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The Indian e-commerce industry is poised for a big leap in the next four years, according to a report by the Confederation of Indian Industry and Deloitte Touche Tohmatsu India LLP. While the business to business (B2B) segment is expected to more than double from $300 billion in 2014 to $700 billion in 2020, the business to consumer (B2C) segment will grow more than seven times from $13.6 billion to $101.9 billion, the report said.
The
growth in B2C e-commerce will be supported by a spurt in number of
online shoppers, from 20 million in 2013 to 220 million in 2020, as
well as a three-fold increase in average spending by online shoppers,
from $147 in 2013 to $464 in 2020.
The
report, however, has a word of caution for online retailers who have
splurged on discounting to acquire customers, a move that has helped
them increase gross sales.
Combined
losses for e-commerce companies such as Flipkart Ltd, Snapdeal
(Jasper Infotech Pvt. Ltd) and Paytm (One97 Communications Pvt. Ltd)
last year stood at $557 million, the report said.
“A
majority of B2C e-commerce companies, globally, despite being
operational for 5-20 years, report low profitability. The situation
in India is no different, i.e, a growing gross merchandise (GMV)
value but at an overall loss as the e-commerce companies establish
themselves,” the report says.
“This
trend however does not hold true for the B2B e-commerce companies
which are profitable with greater GMV values. The higher
profitability in the B2B segment is attributed to reasons such as
lack of heavy discounts, greater emphasis on quality rather than on
price, and higher volumes of purchases,” it added.
A
valuation correction is underway in the domestic e-commerce segment.
Morgan Stanley Institutional Fund Trust, a mutual fund investor in
Flipkart, slashed the value of its holding by as much as 27% to $58.9
million as of 31 December, down from $80.6 million in June 2015, Mint
reported on 27 February. Another mutual fund T Rowe Price has cut the
value of its stake in Flipkart by 15%, Mint reported on 16 April.
A
spurt in internet penetration, especially on the mobile, will propel
e-commerce sales in India. According to the report, the proportion of
3G users among all internet users has improved substantially since
2013. About 28% of the total 150 million mobile internet users in
India had 3G connections in 2013, while in 2016, about 59% of the
estimated 371 million mobile internet users in India are expected to
have 3G connections.
According
to the report, India at 41% had the highest share of mobile based
e-commerce sales, ahead of China (37%) and the US (15%).
The
report also estimates a significant growth in the digital payments
segment, from $20 billion in 2014 to $115 billion in 2018, though
cash-on-delivery currently comprises 60% of the overall transactions.
“Cash-on-delivery
remains a popular mode of payment for Indian e-commerce transactions.
Cash transactions result in high administration costs even for the
e-commerce companies, which reduces their margins. Hence, new digital
payment solutions are evolving to address these challenges,” the
report says.
Interestingly,
while payments in instalments and digital wallets account for less
than 2% of the overall transactions, they will grow faster than
plastic money, it adds.
This
possibly explains why e-commerce firms such as Flipkart Ltd, Snapdeal
(Jasper Infotech Pvt. Ltd) and Amazon India (Amazon Seller Services
Pvt. Ltd) are seeking to strengthen their payment offerings.
Snapdeal
bought utility payment service provider FreeCharge for $400 million
in March 2015, in the biggest domestic consumer internet deal. Amazon
acquired Emvantage Payments Pvt. Ltd for an undisclosed amount in
February.
Market
leader Flipkart acquired payment services start-up FX Mart Pvt. Ltd,
which holds a prepaid wallet licence, in September last year. In
March, the company launched mobile wallet Flipkart Money, 18 months
after shutting down its payment gateway PayZippy.
with the reference of : livemint