Shopping 24/7

India becomes an exciting e-retail market as middle-class customers with an Internet facility plump for online shopping.

THERE was a time when I was so uncomfortable using my credit card online that I would pay extra money to an agent to book my tickets or trudge to the bookstore to buy what I was looking for. If I couldn't find what I wanted, I would place an order, wait until the store's people called to say the book had arrived and then go and collect it. When Flipkart introduced cash on delivery [COD], I tried it once to order a book, and have never looked back since. Now I am hooked. I buy all sorts of things online gadgets, gifts, clothes, shoes, movie tickets and I even use my credit card! It is so convenient and safe that I cannot believe I resisted it for so long, says Anjali Sharma, a teacher in a primary school in Mumbai.

It took a little while, but online retail, or e-retail, has arrived in India. It is the hottest thing or the next big boom, many people in the industry say. Online retailers, retail analysts, shoppers and retailers say Indians are finally shedding their fear of online shopping.

The trend caught on in early 2011, and the industry saw a multifold growth during the year. With Internet penetration increasing rapidly in the country, analysts expect the online retail sector to see a huge growth this year. However, there others who say that the present enthusiasm is largely due to dotcoms being flush with venture capital funds. Whether they are commercially profitable will become clear only in a few years. In all likelihood, the coming year will see the curve rise sharply and plateau eventually. But the dotcoms are unlikely to go bust the way they did after the previous boom.

Analysts say that after the previous dotcom boom, several factors have changed in the past decade and that the potential of online retail in a country as large as India is exponential. The Indian middle class, although it constitutes only a small percentage (estimated at 160 million) of the country's billion-plus population, accounts for a comparatively huge number globally. This has become a perfect target group for retail companies and they are going all out to woo this upwardly mobile section.

A report by the National Council for Applied Economic Research (NCAER), published in February 2011, predicts that the Indian middle-class population will swell to 267 million by 2015-16 and double that by 2025-26. Household income was used as a criterion to determine the number. (A family with an annual income of between Rs.3.4 lakh and Rs.17 lakh (at 2009-10 price levels) falls in the middle-class category.)

Consumerism and the Indian middle class go hand in hand, says Malini Shah, a designer shoe store owner. This is the target group for almost every retailer. The generation before this was careful with the way it spent its money. The consumerist culture naturally took root when our economic reforms started and has stayed. Added to that, there is so much disposable income and access to products, so spending and possessing has become a part of our lives. Online retail is obviously cashing in on this aspect.

While travel and matrimony have been very successful commercially in the online sector, we find all kinds of interesting sites such as those selling art, custom-made shoes, designer wear, even a site that lets you buy an adventure for a friend as a gift, says a market analyst. Technology and the Internet space allow for a lot of creativity that has commercial potential, and we shall see more of it very soon, he says.

The market size of online retail in India is likely to touch Rs.7,000 crore by 2015 owing to increasing Internet penetration, says a survey by the Associated Chambers of Commerce and Industry of India (ASSOCHAM). Currently, the online retail market stands at Rs.2,000 crore and is growing at an annual rate of 35 per cent, the study says.

The survey says that with nearly 100 million users, India has the third highest Internet penetration in the world, after the United States and China. It is estimated that the number will touch the 300-million mark by 2015-16. Companies have gauged this potential and are gearing up to cash in on it, the survey says. Of the 5,000 shoppers who participated in the survey, about 40 per cent said they preferred to shop online for reasons such as convenience, comparable prices and, of course, the fact that it is open 24x7.

A survey done by the Boston Consulting Group (BCG) in 2011 estimates that India's online retail will touch Rs.8,400 crore by 2016 and will account for 4.5 per cent of the total retail trade in the country.

India's Internet, a report published by Edelweiss Securities Limited, a subsidiary of Edelweiss Financial Services Limited, states that the three biggest online markets are Europe, leading at Rs.13,35,000 crore annually, followed by the U.S., at Rs.8,30,000 crore, and China, at Rs.27,500 crore. The report says the growth of the e-retailing sector will soon make India join the big players. Essentially, most market consultants and researchers agree that the growth of the sector will be exponential in India.

The lack of confidence in the country's credit card system and the inability to touch and feel the product were the primary reasons why Indians did not pile up their online shopping carts, says Manmohan Aggarwal, chief executive officer of Yebhi.com, a site that sells 30,000 types of products.

There are now several reasons why India has taken to it. To begin with, the COD system solved the credit card issue. The 30-day return policy or replacement guarantee without any questions asked, offered by online retailers, gives the customer the leeway to send back a merchandise he is not satisfied with. There is no fine print, clauses and conditions. Additionally, Internet penetration has increased. India's Internet users, largely comprising youth who are technology savvy and have disposable incomes, are big on online shopping.

India has one of the world's youngest Internet populations, with 75 per cent of the users being under 35 years and many of them having much higher disposable income than their parents had, he says.

Aggarwal says 2011 saw a real attempt to make e-retail successful. Interestingly, a large number of shoppers are from Tier-II and Tier-III cities (that is, other than the metropolitan cities), which do not have access to big brands or a large range of products. This is another reason why online shopping has witnessed an upward growth. Our deliveries have gone to some really remote places in the country, says Aggarwal. A tight delivery system, good products and, of course, safe payments are enabling the growth of the online industry.

Furthermore, offline retail is not expanding that fast in comparison with e-retail. We saw a 500 per cent growth last year. There is a massive opportunity out there, says Aggarwal. Explaining Yebhi's growth, he says this is indicative of how the e-commerce industry is growing. The company, which is based in Noida (in the National Capital Territory), ships out close to 12,000 products a day. Yebhi, which was operating with a skeletal staff in 2010-11, has an employee strength of 600 now and hopes to expand its operations in 2012-13. Aggarwal says that in spite of COD and the 30-day money-back policy, the actual return of products is minimal, which indicates customer satisfaction and the growth of the business.

The key tipping point in Indian e-commerce has been the COD mode of payment, says the Edelweiss report. It says the growth of this market will be driven by: a) An increase in online transacting users (thus far online shoppers, including those who shop for travel, account for only 30 per cent of Internet users, that is, 30 million, but they are increasing at the rate of 1.5 million a month); b) shift in buying patterns, that is, online consumption driven by mass marketing by e-commerce players; c) online adoption by traditional brick-and-mortar retailers; and d) developing trust in online shopping.

I believe the biggest factor is trust, says a marketing executive from a popular retail website. Once the customer has had a smooth transaction and the delivery has been absolutely on time and without hassle, then the customer trusts the system and eventually gets hooked. In the past there were logistics problems such as late deliveries or refusal by courier companies to carry parcels to certain areas, which essentially led to distrust. All that has changed. A strong business model, a tough search engine and a foolproof delivery system are the key ingredients to making online retail successful, says the executive.

Online companies offer discounts, gift coupons and offers that physical retail outlets cannot. For instance, music sometimes you don't want to buy an entire CD for one song. An online retailer has the licence to sell you just that one song, which you can download for a price cheaper than the CD, says the executive. It is convenient too. We shall see more and more being consumed digitally.

He says the fact that online companies do not need to run a full-fledged retail operation, such as renting out shop space, allows them to offer these irresistible prices. They have large warehouses to store the goods. The absence of a brick-and-mortar business model reduces costs vastly and hence they are able to pass on the savings to the customer in the form of discounts.

Flipkart model

Believed to be singularly responsible for revolutionising the online retail industry, Flipkart.com is a remarkable story of a clever idea that worked well with a strong business plan. It is also a story about two men who took a sizable risk and eventually came out winners in India's e-retail industry.

Speaking to Frontline about how it all happened, Sachin Bansal, one of the founders of Flipkart, says: The success online ticketing sites were enjoying among consumers convinced us that Indians were ready to shop online for other products too as long as they had a service that could delight them with reliability and quality of products.

For example, a large number of Indians still do not possess credit cards or are wary of revealing their card details online. In order to overcome this we launched our path-breaking cash-on-delivery feature. This opened up a whole new segment of consumers to us, and today almost 65 per cent of our deliveries are on a COD basis.

Bansal says, We have managed to get a lot of things right. We have constantly tried to innovate bringing in fresh features and services to the consumer with a single-minded focus on demystifying online shopping for them. This includes card or cash on delivery, our own logistics system to ease last-mile delivery bottlenecks, and our 30-day replacement policy to assure customers who are wary of the quality of products bought online.

Started in 2007 by Sachin Bansal and Binny Bansal, both graduates from the Indian Institute of Technology Delhi, Flipkart has a story that is typical of most start-ups it all began in a small room and expanded into a mammoth operation in a short span of time. Having worked at Amazon.com, one of the world's largest online stores, the duo knew what worked in cyberspace and what did not.

The Bangalore-based company today boasts a 4,500-strong staff, and ships close to 30,000 items a day. The range is massive from books to electronic gadgets to clothes and household items. Bansal told the media that their growth rate had been 100 per cent quarter-on-quarter, with the company clocking in sales of Rs.2.5 crore each day.

I was looking for a rare cookery book for years. My friend insisted I search Flipkart and, lo and behold, the book appeared in my search. Three days later it was at my doorstep. If that doesn't convince you, what else will? asks Neeru Puri, a homemaker in Colaba, Mumbai. Now I buy my children's books, shoes and gifts all online.

Flipkart's payment system changed my outlook. I don't like using my credit card so I just pay them when the product arrives. In the past month, I ordered all kinds of interesting gadgets, such as a wireless mobile charger, an organiser for my knapsack, a money clip, says Nilesh Shah, a college student. We are always online so all kinds of things pop up and I feel tempted to buy. The downside is that it is addictive, and eventually adds up to our expenditure. But we work part-time and earn some money. So there is no harm in spending!

Quirkiness works

Books are a safe bet and have become a cannot-go-wrong commodity. Would a consumer order a diamond, a custom-made shirt, shoes, occasion dresses or sarees? It appears even these products have found a space in the Internet market. Interestingly, fun, quirky and niche, also works online. If the product's quality is good and there is a strong delivery mechanism in place, the Internet is where entrepreneurs can set up shop.

Derek Affonso runs Smartart.in, a site that offers thousands of posters. He says that like most novel ideas, this too was born out of a lacuna in the market. While designing his daughter's room he looked for some fun posters but could find none in a city like Mumbai. Affonso decided this business might just work online. Today, he says he has a broad variety of poster art and a huge customer base which extends even to other countries.

You simply can't fit thousands of posters in a shop. Online allows you to categorise and browse through everything easily before making a selection. We have seen a huge demand from smaller cities and that is where the customer base is increasing, he says.

I bought a shirt from thestiffcollar.com. It was beautifully made to my size and I paid half of what I normally pay at a shirt shop, says Tanay Mehta, a banker. We have such long work hours that I hate leaving my home on the weekends and definitely not to shop. By ordering online it is all done very conveniently, he says.

Products such as shoes, apparel and electronics are gaining popularity and we see a lot of movement in this area, says a spokesperson for Yebhi.com. The Edelweiss report says electronics account for 50 per cent of online sales while lifestyle products account for 36 per cent.

Credit-card transactions, the quality and genuineness of the product and timely delivery are the main concerns of most Indian online customers. Unfortunately, if there is one bad experience it could have a spiral effect and nothing you do will reassure the customer. So we cannot risk anything, says the Yebhi.com spokesperson. But we have in place watertight verification systems with the banks and to date there has been no problem.

The upside is that once the product and service have met with satisfaction, you have hooked a customer, she says. For instance, Indians do not like to return purchases and so there is no room for error. Such is the draw of online purchase that there is a person who makes a purchase every day. It could even be an item worth just Rs.100, but he buys. Another man, who lives in a small village in Punjab, places orders for the entire village. He is the only one with a computer and they all trust him, says the spokesperson. Business models of each website vary, but analysts say that most Indian sites have been inspired by Amazon.com and eBay.com. They have duplicated the models, tweaking them to suit the Indian market.

But there are many people who bemoan the popularity of online retail, saying that the charm of going to a bookstore is missing in sitting in front of a computer and shopping. While it is unlikely that e-buying will spell the death of bookshops, they do appear to have made a dent in their sales.

There is no doubt it is convenient and you can get almost any type of books online, but we will always have customers who prefer to browse before buying. A bookshop gives that pleasure, says T. Jagath, business manager at Kitab Khana, a Mumbai bookshop. We have an association with customers, authors and publishers, built up over years. Nobody can replace that. Jagath and his team are former Strand Book Stall employees. Strand is synonymous with Mumbai and is perhaps one of the first bookshops that opened in the city.

Reacting to reports that Kitab Khana was not profitable, Jagath said the bookstore broke even within six months of setting up and continued to do very well in spite of the surge in online book buying.

I like coming to a bookshop sometimes to browse before buying. I like looking at other similar forms of literature. You cannot do that online, says Suchita Shahani, a retired college professor. Often I ask them whether the book is good and these men are able to guide me with the reviews. That's why I like a bookshop. It's personal.

Since it has taken industry status, online retail has huge employment potential. The ASSOCHAM study forecasts that the sector may produce 20 lakh jobs by 2013 directly.

The India's Internet report says: Today, the world acknowledges the indomitable power of the Internet which is taking giant strides in India, especially in e-commerce and social media tectonic changes that are collectively altering the overall online space. We see India poised on the cusp of an explosion in Internet access and usage over the next five years akin to the adoption of mobile handsets and tariff cuts in the telecom industry.

Clearly, India has made a good start and hopefully the emerging online industry will be productive for the country.