E-commerce: A Boon for the Current Economic Downturn? [Insight: 57% business comes from non Tier-1 cities]

A couple of straight facts first:

  • The e-commerce market in India had clocked close to Rs 50,000 cores by the end of 2011.
  • Even though there are less than 10 million internet users who are actually engaging in e-commerce activities, there are about 150 million internet users in India or around 75 million households that are ready for e-commerce*.

The reach of Internet is continuously increasing with each day and mobiles just make the process even more convenient. Businesses in even the smallest towns and villages are becoming increasingly aware of e-commerce and are excited by the growth potential.
Today, consumers across urban India are confident enough to make purchases that exceed Rs 20,000-25,000. Earlier, the same shoppers stayed in the Rs 2,000-5,000 ranges.

According to a study** almost 57% of business for e-commerce product sites came from tier I, tier II and tier III cities while the eight metros accounted for the remainder 43%.

The same pattern was visible in the service sites too, with tier I, tier II and tier III cities contributing 54% of revenue versus 46 % by the eight metros.

With entry and operational costs being comparatively low, the second half of 2011 and the beginning of the current calendar have seen the launch of a good number of new e-commerce sites spanning across a variety of businesses – women’s fashion, men’s fashion, shoes, followed by accessories, groceries, sports, toys, home furnishings, jewellery, automotive, bicycles, electronics and electrical equipment etc.

According to a report by the IAMAI, the current e-commerce market in India is around US$ 10 billion. But with different levels of adoption, the market has the potential to grow anywhere between US$ 70 billion – US$ 150 billion under one scenario and at another level it can grow between US$ 125 billion – US$ 260  billion by 2024-25.

With many venture capitalists funding numerous e-commerce start-ups, the situation is getting pretty confusing, no doubt but it also opens up new ways to reach the horizon. Lets list down a few reasons which can be seen as the drivers to success for e-commerce.

  • Reduced operational cost: Since the entire business can be  moved online, the need for physical stores has become obsolete. Less infrastructural investment and associated labour costs drives up the profit margin. The seller can then transfer this benefit to the customer in the form of discounted pricing which boosts the appeal of online  shopping.
  • Easy to compare: It is far easier and quicker to compare prices of goods online, equipping the customer with the information to decide the right price or terms for themselves.
  • Safe & secure: With services like COD, customers can trust the process of going online and purchasing.
  • Increased reach for the merchant: Market penetration also becomes far more achievable with e-commerce; it is possible for a merchant in Mumbai to extend his reach to north-eastern cities or even rural villages that are now connected by the online network.
  • Shopping 24×7: E-commerce facilitates shopping anytime,
    anywhere and for almost anything desired. Busy consumers prefer this to the restrictions of when a mall/shop is open and the need to physically travel to a shop. Online business takes shopping a step further by taking itself to the customer creating conveniences of shopping anywhere and at anytime.
  • Social media trend: In India, with the increasing propensity of social media, businesses have now begun to engage their customers on social networking portals such as Facebook. These are likely to be rapidly developing marketing channels for the future.

There is no doubt the e-commerce world is changing rapidly in the digitized world. The Global Economic Downturn could be a factor for propelling this forward. The online channel offers a clear value proposition for both merchants and consumers, though questions have been raised on valuation of these companies (and not the business, as a whole).

Credits: Mr. B. Amrish Rau, General Manager, First Data India and ICICI Merchant Services.

* Internet & Mobile Association of India
** Vizisense –report on e-commerce

- Another report: 150 million Indians are e-Commerce Ready [Report]