Dec, 2016      |     By Anil Kumar, Ujjwal Chaudhry

State of e-tailing in India

Indian e-tailing GMV Performance grew to USD 14.5 Bn in 2016.


Anil Kumar

Anil Kumar

CEO

ujjwal chaudhry

ujjwal chaudhry

associate director

  • A comprehensive performance review of the online retail sector
  • Assessed through a regularly tracked set of performance indicators
  • Published quarterly

Introduction to Report

Report Structure

Seven key dimensions for assessing sector performance

E-Tailing Sector Assessment Scorecard- CY 2016

GMV Performance- Indian e-tailing grew to USD 14.5 Bn in 2016, but growth slowed down significantly compared to 2015

However, growth slowdown in 2016 was driven by external factors; none of the speed breakers were fundamental in nature

Key reasons behind industry slowdown in 2016

Top 2 players slow down ( but their GMV quality improves)
  • Management reshuffles and investor pressure to reduce burn slowed the GMV of Flipkart and Snapdeal, thus slowing down the entire industry
  • Circular trading 1 gets halted- Post completion of festive season 2015, e-tailers started to clean the mess of circular trading, resulting in a lower but a better quality GMV
Govt. regulations prove to be a roadblock and shift e-tailer's focus away from growth
  • DIPP regulations on extent of discounting and % GMV by captive arms put e-tailers in a fix on how to realign their sales strategy, which led to sales events being scrapped
  • To manage the second regulation on captive seller sales, there was operation jugglery to be done - which again shifted the focus of e-tailers from driving growth

Demonetization was another headwind for the industry

  • In an industry which relies so much on cash (65%-70% orders are CoD), demonetization put brakes on the momentum achieved post a successful October festive period

A very successful festive season in Oct'16 brought cheer to the industry; GMV jumped to highest ever levels

Beyond GMV growth, the festive season also delivered positive news on other fronts

Marketing ROI for players improved significantly y-o-y

  • Leading e-tailers spent less than half of Oct'15 advertising spends during 2016, by focusing more on digital channels
  • Better allocation of discounting budget and pushing more of discounting burden onto sellers further enabled players to offer discounts but with a lower cost burden

Customers satisfaction with sales experience improved

  • Key areas of higher satisfaction were 1) Better product variety and availability and 2) A more reliable delivery experience
  • Satisfaction was driven by e-tailers planning effectively for higher inventory and lower stockouts and investing heavily in supply chain testing and planning long before the event

Sellers also reported being more satisfied with sales experience

  • Key driver of higher satisfaction was a near doubling in sales compared to steady state, as reported by sellers
  • Additionally, a smoother logistics experience and faster speed of payment processing vs 2015 also delighted sellers

Driven by a strong festive season, Q4'16 turned out to be a blessing for the industry inspite of demonetization

Category Mix- Share of high margin/high repeat categories did not increase in CY16, as players focused on mobiles

Mobiles growth was driven by exclusives; large appliances showed offshoots of growth during year

High focus on exclusive deals in mobiles

  • Large horizontals offered lucrative terms to brands like Motorola, Oneplus, Xiaomi etc. for signing them up as exclusives
  • Thus mobiles GMV share increased and share of non-mobiles showed limited improvement

Large appliances category shows early signs of pickup

  • Slight growth in this category driven by low cost EMIs, coupled with deep-discounts and a wide selection of exclusives
  • However, large appliances was very dependent on TV category (>70% sales), as other categories remained nascent

FMCG remains small inspite of Amazon's experiments

  • Amazon rolled out Amazon Now and Amazon Pantry in CY16 across a few cities for grocery delivery
  • However adoption and pickup of these offerings remained fairly limited due to limited pincode coverage and small selection

Customer Adoption - Overall online retail adoption grew slowly in CY16

Customer Satisfaction Scorecard- Overall customer satisfaction saw an improvement during CY16

Customers were satisfied by price attractiveness and product variety available online in CY16

Ease of shopping also improved during the year; however, post delivery experience still left a lot to be desired

Due to improved experience on key parameters, overall customer NPS improved marginally during CY16

Seller Satisfaction Scorecard- Overall seller satisfaction showed limited improvement in CY16

Sellers were unhappy with lack of sales growth and increased online selling costs in CY16

However, sellers reported an improvement in panel usage experience over the year

Delivery Excellence- While delivery time remained same y-o-y in CY16, delivery reliability and % fast deliveries improved

Delivery Excellence- Key Takeaways from CY16

Captive logistics takes centre stage

  • Captive share increased more than 1000 bps y-o-y
  • Large horizontals invested in ramping up captive arms to deliver a superior customer experience
  • Fastest ramp up was seen by Snapdeal's captive arm, Vulcan Express

Warehouse orders become the norm

  • Share of industry orders fulfilled from warehouse also jumped more than 1000 bps y-o-y
  • Driven by increased focus on retail model and by pushing sellers to warehouse storage through multiple initiatives
  • Amazon Seller Flex was one such initiatives wherein sellers could deploy Amazon best practices while storing goods in their own warehouses

Large Appliances supply chains start expanding

  • Big 3 e-tailers invest heavily in ramping up large items warehousing and delivery capability to increasing number of pincodes
  • Sets the stage for increased sales of large appliances and furniture in upcoming years

Industry unit economics improved in CY16- primarily due to cost side improvements

CY16- Summary

What went right for the sector

  • Sales grow was only in early double digits for the year- a far cry from ~200% growth recorded in CY15
  • The biggest concern was around the lack of growth in active online shoppers- caused by limited addition of new customers
  • Sellers were a dissatisfied lot in CY16, with sales growth slowing and costs of online sales increasing
  • Customer satisfaction with online shopping increased, especially on parameters like product pricing, product variety and ease of shopping
  • Reliability of deliveries improved over the year. Additionally, share of orders being delivered within 2 days recorded a steady growth
  • Unit economics for the sector improved, driven by cost reductions on key areas like marketing and employee cost
  • Amazon Prime adoption picked up rapidly, which bodes well for the industry from customer stickiness perspective

What went wrong for the sector

Player Scorecard CY16- Amazon emerged as industry leader on most dimensions for CY16, with Snapdeal lagging far behind

Flipkart

Key takeaways from CY16 and Expectations from Q1'17 - Flipkart

  • After healthy growth throughout the year CY15, Flipkart's GMV growth slowed down during the first half of CY16, due to lowering of discounting after the DIPP regulations as well as lowering of marketing spends due to its focus on reducing cash burn
  • Management reshuffles continued throughout the year with its CEO changing in January'16 and most of the high profile silicon valley hires leaving the company by the end of the year.
  • The iconic Flipkart's 'Big Billion Days' sale organised in the first week of October in 2016 was a huge success and post that Flipkart gained the growth momentum again to finish the year on a high note
  • Flipkart cemented its customer satisfaction leadership position through the year, by making improvements across the board in terms of shopping experience

Key takeaways from CY16

Expectations from Q1'17

  • Q1'17 should see Flipkart continue to ride the year end momentum , by consolidating its position in mobiles categories via more exclusive launches and also launching high repeat FMCG category
  • However, the company will face a daunting challenge in terms of stabilizing the ship post the management reshuffle and exits of several members of top management in Jan'17

Amazon

Key takeaways from CY16 and Expectations from Q1'17 - Amazon

Key takeaways from CY16

  • With the industry slowing down, Amazon was the only player which grew significantly in CY 2016 and it was neck to neck with Flipkart for most of the year
  • Amazon Prime was launched towards the middle of the year, and it offered members free and fast delivery, early access to deals, as well as Prime members only offers. Early indicators show that Prime is fast being adopted by Amazon customers
  • Out of all the e-tailers in India, Amazon was the only player focusing on creating a habitual buying behaviour among customers by aggressively promoting FMCG category during CY16.

Expectations from Q1'17

  • Like Flipkart, Amazon is likely to aggressively push for further exclusives in mobiles and appliances category in Q1'17, with continued focus on high repeat FMCG and Fashion categories as well
  • Amazon Prime is mostly likely to build a stable base of loyal customers for Amazon, with more and more offers and perks being offered to sweeten the deal

Snapdeal

Key takeaways from CY16 - Snapdeal

  • Snapdeal witnessed the maximum drop in GMV among all the players in CY 2016. Discontinuation of circular trading, lowering discounts after DIPP regulations, as well as Amazon outperforming the player and eating into its market share has contributed to this sharp decline
  • Although Snapdeal's GMV slowed down, its category diversity improved in 2016. With an increase in share of fashion and home , share of mobiles in overall GMV was only ~ 40% , which makes Snapdeal the player with most diversified GMV amongst Big 3.
  • Just prior to the festive season in October, Snapdeal went for a complete rebranding of the site as well as other assets, with a budget of INR 200 Cr

Indian e-tailing is still nascent with a large growth potential -> barely 2% of overall retail spending is currently online

Online shoppers in India currently constitute a very small % of total online population, which should grow rapidly in next few years

Growth in online shoppers to be enabled by a fall in common barriers to online shopping by 2020- per RedSeer consumer research

In an aggressive scenario, we expect the market to move to USD 80 Billion by 2020

Industry financials also likely to improve by 2020- driven by increased sales of higher margin fashion categories

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