Will the e-commerce success make the ride rough for Indian brick and mortar retailers ? or will it be the much needed shot in the arm for Indian Retail ?

1. Gurpreet Wasi, Principal Consultant, IMRB Retail I March, 2015
OPINION : Is E-Commerce eating into Indian Retail ?

2. About IMRB
IMRB is one of the top 20 Market Research companies in the world, and has a legendary
reputation as the ‘University of Market Research’ in India. IMRB is part of WPP group as part of
Kantar, which is WPP’s research, insight & consultancy network, the 4th largest research
conglomerate in the world.
About IMRB RETAIL
IMRB RETAIL is the specialist Retail Research and Advisory unit of IMRB International. IMRB
RETAIL provides outstanding research, insights and perspectives for the Retail Industry through its
outstanding talent pool of Retail Industry specialists. IMRB RETAIL’s defining trait is the ability to
convert retail industry information and data into expert judgements. We leverage our deep
understanding of Consumer & Shopping Behaviour to provide unique business insights for
retailers.

3. Internet’s hot pursuit of the Indian Consumer !
• Nearly 30,00,00,000 Indians today have internet access. Out of them 17,30,00,000 on mobile
internet (IAMAI and IMRB have estimates)
• Availability of low-cost smartphones and increasing penetration of mobile broadband will
help India overtake the US as the world's second largest Internet user-base by 2016
(eMarketer)
• The B2C e-commerce market in India has exhibited rapid growth and has attracted large
investments from the PE/VC community. With positive fillips from the demand and supply
side, this market is likely to reach $60Bn by 2017 ( Delloite)
• With a large supply chain and logistics network that does not require middlemen in most
cases, online shopping sites have been enticing consumers with aggressive discounts,
predatory pricing, putting market share ahead of profitability.
Online retail witnessing dramatic growth from nascence to critical mass.

4. E-commerce Marketplaces– To be or not to be dilemma
for Indian Brands !
• India doesn’t allow FDI in online retail, but allows foreign funds in marketplaces.
• Flipkart, Snapdeal, Myntra and Jabong all received between $50 million and $360 million
over the past year and with the entry of Amazon, the world’s largest online retailer, which
launched its India marketplace last June, competition has significantly intensified
• Most brands are happy to have their products on these marketplaces because they have the
kind of reach and supply chain that brands can’t match. Brands across many categories
probably get lower margins selling online, but it’s such a big channel that they can’t afford to
not have some kind of presence
• India’s e-commerce companies, funded by private equity firms, are still in the investment
phase. In such a scenario, these companies are not only cutting their own profit margins
excessively, but even impacting those of offline retailers

5. Online retail could have significant direct and indirect
impact on the consumption landscape in India.
• Online retail is hitting the business of Offline retailers through deep discounting and deeper
penetration
• Fashion brands have already noticed consumers adopting the practice of “showrooming”—
browsing merchandise at a store and then purchasing the goods online because of attractive
discounts
• Under pressure from offline retailers and wholesalers, brands like Lenovo, Toshiba have
issued warnings that e-com sites are not their authorized resellers, several apparel brands
are requesting e-retailers to reduce coupon discounts ranging from 20-40%. Canon has
stopped selling its products on some websites. Adidas banned its dealers around the world
from selling Adidas products on major e-commerce sites including eBay and Amazon…
• Not just cannibalization of sales, there is fear among brands that their image can get hurt if
the prices are too low.
Brands are realizing that prices and demand in the future
may be dictated by the online channel

6. Brick & Mortar – the story so far..
• In 2012 FDI was allowed in Multi Brand Retail, but there has been no great rush by
International companies for the Indian Market
• The FDI proposal includes restrictions like minimum local sourcing from SMEs, designated
levels of investments at the backend, approvals required from state governments and
presence in million plus cities – making it a rather tall order for most foreign retailers
• Also the overall economic and political climate that prevailed till a few months ago, has
played a key role in the muted impact of this ‘big – bang’ reforms
• With sky rocketing real estate prices, consumers spoilt by choice and challenging market
conditions, Indian Retail has been a rocky road till now…
Will the e-commerce success make the ride more rough… or will it be the
much needed shot in the arm for Indian Retail ?

7. Brands are reinventing their act !
• Many clothing brands including Puma, Lee and others are actively working with online
retailers to test demand in smaller cities and towns, and collaborate on discounting
strategies, especially on leftover stock.
• On the other hand, some brands are responding to the threat from e-tailers by adopting an
“omni-channel” approach: offering the same benefits, value and shopping experience across
all mediums.
• Large brick and mortar retailers like Shoppers Stop, the MobileStore, Croma and Spencer’s
Retail are talking up their strategy of integrating their stores with their websites and trying to
make e-commerce a crucial medium of sales
• Most of these retailers have invested in building their online capabilities, albeit that the
business share currently is extremely small, at <5%.
It is the writing on the wall for most retailers to align all their channels
and not grow them separately

8. What's happening in other markets of the world…

9. US, China, others…
• Developed markets like the US already observe 7.7% retail sales via the online channel and
expect it to reach 10% by 2017.
• In China, online retail accounts for 5% of the total retail sales and in absolute terms, it is
expected to overtake US online retail very shortly.
• On a broader note, e-tailing is estimated to have added 2% to China’s private consumption in
2011 and expected to add 4-7% by 2020. These are significant metrics when it comes to
stimulating demand from such a huge base.
• Global e-retailers have not been able to make much headway in developing markets like
China, Brazil, and Russia where domestic players have emerged as market leaders by
leveraging their superior understanding of consumer needs.
Of the Top 20 online retailers globally, 14 of are brick and mortar retailers,
and each of them has shared their intent to invest in the online channel !
(Planet Retail)

10. Particularly in the US..
• In the US, e-commerce took off when modern retail was already mature and too big to
ignore. While in India, both e-commerce and modern retail are growing alongside.
• In the US, prices are not regulated and the prices in different retail channels may vary hugely.
In fact, the US retail environment has created price warriors among bricks-and-mortar stores
also. India follows the MRP model, which makes it easier for consumers to see the extent of
discount.
• In the US, Amazon and eBay faced similar problems from the traditional supply chain when
they were fast expanding in the 2000s and they continue to be criticized for steep discounting
practices and, in some cases, sales of unauthorized and even fake products.
• The steep discounts only widened the difference between online and offline prices, as until
recently online retailers had been exempted from paying sales tax in the US.
• Amazon’s experience in the US indicates that while discounting by e-commerce firms in India
may decrease in future, their prices will always be comparatively lower and bricks-and-
mortar retailers will simply have to find ways to cope with it

11. A few other Global Trends
• It is interesting to note that globally, the share of the online channel in food & grocery (F&G)
retail is negligible.
• However there are certain hybrid concepts like the ‘Drive Format’ which is a form of ‘Click &
Collect’ gaining ground in markets like France.
• This format was nearly a Euro 4Bn market in France in 2013 having grown at 75% YoY. This
concept looks to target young shoppers who are looking for convenience where the customer
creates the order online but collects it physically from the store
• Another interesting trend is the successful performance of niche online retailers in the
developed markets i.e. everygrandfatherclock.com, allswivelbarstools.com etc.

12. E-tailing India – what lies ahead
• The market place model has seen significant amount of FDI, either through the PE/VC route
or with the entry of global players like Amazon. From the policy perspective, it is the
inventory owned model that is now looking for government approval.
• In 2014 it was believed that FDI norms would get relaxed in B2C e-commerce. But that
seems doubtful with the change in regime, especially with its negative view with regard to
Multi brand retail
• It remains to be seen as to how the current government views the online retail market
opportunity which could be a potential market discontinuity in the India consumption story
Online retail in India could be a disruptive model for it helps players avoid two
major challenges – high rentals and lack of skilled manpower. If provided with
the right regulatory enablers and economic conditions, the online market
opportunity could be substantially higher than predicted

13. Online could well be creating new consumption
• Deloitte recently conducted a survey in the European market which revealed certain
interesting facts on the importance of Omni channel:-
– Up to 37% of transactions made online are likely to be additional to in-store purchases
– Up to 25% of recent online purchases were goods which could not have been purchased
locally
– Up to 63% of shoppers used multiple channels when making orders above 100 Pounds
In China
• In China, surveys have revealed that slightly less than half of every Yuan spent online is new
consumption generated from the online channel – this proportion is expected to be even
higher in lower tier cities.
The online channel is clearly, driving the overall industry’s size higher and
propelling consumption – a trend that would hopefully be replicated in
India.

14. Thank You !
AGENCY OF THE YEAR 8 TIMES SINCE 2005
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Mobile:+91-9810140807 |Direct: +91 11 42697049| gurpreet.wasi@imrbint.com
GurpreetWasi
PrincipalConsultant - RETAIL