of December 2018) Current Market Trends Electronics is currently the biggest online retail sales category with a share of 48 per cent, followed closely by apparel at 29 per cent. eCommerce has made it easier for top American brands to reach Indian customers and has emerged as one of the fast-growing trade channels available for the cross-border trade of goods and services. There is a growing appetite for international brands and better-quality foreign products amongst digitally connected Indian shoppers due to rising income levels and increased awareness. Several categories including lifestyle products, consumer electronics, clothing, footwear, jewelry and accessories, health and beauty, household goods, art and collectibles, event tickets and online music are doing well for online sales. eCommerce in India can be broadly categorized as: domestic and cross-border, B2B and B2C, marketplace and inventory based. Technology enabled innovations such as digital payments, hyper-local logistics, analytics driven customer engagement and digital advertisements have enabled the eCommerce industry in India to grow at a much faster rate. Government initiatives such as Digital India, Skill India, Startup India and Make in India are also contributing to the growth of the eCommerce industry. Some of the major developments in the India eCommerce sector are:
eCommerce is India’s fastest growing and most exciting channel for commercial transactions. The Indian e-commerce market is expected to grow to US$200 billion by 2026 from US$ 48.5billion as of 2018. This growth has been triggered by increasing internet and smartphone penetration.
Online retail sales in India are expected to grow by 31 per cent to US$ 32.70 billion in 2018, led by Flipkart, Amazon India and Paytm Mall.
•Flipkart, after getting acquired by Walmart for US$ 16 billion, is expected to launch more offline retail stores in India to promote private labels in segments such as fashion and electronics. In September 2018, Flipkart acquired Israel based analytics start-up Upstream Commerce that will help the firm to price and position its products in an efficient way.
•Launch of Paytm Payment Bank. Paytm bank is India's first bank with zero charges on online transactions, no minimum balance requirement and free virtual debit card
•The E-commerce industry in India witnessed 21 private equity and venture capital deals worth US$ 2.1 billion in 2017 and 40 deals worth US$ 1,129 million in the first half of 2018.
•Google enters India's eCommerce Space with Google Shopping. Google and Tata Trust have collaborated for the project ‘Internet Saathi’ to improve internet penetration among rural women in India
The ongoing digital transformation in the country is expected to increase India’s total internet user base to 829 million by 2021 from 560.01 million as of September 2018. India’s internet economy is expected to double from US$125 billion as of April 2017 to US$ 250 billion by 2020, majorly backed by ecommerce. India’s E-commerce revenue is expected to jump from US$ 39 billion in 2017 to US$ 120 billion in 2020, growing at an annual rate of 51 per cent, the highest in the world.
(Source: https://www.ibef.org as of December 2018)
Current Market Trends
Electronics is currently the biggest online retail sales category with a share of 48 per cent, followed closely by apparel at 29 per cent.
eCommerce has made it easier for top American brands to reach Indian customers and has emerged as one of the fast-growing trade channels available for the cross-border trade of goods and services.
There is a growing appetite for international brands and better-quality foreign products amongst digitally connected Indian shoppers due to rising income levels and increased awareness. Several categories including lifestyle products, consumer electronics, clothing, footwear, jewelry and accessories, health and beauty, household goods, art and collectibles, event tickets and online music are doing well for online sales.
eCommerce in India can be broadly categorized as: domestic and cross-border, B2B and B2C, marketplace and inventory based.
Technology enabled innovations such as digital payments, hyper-local logistics, analytics driven customer engagement and digital advertisements have enabled the eCommerce industry in India to grow at a much faster rate.
Government initiatives such as Digital India, Skill India, Startup India and Make in India are also contributing to the growth of the eCommerce industry.
Some of the major developments in the India eCommerce sector are:
•The Reserve Bank of India (RBI) has decided to allow "inter-operability" among Prepaid Payment Instruments (PPIs) such as digital wallets, prepaid cash coupons and prepaid telephone top-up cards. RBI has also instructed banks and companies to make all know-your-customer (KYC)-compliant prepaid payment instruments (PPIs), like mobile wallets, interoperable amongst themselves via Unified Payments Interface (UPI).
•The Government of India has distributed rewards worth around US$23.8 million to 1 million customers for embracing digital payments, under the Lucky Grahak Yojana and Digi-Dhan Vyapar Yojana.
•The Government of India launched an e-commerce portal called TRIFED and an m-commerce portal called ‘Tribes India’ which will enable 55,000 tribal artisans get access to international markets.
•To increase the participation of foreign players in the e-commerce field, the Indian Government hiked the limit of foreign direct investment (FDI) in the E-commerce marketplace model for up to 100 per cent (in B2B models).
•The e-commerce industry been directly impacting the micro, small & medium enterprises (MSME) in India by providing means of financing, technology and training and has a favorable cascading effect on other industries as well.
NEW Government Regulatory Landscape for eCommerce Foreign Direct Investment (FDI):
On December 26th, 2018 the Department for Promotion of Industry and Internal Trade under the Ministry of Commerce (the "DPIIT"), introduced stricter guidelines that govern foreign direct investment ("FDI") in e-commerce firms.
Clarification to the FDI policy:
Setting forth the definitions of e-commerce, e-commerce entities, market place-based model and inventory-based model, the policy clarifies that 100 percent foreign direct investment is permitted, under the automatic route, in marketplace models of e-commerce and no FDI is permitted in inventory-based models of e-commerce. These changes came into effect on February 1, 2019.
The new guidelines bar online retailers from selling products of companies in which they own stakes. The policy states that a business having equity participation or control of its inventory by e-commerce marketplace entities will not be permitted to sell its products on such marketplace entities’ online platforms.
Inventory Based or Marketplace Based:
The policy further explains that a marketplace e-commerce entity shall not own or exercise control over the goods sold on the platform. Any ownership or control over the goods sold by the market place entity will render the entity into an inventory-based model. The inventory of a vendor will be deemed to be controlled by the e-commerce marketplace entity if more than 25 percent of vendor sales are from the marketplace entity.
The new norms also bar exclusive tie-ups between e-commerce entities that follow the 'marketplace model' and sellers using their platform. An e-commerce entity is prohibited from directing a seller to exclusively sell only on one platform. This move may affect smartphone brands that till date have exclusively operated as online-exclusive brands on online marketplaces like Amazon India and Flipkart.
Services Offered by the E-Commerce Entity:
In a marketplace model, the e-commerce firm is not allowed to directly or indirectly influence the sale price of goods or services and is required to offer a level playing field to all vendors. That services offered by the e-commerce entity are to be offered to all vendors on the platform in a fair and non-discriminatory manner. These services include, among other things, quick delivery, logistics, warehousing, advertising, marketing, payments and financing.
There is a new requirement for all e-commerce marketplace entities to furnish to the Reserve Bank of India (the "RBI"), a certificate along with a report of a statutory auditor, confirming compliance with the guidelines by the 30th of September every year.
The revamped e-commerce norms are stricter in nature and will force online retailers such as Amazon and Walmart owned Flipkart and Myntra to tweak their business plans and revisit their India plans going forward.
Domestic eCommerce (B2C)
The presence of international marketplace players in India like Amazon, eBay (now being sold to home grown FlipKart), Alibaba and others competing alongside the domestic marketplace operators such as Flipkart, Snapdeal, TataCliq as well as with inventory led e-tailers, have made India’s domestic eCommerce sector highly competitive.
With no major entry barriers and with few e-tailers the Indian market for eCommerce has grown at a faster pace for the past three years. Omni-Channel retailers such as Shoppers-stop, Reliance, Croma etc. have also embraced eCommerce as another sales channel to increase digital footprints.
In some cases, e-tailers are tying up with exclusive American brands to sell U.S. products on their platforms. Additionally, Omni-channel retailers are also importing leading American brands and selling them via eCommerce.
The U.S. is one of the top ten countries for cross-border shopping for Indian buyers. Automotive, baby supplies, toys, clothing, footwear, wearables and accessories, jewelry, watches, cosmetics, health products and digital entertainment and educational services are some of the leading categories for cross-border B2C eCommerce. Some of the challenges restricting growth of cross-border eCommerce are high shipping costs, import duties and complexities in returns and exchanges.
To tap the huge potential in the B2B eCommerce market in India, leading B2B companies have started to build their own platforms for small business owners and traders. More and more companies and SMEs are buying and selling online and plan to shift procurement transactions through the internet. Understanding this untapped potential of the B2B eCommerce industry, the government has allowed 100 percent FDI in the B2B e-Commerce sector.
There is a new trend of emerging eCommerce aggregators aiming to digitize several offline services to create a convenient ecosystem for consumers.
Tourism: MakeMyTrip; Goibibo; Yatra; IRCTC
Education: EduKart; Meritnation
Healthcare: Portea; Healthkart
Entertainment/ Ticket booking: Netflix; bookmyshow
Real Estate: MagicBricks; Housing, 99 acres
Fin-tech: PayTM, Freecharge, PayUmoney, Mobikwik, PhonePe
E-commerce Sector Composition
Currently there are 1 to 1.2 million transactions per day in eCommerce retailing. Given below is the split of sectors according to popularity:
Home and Furnishing: 9%
Baby, Beauty & Personal care: 8%
Online Beauty & Cosmetics Market in India
The strong growth of organized retail and eCommerce in India is also creating a demand for more imported cosmetics products including second tier cities. In general, the Indian consumer is aware, well-traveled and more exposed and connected than ever before. Consumer behavior patterns in India are changing as well as Indian consumers have moved from being traditionally savers to spenders.
The online cosmetics market sees a close competition between marketplace players like Amazon and Flipkart with beauty focused online retailers like Nykaa and Purplle.
The online cosmetics market, valued at USD 50 million, is 2 percent of the total Indian cosmetics market. Nykaa, started in 2012, and currently offers over 600 brands in both offline and online stores. The company plans to increase its offline footprint by establishing 35 stores across India and targets yearly sales of over USD 155 million by 2025.
The mushrooming of beauty service aggregators like My Glamm, Belita, Big Stylist, Vanity Cube and portals in the men’s grooming sector like Beardo and Ustra are also a result of the influence of internet penetration in India.
eCommerce Intellectual Property Rights
•The Internet is borderless with minimum regulation, and therefore protecting intellectual property rights (IPR) on Internet is a growing concern. There are currently several significant IPR issues including misuse of trademark rights. Other common issues with respect to IP in E-Commerce are:
•Content creation through third party
•Use of third-party content on Website
•Hyperlinking, framing and meta tagging
•Domain names, business names, logos
Popular eCommerce Sites
•B2C: Flipkart, Myntra, Jabong, Amazon, Snapdeal, eBay, PayTM, Shopclues, Pepperfry, Zomato, BigBasket, Alibaba
•B2B: Tolexo, Industrybuying, moglix, msupply, amazonbusiness
Cash on Delivery quickly changed into Card on Delivery (COD). Cash transactions resulted in high administration costs for eCommerce companies which reduced their margins; however, digital payment solutions are evolving fast to address these challenges.
According to the Reserve Bank of India, in June of 2018 Indians had 944 million debit cards that could be used for online payment. E-Commerce companies report that 61 percent of customers use debit cards for payment. This clearly reflects that people are getting comfortable with using debit cards for activities other than withdrawals at ATM and many online retailers insist on debit card payment for high value transactions, which will help e-tailers to increase their reach.
According to industry experts, digital payments will act as a game changer for the domestic e-commerce business and the current trend of dominance of cash-on-delivery would be reversed in the next five years.
According to a Google India and BCG report, increases in purchasing by women and new internet users from smaller cities the digital spending is expected to increase to $100 million by 2020.
The launch of a Unified Payments Interface (UPI) by the Reserve Bank of India is expected to be a game changer. The UPI will enable eCommerce delivery staff to collect money electronically for even COD transactions.
Mobile eCommerce (m-commerce) is growing rapidly as a secure supplement to the eCommerce industry. Industry leaders believe that m-commerce could contribute up to 70 percent of their total revenues. India has topped the U.S. to become the second largest market for smartphones after China. The number of smartphone users is expected to reach 650 million by 2019, 700 million by 2020 and 829 million by 2021.
Major Buying Holidays
•Diwali festival (October or November of the year)
•Rakhi festival (August)
•Christmas (The last week of December)
Facebook and Twitter are the most popular social media platforms in India.
•“Digital Advertising India” report jointly published by the Internet and Mobile Association of India (IAMAI) and IMRB International
•“eCommerce in India – A game changer for the economy’ by Confederation of Indian Industry
•“E-Commerce in India – Legal, Tax and Regulatory Analysis” by Nishith Desai and Associates IAmWire
•Online beauty & cosmetic India market - RedSeer Consulting
•Indian eCommerce Industry -India Brand Equity Foundation (IBEF)
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