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E-Commerce in India: Opportunities Amid Challenges

August 2019

Internet retailing in India is expected to more than double in value over the next five years, driven by low prices and increasing demand from smaller cities. However, the losses companies are making due to high customer acquisition and delivery costs are also increasing. Going forward, companies should look for strategies to remain competitive, while at the same time reducing expenses. To achieve this, stores and private label will become an integral part of online retailers’ strategies.

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Key Findings

While internet retailing is expected to continue to see rapid growth in India, there is expected to be tough competition between local and international players. Retailers will continue to endeavour to offer low prices; however, striking a balance between affordability and profitability will remain a key challenge. While there is no obvious go-to success strategy, companies need to expand and maintain a loyal customer base to reap benefits. In such a fast paced environment, companies which fail to adapt are likely to fall by the wayside.

Stores should not be neglected

Stores will continue to remain an integral part of customers’ shopping journey. For online retailers to be successful, they need to increase their store presence by opening stores or partnering with store-based retailers. This will help retailers expand their reach and gain access to a new consumer base. The integration of online and offline channels will also reduce delivery costs, which is one of the major expenses for online retailers.

Exclusivity will be key to success

With growing competition, it becomes imperative for online retailers to maintain exclusivity to differentiate their offerings. To increase margins, companies are expected to invest in developing and launching more private label products. There will also be a rise in the trend of retailers launching exclusive international brands. The likelihood of consumers buying products without discounts is greater for exclusive brands.

Retailers need to remain patient

Profitability in e-commerce cannot be achieved overnight, and retailers need to remain patient. Currently, when retailers are competing for customers, high expenses are inevitable. However, retailers need to adapt and look for ways to reduce expenses, eventually leading to profitability. If retailers rush towards profits, there is a strong chance of losing customers. Becoming a successful internet retailer will take time and becoming profitable will take even longer.

Scope
Affordability has triggered the growth of internet retailing in India
Smartphones played a key role in driving the online sales
Leading online retailers have witnessed rapid growth in sales
High customer acquisition costs dent profits
Huge losses forces Paytm to restructure its business model
Leveraging store capabilities will become important
Strong distribution network to reduce delivery cost
Focus on private labels to boost profitability
New FDI rules will increase online retailers focus on private labels
Nykaa.com seems to have found a successful strategy
Retailers’ focus will shift to niche categories
Tier 2 and tier 3 cities will drive demand going forward
Case study: Reliance Industries Ltd
Reliance Jio makes high-speed internet affordable
After telecoms, Reliance eyes e-commerce industry
Key takeaways for Indian e-commerce industry
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