Internet Retailing - India

Euromonitor International : Country Sector Briefing March 2011

Internet Retailing

India

List of Contents and Tables

Headlines ................................................................................................................................................................. 1 Trends ...................................................................................................................................................................... 1 Competitive Landscape .......................................................................................................................................... 2 Prospects .................................................................................................................................................................. 2 Channel Data ........................................................................................................................................................... 3 Table 1 Internet Retailing by Category: Value 2005-2010 ............................................................. 3 Table 2 Internet Retailing by Category: % Value Growth 2005-2010............................................ 4 Table 3 Internet Retailing Company Shares by Value 2006-2010.................................................. 4 Table 4 Internet Retailing Brand Shares by Value 2007-2010 ....................................................... 4 Table 5 Internet Retailing Forecasts by Category: Value 2010-2015 ............................................. 5 Table 6 Internet Retailing Forecasts by Category: % Value Growth 2010-2015 ............................ 5

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Internet Retailing

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INTERNET RETAILING IN INDIA

HEADLINES
Internet retailing increases by 32% in current value terms to reach Rs34.7 billion in 2010 Different payment methods help to fuel growth in internet retailing Consumer electronics internet retailing increases by 65% in current value terms in 2010 Dell India leaves the pack behind, with a 22% value share in 2010 Internet retailing is expected to increase by a CAGR of 21% in constant value terms in the forecast period

TRENDS
In the review period, consumers could pay for their internet retailing purchases by several methods, including credit or debit card, telegraphic transfer, cheque or draft, and even cash on delivery. Different retailers have different payment policies; however, with more methods of payment available, it offered convenience for consumers when purchasing products over the internet, which helped to fuel and sustain internet retailing in India. Internet retailing increased by 32% in current value terms in 2010. This was slightly slower than the 38% current value growth in 2009. This slowdown was due to the decreasing popularity of purchasing products within other internet retailing, such as sports equipment and gift products, which were still the biggest contributors to internet retailing in 2010. Based on Euromonitor Internationals Country and Consumers research, internet subscribers reached almost 18 million in 2010, and 73% of these were broadband subscribers. The strong penetration of broadband subscribers was driven by the increasing number of middle-income consumers in India. Based on a report published by IAMAI (Internet and Mobile Association of India), even middle-low income consumers in India increased their internet usage in the review period, and by the end of 2010, internet users were estimated at over 140 million in India. Consumer electronics internet retailing was the fastest growth category in 2010, recording current value growth of 65% in 2010. This was mainly driven by Dell, as the leading internet retailer of computers and laptops in India. Furthermore, more internet retailers visibly sold mobile phones in the review period. With the product warranty for consumer electronics tied to the manufacturers, consumer electronics products were perceived less risky purchases by consumers, which helped to fuel value sales growth in 2010. As well as consumer electronics internet retailing, media products internet retailing increased robustly in 2010, recording 53% current value growth. This was driven by increasing demand for books, CDs and DVDs through internet retailers such as flipkart.com and infibeam.com. The distribution centres for these media products were improved to different cities, which opened up the opportunity to sell these products to new consumers in India. Internet retailing in India is still very small compared with sales through store-based retailers. Internet retailing also still largely focuses on non-grocery products such as consumer electronics, consumer appliances and books. Therefore, the impact on consumer goods manufacturers was not significant. Furthermore, although some grocery retailers introduced internet retailing as another service that they could provide to consumers, the contribution to internet retailing was very small. This is because the infrastructure in India is not yet well developed, which meant that the distribution of products from grocery retailers was not yet profitable in the review period. Based on Euromonitor Internationals Consumer Finance research, the value of m-commerce was Rs114.0 billion in 2010. This was mainly contributed by value-added services which the mobile operators offer, such as ring tones, games and applications. The platform for mobile money was only approved by Reserve Bank of India and rolled out in limited cities in 2010. Thus, it was still in the initial stages for Nokia and Yes Bank, whereby Nokia users could make some utility payments in 2010. Thus, the contribution of product purchases using mobile phones was still small up to 2010, because not all merchants had the infrastructure to receive mobile payments up to the time of writing this report.

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Internet Retailing

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COMPETITIVE LANDSCAPE
Dell India was still leading the internet retailer in 2010, holding a value share of 22%. Dell Indias ability to offer convenience, as well as develop a secure environment for payment, helped the company to retain its lead in internet retailing. The perception of less risk amongst Indian consumers when buying consumer electronics products also supported the sales of Dell via internet retailing. Dell India was also the company which saw the biggest increase in terms of value share in 2010, as it increased from a 20% share in 2009. Increasing product variety in term of functionality and style, such as different colour options for covers, fuelled the value growth of the company in 2010. Furthermore, the better economy in 2010 also helped to fuel the companys growth, because of increasing consumer confidence in either buying for the first time, or replacing old consumer electronics products. There were no notable mergers or acquisitions in 2010. Based on trade sources, internet retailing in India could be segmented into different formats, such as multiproduct internet retailers, such as futurebazaar, Shoppers Stop, Cafegadgets, Indiatimes and Rediff; vertical shopping, whereby the manufacturer is also the retailer, such as Fern N Petals and Dell India; as well as comparison shopping, such as Tolmol and Naaptol, whereby consumers are directed to buy from other internet sites. Thus, the product offering is very different from one internet retailer to another. Most internet retailers offer similar services, such as free delivery and multiple payment methods. However, up to 2010, higher sales still came from multi-product internet retailers, whereby the retailers offer a wide variety of products; normally non-grocery products such as mobile phones and cameras. Multi-product retailers offer familiar store brands such as Samsung and Phillips, and the product warranty is normally direct from the manufacturers. Thus, in term of product offering and product quality, these multiproduct retailers are similar. There were few multinational operators in internet retailing in the review period. The most visible company, which also gained significant sales, was Dell India. One of the major factors preventing international operators from operating in India is the FDI ban on multi-brand retailers, which includes internet retailers. Thus, only international operators which operate as single-brand retailers, such as Dell India, are allowed, with FDI of up to 51% in India. Therefore, domestic operators were dominant in internet retailing up to 2010. Although the leading e-marketplaces, such as e-Bay, already operate in India, they are still not becoming mainstream in the country. Indian consumers tend to prefer to physically examine products prior to making payment; they think it is risky buying products online, which makes them wary about buying goods online, particularly from C2C marketplaces. Flipkart.com and other internet retailers which sell media products are considered the talk of the industry in internet retailing, although they have existed since 2008, and even before. Media products such as books, CDs and DVDs are increasingly purchased from internet retailers such as flipkart.com. Indian consumers perceive buying books online as less risky, so they purchase books from internet retailers, which offer them convenience, as well as a hassle-free search. Thus, with these companies expanding their reach to more cities, media products internet retailing saw current value growth of 52% in 2010, which was faster than the 40% growth in 2009.

PROSPECTS
Products such as consumer electronics, consumer appliances and media products, which are perceived to be less risky amongst Indian consumers, are projected to lead the growth of internet retailing in India in the forecast period. These products are considered to be less risky because consumer electronics and appliances have a product warranty with the manufacturer, such as Dell, Samsung or LG, which is no different from buying them in a store-based channel. Thus, with these internet retailers predicted to expand to new cities, purchases of such products via internet retailers will increase and help to fuel growth. In the review period, language was still one of the major barriers to internet retailing reaching its growth potential, as not all Indians could read English. Thus, those internet retailers which were looking to expand

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sales to the smaller cities outside of the leading metro, are expected to add options for traditional Indian languages. Internet retailing is predicted to increase by a constant value CAGR of 21% in the forecast period. This is slower than the 37% constant value CAGR in the review period. The main factor leading to this slowdown will be the expansion of the consumer base in internet retailing. Development in distribution infrastructure is predicted to be the other area in which significant investment is needed, to expand the distribution network. If the FDI ban on multi-brand retailers is lifted, it could fuel growth in internet retailing in the forecast period, because major international players will focus on developing their distribution networks in order to reach consumers effectively and efficiently. Payment security is expected to be a threat to growth in internet retailing in the forecast period. However, with internet retailers offering different kinds of payment methods, such as cash on delivery and bank transfer, other than the traditional credit card and debit card, the threat to growth from payment security is predicted to be minimal. The number of internet subscribers is predicted to reach over 35 million by the end of the forecast period, based on the Euromonitor Internationals Country and Consumer research. Most subscribers are projected to be broadband subscribers. Furthermore, increasing mobile phone penetration is expected to fuel the growth of internet retailing in India, which includes m-commerce, with more mobile operators and banks expected to develop mobile payment for daily purchases in the long term of the forecast period. Consumer electronics internet retailing is projected to continue to lead the growth of internet retailing, with a constant value CAGR of 24% in the forecast period, with more Indian consumers expected to become more familiar purchasing consumer electronics. Furthermore, with the expected expansion of distribution networks for the delivery of products in the forecast period, these factors will help to sustain the robust growth of consumer electronics in the forecast period. The prices of products in internet retailing will be competitive compared with store-based retailers, which will encourage consumers to purchase from internet retailers instead of store-based retailers. In the long term of the forecast period, when economies of scale are more evident, internet retailing prices are projected to be lower than prices in store-based retailers. Internet retailers operators which offer a wide variety of media products, consumer electronics and consumer appliances are predicted to perform better in the forecast period. These products are popular purchases via internet retailing, and this is expected to increase due to the perception of such purchases being less risky. Adding more products in media products, consumer electronics and consumer appliances, as the core products, is the first step to leverage the forecast trends. Expanding the distribution network towards more cities will be the other key area for development, in order to tap into the growing number of young urban middle-income consumers, who are more open to purchasing products from internet retailers.

CHANNEL DATA
Table 1 Rs million 2005 Beauty and Personal Care Clothing and Footwear Consumer Electronics Consumer Healthcare DIY and Gardening Consumer Appliances Home Care Housewares and Home Furnishings Media Products Food and Drink Other Internet Retailing 490.1 1,040.9 508.9 659.8 2,043.7 2006 808.7 1,603.1 576.0 1,187.6 3,314.0 2007 1,293.9 2,671.8 665.5 2,078.2 5,765.7 2008 1,940.8 4,241.0 773.2 3,325.1 8,820.3 2009 2,491.6 6,051.2 821.7 4,655.2 12,268.3 2010 3,240.3 9,961.1 1,160.8 7,111.7 13,226.3 Internet Retailing by Category: Value 2005-2010

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Internet Retailing
Source:

4,743.3

7,489.3

12,475.0

19,100.5

26,288.0

34,700.1

Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Table 2

Internet Retailing by Category: % Value Growth 2005-2010

% current value growth 2009/10 Beauty and Personal Care Clothing and Footwear Consumer Electronics Consumer Healthcare DIY and Gardening Consumer Appliances Home Care Housewares and Home Furnishings Media Products Food and Drink Other Internet Retailing Internet Retailing
Source:

2005-10 CAGR 45.9 57.1 17.9 60.9 45.3 48.9

2005/10 TOTAL 561.1 857.0 128.1 977.9 547.2 631.6

30.0 64.6 41.3 52.8 7.8 32.0

Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Table 3

Internet Retailing Company Shares by Value 2006-2010

% retail value rsp excl sales tax Company Dell India Pvt Ltd Rediff.com India Ltd Times Internet Ltd Yahoo Web Services India Pvt Ltd Sify Ltd Indiaplaza India Pvt Ltd Trinethra Super Retail Pvt Ltd Fabmall (India) Pvt Ltd Others Total
Source:

2006 18.7 7.0 3.7 2.7 2.6 3.0 62.3 100.0

2007 18.5 6.3 3.8 2.5 1.9 3.3 63.7 100.0

2008 19.4 6.4 4.1 2.3 1.8 2.4 63.7 100.0

2009 20.0 6.8 4.0 2.3 1.8 2.0 63.1 100.0

2010 22.1 6.5 3.8 2.4 1.7 1.7 61.8 100.0

Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Table 4

Internet Retailing Brand Shares by Value 2007-2010

% retail value rsp excl sales tax Brand Company Dell India Online Indiatimes Shopping Yahoo India Shopping Sify Indiaplaza Fab Mall Fab Mall Others Total Dell India Pvt Ltd Rediff.com India Ltd Times Internet Ltd Yahoo Web Services India Pvt Ltd Sify Ltd Indiaplaza India Pvt Ltd Fabmall (India) Pvt Ltd Trinethra Super Retail Pvt Ltd

2007 18.5 6.3 3.8 2.5 1.9 3.3 63.7 100.0

2008 19.4 6.4 4.1 2.3 1.8 2.4 63.7 100.0

2009 20.0 6.8 4.0 2.3 1.8 2.0 63.1 100.0

2010 22.1 6.5 3.8 2.4 1.7 1.7 61.8 100.0

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Source:

Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Table 5 Rs million

Internet Retailing Forecasts by Category: Value 2010-2015

2010 Beauty and Personal Care Clothing and Footwear Consumer Electronics Consumer Healthcare DIY and Gardening Consumer Appliances Home Care Housewares and Home Furnishings Media Products Food and Drink Other Internet Retailing Internet Retailing
Source:

2011 3,956.4 12,324.7 1,332.6 9,245.2 16,516.2 43,375.2

2012 4,782.4 16,714.3 1,592.5 11,556.5 18,705.9 53,351.5

2013 5,809.0 20,460.8 1,842.0 13,867.8 22,042.1 64,021.8

2014 7,056.1 24,244.6 2,156.1 15,947.9 26,781.2 76,185.9

2015 8,570.8 28,728.1 2,547.5 18,340.1 32,093.8 90,280.3

3,240.3 9,961.1 1,160.8 7,111.7 13,226.3 34,700.1

Trade associations, trade press, company research, trade interviews, Euromonitor International estimates

Table 6

Internet Retailing Forecasts by Category: % Value Growth 2010-2015

% constant value growth 2010-15 CAGR Beauty and Personal Care Clothing and Footwear Consumer Electronics Consumer Healthcare DIY and Gardening Consumer Appliances Home Care Housewares and Home Furnishings Media Products Food and Drink Other Internet Retailing Internet Retailing
Source:

2010/15 TOTAL 164.5 188.4 119.5 157.9 142.7 160.2

21.5 23.6 17.0 20.9 19.4 21.1

Trade associations, trade press, company research, trade interviews, Euromonitor International estimates

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