Mar, 2015     

Growth of e-tailing market in India

The $4.5 billion e-tailing market in India is split into horizontal and vertical players; horizontal players have captured ~80% share of the market

  • Horizontal players i.e. players selling products across verticals, dominate the e-tailing market
  • The major horizontal players Amazon, Snapdeal and Flipkart contribute ~75-80% of sales to the e-tailing market
  • Major verticals which vertical players operate in includes fashion, furniture and home furnishings, eye care products, healthcare products etc
  • These niche players constitute a small share of the market currently, but are growing rapidly

GMV run-rate of major horizontal players passed $1 billion in 2014; we expect it to cross ~$10 billion by 2018 inspite of stiff competition from vertical players

Horizontal players to continue relentless growth

  • Leading horizontal players have already hit the $1 billion GMV run rate mark in 2014
  • Their GMV run rate is expected to further rise to ~$ 10+ billion each by 2018, as they seek to compete in niche categories through acquisitions

Vertical players pose a challenge to horizontal players

  • Niche categories like furniture, babycare etc., are expected to become the next battleground for e-tailers
  • A deeper product selection and promise of a superior shopping experience is expected to give vertical players an advantage

The e-tailing market growth is expected to be driven by greater internet and smartphone penetration and continued discounting

Growing mobile internet penetration

  • Mobile internet users in India are expected to jump from ~800 million in 2013 to 1.1 billion by 2020
  • As mobile apps get more optimized, this is expected to be a strong driver of online sales

Growing smartphone penetration

  • Smartphone users in India are expected to nearly quadruple from the ~120 million in 2014 to 450 million by 2020

Increased urbanization leading to less leisure time

  • It is estimated that around 60-70% of time of an individual in urban India is taken up by sleep, time spent at work, and commuting to work
  • Paucity of time for shopping at regular stores and convenience of online shopping is expected to continue driving sales, especially as urbanization increases

Growing purchasing power and product variety needs of small town customers

  • Growing purchasing power is driving strong demand from smaller cities
  • The convenience of obtaining products online, which are unavailable in physical stores in smaller towns, is further fuelling demand
  • This has led players like Jabong to generate 60+% sales from smaller towns

Continued (but gradually reducing) discounting

  • The growth of e-tailing has been fuelled by heavy average discounts in the range of 30-40%
  • Even as players pare down discounts, average discounts are expected to still remain over the 15-20% mark and thus remain a key driver of sales

Regulatory issues

  • Leading players in the Indian e-tailing space including Amazon and Flipkart have been bogged down by issues related to tax compliances and FEMA rules
  • Slow evolution of the framework for managing e-tailers is expected to continue to bog down players and investors alike, thus posing a challenge to the growth of the sector

This document covers a perspective on the growth of e-tailing market in India covering both horizontal and vertical players. It also covers geographic trends, category-wise trends, seller and customer strategy implement by the players.