Sunday, February 26, 2012

E-Commerce in India - A bubble in the making?

E-commerce companies have got substantial investment and consolidation in the Indian E-commerce industry has already begun. With Amazon entering India with, and FlipKart armed with million dollar investments, there is a huge pressure on getting figures. Can the Indian market provide sales to justify this investment.
There are two factors that can give rise to a bubble - The Sunday factor and the Enemy at the gates.
The Sunday Factor
The first factor is the Sunday Factor. The Indian consumer, especially the one that is responsible for majority of e-commerce sales is city based and earning decent money. Cities are equipped with huge malls that give the consumer a holistic shopping experience. Majority of shoppers are under the age of 35. This represents a population that is young, with many who have recently got married (late 20s). Young guys and girls would like to spend time with friends, partners in a place that can give them a restaurant, pub, coffee-shop, branded outlets and also a movie theatre. A perfect Sunday!
Enemy at the gates
FDI in multi-brand retail is an issue that in-high probability might get passed (contingent on the next Lok Sabha election). Moreover, Indian retail chains are looking for investment to drive sales and can be seen entering into JVs. Walmart and CarreFour are already on the gates. With deep pockets and expertise e-commerce portals will have to take a back seat.
The Bubble
It becomes a bubble since the promise shown by the e-commerce Industry in India, might not match up to the projected figures. Recent reports are already showing concerns. The propaganda of promise premised on value of Indian online shopping market has driven investments. These investments (and the hype surrounding it) have got others interested in the Indian e-commerce market. The valuation of many e-commerce firms have come down from last year showing the extent of over-valuation done till last year. With consolidation taking place, investors in e-commerce portals need to have a more realistic look at the market potential and sources of growth.
The Gainers
Indians are value seeking customers. Discount coupon based websites show a lot of promise and potential. It reflects in the million+ visitors of SnapDeal based on the Groupon model. Discount/Bargain based e-commerce platforms will sustain themselves.
Businesses supporting the e-commerce such as logistics, manufacturers, packaging, online marketing stand to gain. Sustenance of e-commerce depends on better utilization of these activities being supported by experts. By sharing these resources e-commerce companies stand to gain and success of these businesses remains necessary for survival of e-commerce. Although you may say, it's ironical but it is not. If an e-commerce portal is in need for more business, greater loyalty or better service who will they look up to? A simple example is the investment of FlipKart in an advertising campaign just before the launch of by Amazon.
The Future
Future depends on innovation shown by e-commerce portals. Presently differentiation is there due to differences in positioning. If one is offering discounts, the other is offering Cash on Delivery, and some offering different product assortments. E-commerce needs to innovate, probably look at a different payment approach, a new distribution system (tie-ups with local businesses), or a different inventory carrying approach reducing inventory costs. E-commerce portals can also use crowdsourcing to drive innovation. They are perfectly placed to use crowdsourcing to their advantage.
Innovation will be the key to break-in and sustain in a rather uncertain Indian retail market (offline and online). Bubble is just a possibility not a certainty. It is contingent on the investment direction of e-commerce companies.