The Rise of US $50 Billion e-Baazar

1. The Rise of US $50 Billion e-Baazar A 360-degree view of the fast-growing Indian E-tailing market 2018 RedSeer Consulting Proprietary Information | www.redseer.com | Query@redseer.com A RedSeer Perspective

2. We are the largest home grown advisory company in India An Advisory firm with strong credentials Clients 200+ 50+ Funds and 150+ Corporates 90%+ of Indian Online GMV is our clientele Engagements 1500+ 500+ with Funds Have advised funds on $8Bn+ of investment decisions via our Commercial Due Diligence Strong vertical focus across Healthcare, Education and Retail-CPG Employees 150+ Employees 150+ Across 5 locations (Bangalore I Mumbai I New Delhi I Dubai I New-York) Leadership position in Consumer Internet Industry ABOUT RedSeer

3. Flipkart-Walmart deal has been a landmark moment in the history of e-tailing. Since its humble beginnings in 2000, e-tailing has come a long way. The growth story of the industry in the last 10 years has been nothing less than remarkable. While the growth had slowed down between 2014- 2016 due to multiple factors like DIPP regulations and demonetization, 2017 has seen a turnaround for the industry. E-tailing has not been just a growth story but also a story of innovation. Indian conditions presented challenges which were not seen before in other countries but successful players in the space have constantly re-invented themselves. Among other things, e-tailers have created supply chain and payments solutions that have also impacted other industries. Now, as the two large players dominate the ecosystem, the industry is at an important juncture. It is important to understand how the industry has evolved so far and where it is heading. With deep expertise in this space, RedSeer has been able to provide an in-depth perspective on the industry in this report. PREFACE Anil Kumar Founder & CEO

4. At Trifecta Capital, our continuing passion is to enable the Indian start-up ecosystem in creating large and enduring companies through value-added capital. We hope to achievethisbybeingthepreferredprovider of Venture Debt for Emerging India as well as leveraging our industry knowledge and our network of relationships. Generating independent insights and sharing these with the eco-system is another way for us to contribute to the new economy. We’re excited to present to you along with RedSeer, our Data Partners for this Summit, The State of the Indian e-tailing Industry, which continues to evolve rapidly and is poised to grow to US$ 50 billion over the next 2-3 years. Unlike the past, this growth is likely to be largely driven by the new smartphone shopper coming from the non-metros. While the Indian Internet landscape is abound with plenty of opportunity across a variety of business models, this report is mainly focussed on e-commerce and is timely in that it comes on the heels of the largest e-commerce deal in the world – the Flipkart-Walmart deal. We believe that the investment commitments of Amazon, Flipkart/Walmart, Paytm/Alibaba/Softbank will expand the market manifold and further create a multitude of opportunity for defensible and differentiated vertical e-commerce plays across Grocery, Furniture, Pharmacy, Fashion and other verticals outside the large horizontal players. We also feel that an omni-channel strategy combining the access and reach through online but the touch and feel of offline will become more pervasive in e-commerce business models. RedSeer has conducted 36,000 customer surveys, 5000+ seller surveys and several industry expert interactions to generate some very interesting findings. We would like to thank them for partnering with us in bringing these deep insights to you. We hope you find this report valuable! FOREWORD Partners, Trifecta Capital Rahul Khanna Nilesh Kothari Aakash Goel

5. 1 CONTENTS

6. Preface India’s digital population First steps towards a long marathon $50 Bn bonanza The optimistic seller Deeper, faster, efficient What’s trending!! ReedSeer team 1 3- 18 19- 34 35- 60 61- 72 73- 86 87- 96 97- 98

7. 1 AGENDA

8. 2 India’s digital population The optimistic seller Deeper, faster, efficient What’s trending!! $50 Bn bonanza First step towards a long marathon

9. 3 Source: CSO, RBI, DIPP India still going strong on macroeconomics India macroeconomics GDP growth is intact Funds are getting cheaper Market Insights 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 8.5% 7.5% 8.0% 7.5% 6.8% 6.3% 2012-13 2013-14 2014-15 2015-16 2016-17 5.5% 6.5% 7.2% 7.9% 7.1% Repo rate (%) GDP (USD Tn) Growth (%) 3

10. 4 The stock market is bullish World has confidence in India India continues to shine as one of the beacons of growth in the world economy. Performance on key fundamentals remains robust, with strong GDP growth and sustained FDI inflows driving the economy and driving up the optimism in the stock markets. Lifted by the this strong macroeconomic performance, India continues to generate growing private wealth for its citizens, which enables a sustained consumption boom amongst them- which will further lead to a virtuous cycle of GDP and consumption growth. 35 22 24 31 40 36 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 15.5 19.4 21.1 27.5 26.1 26.6 29.9 2011 2012 2013 2014 2015 2016 2017 Source: CSO, RBI, DIPP Sensex CY closing value (‘000) FDI (USD Mn)

11. 5 Solid GDP growth is being driven by growing private consumption Private Consumption As a % of Total GDP 2013 India China 69% 36.8% 37.5% 38% 39.3% 68.5% 69.2% 71% 2014 2015 2016 Indian GDP is driven by private consumption compared to China, where GDP is driven by Government spending. Private consumption as a % of GDP is driving higher GDP per capita Y-o-Y trends are considered for calendar year Note: Source: World bank, CEIC

12. 6 Key driver of India’s GDP growth is the growing share of private consumption. Share of consumption in GDP remains significantly higher than in China, where government spending is a strong driver of GDP growth. While in China the government has for years been trying to rebalance the GDP away from investment and focused more on a sustainable, consumption driven growth, India already finds itself in midst of a consumption driven boom that is likely to further accelerate in coming years. This means a number of opportunities lies in store for consumer focused industries including retail. Source: World bank, CEIC

13. 7 Demographic dividend will continue to drive consumption spending in future Working age population (15-59 Yrs) As a % of total population Working age population as a %age of total population is expected to increase in the next 10 years driving higher consumption. Young population is also more online-savvy driving growth in e-tailing. 1990 1995 2000 2005 2010 2015 2020F 2025F 56% 58% 60% 61% 62% 63% 64% 65% Source: World Bank Report

14. 8 India’s working age population is expected to register a strong increase over the next decade, spurred by robust macro performance and growing job opportunities across sectors. This will drive the creation of a new consumer class that is expected to further push consumption performance. This newly minted consumer class is likely to consume in a way fundamentally different to prior generations. Being the most digitally savvy consumer generation ever, for this consumer class, digital channels are expected to account for a higher-than-ever share of the buying journey, right from discovery to purchase. Together these two trends of 1) increasing consumption and 2) growing comfort with digital channels are likely to have a very strong growth impact on India’s digital economy in general and on e-tailing sector in specific and drive high double digit growth for foreseeable future in these sectors. Source: World Bank Report

15. 9 leading to increased data consumption Reducing costs for data and hardware are and creating a digitally savvy population Cost of data and data Consumption Cost of Data (In USD); 2014-2017 Reducing cost of data…. ….leading to higher data consumption 1. Industry average calculated using average cost of 1 GB of data from Bharti Airtel, Idea Cellular and exclude the impact of Reliance Jio(in terms of data cost & consumption) 2. Alliance for affordable Internet data suggests that 2% of monthly income for 1 GB of data is within affordable range Data Cost (per month) 2% per capita GDP Threshold for widespread affordability 4.4 1.9 3% 1.4% 2014 Q1 2017 Q1 Annual cost of 1Gb/month Data Cost as % of GDP per capita 50 95 190 1280 2014 Q1 2017 Q1 Overall India Data Consumption (Mn GB) Q-O-Q Data Consumption Source: Internet Trends 2017 - KPCB Note:

16. 10 Data Consumption has increased with the onset of 4G in the market and competitive pricing due to the arrival of Reliance Jio has led to reduction in cost of data which has been the major growth driver for internet usage in India. Key takeaway Source: Internet Trends 2017 - KPCB Over the last few years, India has seen two mega trends that has radically altered the nature of consumption. Firstly, data costs have seen a sharp fall, driven by aggressive pricing of Reliance Jio, which also led competitors to cut down the pricing drastically. As a result of these events, almost overnight a hitherto unaffordable service had become very much affordable for a large mass of India’s population. Secondly, growing availability of affordable and high quality smartphones, often made even more affordable with no-cost EMIs and buyback schemes, has seen smartphone adoption soaring in the country. Together, these two trends have led to a sharp spike in data consumption levels in the country and driven India’s total data consumption to the highest in the world. This is creating a population of digitally savvy users who are as comfortable streaming video online as they are with online purchase of high end furniture.

17. 11 Growth in smartphone users and online shoppers… …online shoppers on the rise will lead to doubling of number of Rapid growth in digitally savvy users online shoppers in India Digital Impact and Retail vs E-tailing No. of Shoppers, In Mn 1. Conversion rate 1$ = ₹60 2. Y-o-Y trends are considered for calendar year 2015 2016 2017 2020F 225 290 330 600 650 480 430 400 Total Internet users (Mn) Total Online Shoppers (Mn) Total Smartphone Users (Mn) 2015 60 75 90 185 2016 2017 2020F Source: Industry Report, RedSeer IP Note:

18. 12 Growing digital savviness made possible by the spurt in smartphone usage and internet access would drive India’s digital economy rapidly going forward. We expect India’s online shopping population to more than double over the next 3 years to reach 185 Mn by 2020. Driven largely by this user base growth and increased online spending of existing users, we expect the online retail market to reach USD 50 Bn by 2020 (from USD 19 Bn in 2017), accounting for ~4.5% of all retail purchases in India. This is a near doubling of the penetration from the 2.4% figure currently observed. This development is likely to have profound implications and throw up massive opportunities for both e-tailers as well as offline players. However, reaching the above milestones will not be easy for e-tailers and will require solving multiple adoption challenges on the consumer side. Source: Industry Report, RedSeer IP 12

19. 13 access to internet out of which 480Mn people in India have 90Mn are online shoppers Internet Usage Evolution Funnel- India Numbers of users, in Mn; CY 2017 Stage 0 Stage 1 Stage 2 Stage 3 Stage 4 Access to internet #of users (Mn) %of online population Online Maturity WhatsApp, Facebook and other social media Google, Wikipedia, E-mail etc. Banking and basic paid services like recharge E-tailing Annual Online Shoppers 480M 250M ~52% ~45% ~30-35% ~20% 200M 165M 90M E-tailing industry’s monthly consumer base is ~25 million Source: TRAI, RedSeer IP Note:

20. 14 A major obstacle to rapid e-tailing growth in India is the fact that online shoppers are a mere 20% of the total internet user base in India, which is a considerably lower number compared to counterpart countries at a similar stage. Historical reasons for a slow adoption of online shopping have been many- While growing comfort with online transactions is likely to follow the smartphone and cheap data boom, e-tailers would need to rethink their strategy and value proposition to appeal better to the non-online users. Only then can 90+Mn new users be successfully onboarded online by 2020 and the market can be on the right track to hit USD 50 Bn GMV by 2020. Long delivery times Value proposition of online shopping being not strong enough Low internet speeds or lack of good quality smartphones to enable online purchase Lack of trust on online payment systems Lack of trust on online bought products/ platforms Source: TRAI, RedSeer IP 14

21. 15 Tier-II+ cities will drive the growth of e-tailing in the next few years Annual Unique Online Shoppers No. of Online Shoppers, in Mn 10% 27% 22% 42% CAGR 2017-20 Overall E-tailing industry witnessed a high growth in Tier-2 cities in 2017 which is likely to continue as major online players will shift their focus to tier-2 cities CY16 75 90 118 150 185 CY17 CY18 CY19 CY20F Metro 27 37 56 80 106 31 48 27 45 22 40 17 36 14 33 Tier I Tier II Metro cities are approaching a maturity phase with~70%of the eligiblepopulation shopping online Y-o-Y trends are considered for calendar year Source: RedSeer IP Note: 15

22. 16 The major growth engine for online purchases going forward is likely to be the Tier 2+ city consumer. This is the population that was least digitally savvy till date, measured in terms of % total population which was shopping online. In comparison, the metro consumer is the most digitally savvy, with ~70% of eligible population already shopping online. However, e-tailers have made concentrated efforts to drive Tier2+ online shopper growth recently. Their strategy has revolved primarily along the below levers- This approach has seen some success, with Tier 2+ shoppers likely to grow 50% y-o-y to reach 56 Mn by 2018. We expect that e-tailers will continue to leverage further innovations (e.g. O2O channel expansion) to bring onboard further Tier2+ shoppers and increase the Tier 2+ shoppers count to 106 Mn by 2020. Growing selection of relevant products including private labels and affordability schemes targeted at value conscious customers (which dominate these cities) Stronger supply chain networks catering to Tier 2+ cities Increased cashbacks to remove barriers to digital payments adoption Targeted and localized/relevant advertising campaigns Use of assisted shopping to reduce barriers to first time usage Source: RedSeer IP 16

23. 17 AGENDA

24. 18 The optimistic seller Deeper, faster, efficient What’s trending!! $50 Bn bonanza First step towards a long marathon India’s digital population

25. 19 Infancy Phase $0.3 b $4.5 b $30 b $50 b Business Model Validation Phase Acceleration Phase CAGR 72% CAGR 49% 2000 E-tailing market in India 2009 2014 2018 2020 Domination of Inventory based models Sales of books, CDs dominate Competition is mostly domestic Moderate discounting Low focus on customer loyalty Domination of marketplaces Domination of electronics categories Entry of global players High levels of discounting Steadily growing M&A activity Focus on categories like fashion, wellness, furniture, babycare etc. Growth of niche/vertical players Reducing discounts, bottom-line focus Rapidly growing M&A activity Conversion rate 1$ = 60 ₹ the year 2000, the Indian e-tailing market Starting from humble beginnings in has entered the ‘acceleration phase’ Evolution of the Indian E-tailing Market Overview, market sizes in USD Bn Source: Primary Research; RedSeer IP Note:

26. 20 E-tailing had humble beginnings in early 2000s when shopping on the internet was virtually unthinkable. Since it was pre- smartphone era, the access to internet was a major barrier even for middle and upper class. Early players had to innovate a lot in logistics and payments space to overcome initial challenges. Post-2009, while the barrier for ‘access to internet’ was falling, it also coincided with smartphones getting popular. This was the era of fastest growth. A lot of e-commerce companies started and got initial funding in the time period but while some of them flourished, others were shut down in the same period. Post 2014, the industry has entered the ‘acceleration phase’ where top-4 players are battling for the leadership position. Some consolidation has also happened in the industry. GMV quality has significantly improved from the early years and players are committed to move towards profitability. Source: Primary Research; RedSeer IP 20

27. 21 E-tailing industry has a lot of headroom to grow Online Buying Frequency Online Penetration (In %) and Online Spend (In USD) India China USA 205 1800 2000 15% 55% 6% India China USA 20% 55% 79% 32% 27% 8% Metro Tier-I Tier-II Less People Buying People Buying Less Online shopper penetration (As a % of Total Internet User) Annual online spend per online shopper (In $) City-tier wise online shopper penetration Annual online spend as a % of Private consumption per capita– FY17 Source: Industry Report

28. 22 E-tailing has evolved differently in different countries. While in US, consumers started shopping online through desktop and then graduated to mobile; in China and India, the consumers have “leapfrogged” directly to mobile. Due to this, a large population shopping online in China and India is mobile-native. The penetration in US has reached 79% while in China, it has grown to 55% in a relatively shorter period of time. Indian e-tailing, which has gained momentum in thelast10years,hasreachedapenetration of 20%. A large part of this is driven by metro population, where penetration has reached 32%. Comparison with developed countries clearly demonstrates that Indian e-tailing has a lot of room to grow in the coming years as the middle income expands and online penetration increases. The growth will be driven by not just increasing number of shoppers but also per capita online spend which is ~10% of US in the current scenario. Online shopper penetration is the lowest in comparison to other countries which signifies that a small share of internet users is buying online, however the penetration in metro and tier-1 cities is growing at a faster pace than tier-II cities. Source: Industry Report Key Takeaway Annual spend per shopper on online shopping is still very low and constitutes of ~15% of the private consumption per capita which is ~55% in China. 22

29. 23 55% 65% 70% 80% 30% 20% 35% 45% CY15 CY16 CY17 CY20F online shoppers continue to be added, As a large number of mobile-native will continue to grow the share of mobile, compared to desktop, Mobile vs Desktop Usage As a % of Total visits Mobile site/ App Desktop Y-o-Y trends are considered for calendar year Increasing smartphone penetration has led to Indian Internet story unfolding on mobile instead of desktop; first-time internet users are largely smartphone only. Source: RedSeer IP Note:

30. 24 In the last 10 years, consumers are increasingly adopting smart phones over feature phones. In 2017, there were 295 million smartphone users and expected to reach 500 mn by 2020. Majority of the users who will be added in the next 3 years are mobile-native. They will access internet for the first time directly on smartphone, bypassing the desktop altogether. While desktop will still remain 20% by 2020, it is largely driven by people who access e-tailing websites in their office, whereas a large part of online shopping is now happening on-the-go. Source: RedSeer IP 24

31. 25 Each $15 burnt results in $72 of GMV with players differing in efficiency E-tailing Unit Economics Cash Burn vs GMV earned, In USD Item Value (in USD) Assumptions Checkout GMV 100 8.5 5.5 -15 Revenue form Sales Net Revenue Cash burn estimates Shipped GMV (after cancellations) Assuming $100 checkout GMV 10% pre shipment cancelations 17% returns 12% margin 4% of fulfilled GMV Negative contribution margin 13% of shipped GMV 3% of fulfilled GMV 9% of fulfilled GMV 90 72 -3 -12 -2.25 -6.2 Fulfilled GMV (after returns) Discounting Net supply chain expenses Advertising expenses Administration and other expenses Source: RedSeer analysis 25

32. 26 Considering the total Gross GMV to be 100 USD it is seen around the industry that around 10% cancellation take place before the order is shipped and around 17% is the total returns that are happening on the shipped order. 12% is the gross revenue which is generated from the sale of products while the net revenue is around 5-6 USD. Supply chain is 13% off the shipped gmv while advertisement, admin expenses contribute 12% of the total fulfilled GMV Average cashburn is 15% of the total value which is largely due to the competitive environment among the players. Source: RedSeer analysis 26

33. 27 at ~50% as the focus of the COD is expected to remain stagnant industry shifts to Tier-II+ cities Share of COD as payment mode As a % of Total Sales Note: Card on delivery is included in COD payments COD SHARE Increase in digital payment adoption Constant COD Share Increase in Tier-II+ share of shoppers Pre-Demonetisation Demonetisation Post Demonetisation Present CY20F 58% 47% 54% 51% 49% Share of COD (%) Source: RedSeer IP

34. 28 Cash On Delivery (COD) is an Indian phenomenon where customers pay through cash/ card at the time of delivery of goods from the e-tailer instead of paying at the time of purchase. COD has been arguably an important driver of e-commerce growth due to the cash- heavy nature of Indian economy and low penetration of digital and plastic substitutes. During the demonetisation, COD fell sharply as households faced shortage of cash due to lack of availability of high value notes. While it was predicted that the COD share will continue falling down as people were adopting digital means, yet post demonetisation period, the COD share rose back to previous levels. While many believe that due to continued increasing adoption of digital payment substitutes, COD share will fall down, we have to be cognizant of the fact that adoption of digital payment systems is still a phenomenon more common in metros and tier-1 cities. As the new e-tailing customers are added from tier- 2+ cities, they will continue to prefer the COD medium as the “trust” on e-tailers continue to be low in tier-2+ cities. Source: RedSeer IP

35. 29 20%+ returns is a constant feature of e-tailing in India Industry GMV – CY17 Total Industry GMV, in USD Bn 18.6 USD Bn 16.7 USD Bn 13.3 USD Bn Gross GMV Shipped GMV Fulfilled GMV 10% 22% 32% GVM cancelled or returned 1. Conversion of 1$ = ₹60 2. Post shipments cancellations and customer returns are included in returns Source: RedSeer IP Note:

36. 30 Based on extensive consumer research conducted by RedSeer, “trust” on e-tailers remains a key issue among the consumers. The ability to return the products, especially the ‘no questions asked’ policy adopted by some e-tailers has been able to convert some of the non-shoppers into e-tailing shoppers. Out of Gross GMV, orders contributing to 10% of GMV is canceled before shipping. These are typically impulse purchases or the consumer finds a better option on other e-tailer or offline. Orders contributing to 22% of shipped GMV are returned; these are either RTO, where delivery is attempted but either the consumer refuses to accept the delivery or is unavailable, or RVP (Reverse Pickups) where product is accepted by the customer on delivery and then returned due to quality or fitting issues. Source: RedSeer IP 30

37. 31 Product Variety Industry Average Product Availability Product Quality Pricing & Discount App& Web Experience Delivery Time Customer Support Reverse Pickup Speed Ease of Return Refund (Days) Purching Experience Delivery and Post Deelivery Experience L H delivery and post delivery experience (esp. While purchasing experience is satisfactory, customer support) needs improvement Customer Experience – CY17 Rating on a scale of 1-10 A total of 36,000 customer were surveyed over a course of one year While customers are satisfied with product quality and App experience… ..returns, customer support and refund days remain a pain point for the customers Source: RedSeer IP Note:

38. 32 Key Takeaway As delivery and post delivery experience is infrastructure driven, e-tailers are continuously investing in expanding their supply chain capabilities and reach. As the offerings on various e-tailing platforms have standardized, e-tailers are differentiating themselves from competition by improving the purchase and post-purchase experience. Purchasing experience on e-tailing platforms has significantly improved in the last few years owing to average industry NPS of 22% especially through better app experience (more intuitive interface, better search, accurate description etc.), product assortment (more brands coming online etc.) and reviews. But, the e-tailers have been unable to match the customer expectations on post- delivery front even though significant investments have been made by e-tailers to control and improve the experience. For example: Returns processes have continuously improved over the last few years and refunds are processed much quicker. Source: RedSeer IP 32

39. 33 AGENDA

40. 34 The Optimistic Seller Deeper, Faster, Efficient What’s Trending!! First step towards a long marathon $50 Bn Bonanza India’s Digital Population

41. 35 The market will be $ 50 Billion by 2020 Indian E-tailing Industry – Gross GMV Gross GMV, In USD Bn CY20F CY17 CY16 CY15 CY14 4.5 13 14.5 18.6 50 188% 12% 28% CAGR- 40% Amazon’s entry in the market with major funding’s happening across the players & acquisition of a leading fashion player together contributed to huge growth Government regulation on marketplace model, demonetization, slow customer acquisition & drying funding’s hampered growth of the industry Increasing active online shoppers with higher internet penetration & fund raising were some of the reason owing to the recovery phase Mobile will keep dominating the industry with ~50% share in overall GMV, however, FMCG, home and cosmetics are likely to emerge as significant categories alongside mobile and electronics 2014 2015 2016 2017 1. Paytm O2O and Automotive GMV are included; Grocery is also included 2. Conversion of $1= ₹60 Source: RedSeer IP Note:

42. 36 The Indian e-tailing industry has seen good momentum from 2014. Though there was a slump in 2016 with the growth being just 12%, the industry recovered well in 2017. The growth of H1-2017 was around 15-20% but the industry picked up well in H2-2017, primarily due to multiple sale events. A key reason for this recovery is the shift in the focus of the e-tailers to Tier- 2+ cities. We saw good amount of new users being added from the Tier2+ cities in 2017 which was a very positive sign for the industry. And thus we feel this growth would continue and the industry would touch $50 bn mark by 2020. Source: RedSeer IP 36

43. 37 Flipkart has been gaining market share year on year Market Share- Key Players Gross GMV, In USD Bn 42% 19% 39% 13 42% 31% 27% 14.5 45% 32% 23% 18.6 46% 30% 24% 20 Others CY15 CY16 CY17 CY18* Jabong not included in FK market share Annualized run rate based on Q1, CY18 1. Paytm O2O and Automotive GMV are included; Grocery is also included 2. Conversion of $1= ₹60 The industry has seen two major players acquiring the market share over the years, In 2015 the industry was scattered with many players like Snapdeal & Shopclues which constituted the larger share in the market while amazon’s onset in to the market left other players to lose their market share, Flipkart on the other hand continued to grow while acquiring Myntra & its subsidiaries. Source: RedSeer IP Note:

44. 38 The industry focused towards adding new shoppers from Tier2+ cities in 2017 and thus we saw an increase of 27% in the number of shoppers in the year. Telecom operators like Jio did a great job in bringing more and more people online which was the key reason for the addition of these new shoppers. The increased online penetration and the good experience provided by the e-tailers No. of shoppers are expected to increase with the shift of focus towards Tier-II+ cities which will drive the growth in future Increased online penetration of smaller categories with higher frequency of purchase will be the major factors in driving the growth Average order value is expected to remain stagnant due to the increase in first time buyers leading to lower order values E-tailing industry will witness a y-o-y growth with smaller categories like FMCG growing at a rapid pace made people more comfortable with shopping online and hence we saw an increase in the frequency of buying. The average order value remained stagnant primarily due to the increase in the first time buyers who shopped for majorly low value items. We feel going forward the average order value would continue to be stable as we expect more and more new users to join the platforms. Growth Drivers Number of Shoppers 27% 8% 0-1% 40% Frequency of buying Average Order Value Industry Growth Rate CAGR 2017-20, % Key Insights Conversion of $1= ₹60 along with online shoppers across the Increase in frequency of buying categories will drive the industry growth Industry Growth Driver in CY17-20 Growth rates, In % Source: RedSeer IP Note:

45. 39 Mobile will remain the key GMV contributor for next 3 years… Indian E-tailing Industry – Category Share (Y-o-Y) As a % of Gross GMV CY15 CY16 CY17 CY20F 12 14.5 18.6 50 6% 6% 6% 6% 6% 5% 5% 5% 4% 4% 4% 8% 23% 21% 17% 18% 18% 22% 20% 16% 38% 44% 50% 48% Mobile Electronic Devices/ Non- Devices FMCG Fashion Home Others Overall Gross GMV, USD Bn 1. Automotive share is included in others category 2. Conversion of $1 = ₹60 3. Grocery share is included in the overall figure Source: RedSeer IP Note:

46. 40 Key Takeaways Market share for mobile category has continuously seen an increase, half of the E-tailing business is being driven by the category as of 2017. Among smaller categories- share of Home and FMCG category increased in 2017. The industry witnessed growth across all the categories but mobiles continued to dominate. Mobiles, majorly due to the effect of exclusives, contributed nearly 50% to the overall GMV of the industry followed by fashion and electronics. Smaller categories like FMCG and Home have witnessed good growth primarily due to the base effect. We feel that there would not be much change in the category mix of the industry going forward as mobiles would continue to dominate and drive the growth for the industry. Source: RedSeer IP 40

47. 41 biggest category with online penetration Mobiles is expected to remain the reaching 50% in 2020 Mobiles Category – GMV Growth Gross GMV (In USD Bn), Online penetration (In %) CY20F CY17 CY16 CY15 4.7 5.9 8.9 23 26% 51% CAGR- 37% Conversion rate 1$ = 60 ₹ Mobile market Y-O-Y GMV (USD-Bn) Online penetration of Mobile Category (By Value) CY20F CY17 CY16 CY15 23% 26% 33% 50% Source: RedSeer IP, Counterpoint Research Market monitor CY 17 Note:

48. 42 The Indian consumers are getting more and more accustomed to buying mobiles online. Mobiles worth $9 bn were sold online in 2017, which is one-third of the total value of mobile sold in India. We feel that consumers would continue to adopt online as a medium of buying mobiles going forward and the share of online mobiles would touch 50% by 2020. Brands like Xiomi, Motorola and Lenovo which were very small a couple of years back have become giants in the last two years primarily with exclusive tie-up with their e-tailers. The power of online sales has become such that players like Oppo, Vivo which were focussing only on offline have now started adopting online channels. Leading online brands Fastest Growing Brands Source: RedSeer IP, Counterpoint Research Market monitor CY 17 42

49. 43 quicker replacement cycles are the Growth in average selling price along with major factors in the growth of the category Share of Price bracket – Overall Mobile Market, CY 17 As a % of total units ~86% of the market is concentrated in the price bracket of < $250 4% 10% 25% 45% 15% 1% 86% <$50 $50-$100 $100-$165 $165-$250 $250-$500 >$500 Smartphone Markets by price brackets Source: IDC, RedSeer IP 1. Conversion of $1= ₹60 2. Replacement cycle is calculated from survey conducted of 300 consumers Note:

50. 44 More than 2 years 1 year to 2 years 6 months to 1 year Less than 6 months Previous Phnoe Current Phone ~20 Months ~17 Months 8% 29% 31% 32% 21% 34% 33% 13% Replacement Cycle The Indian consumers today have high disposable income and mobile phones is one of the key things they chose to spend their money on. We thus see a tendency of the users to upgrade the price brackets when changing phones. Not only has the price bracket moved up, the replacement cycles have come down indicating that a user today always wants a new and good phone with them. The brands have thus started to rapidly upgrade the phone by adding news features improving the quality of the camera etc. to attract the high disposable consumers. The combination of these two trends; increasing price brackets and falling of replacement cycles, will continue to drive the growth of mobile category for the e-tailers. Source: IDC, RedSeer IP Key Takeaway Replacement cycles are decreasing because of the following- Supply-side effect: Upgradation of smartphones by manufacturers regularly & availability of cheap smartphone Demand-side effect: Increase in disposable income of people

51. 45 not created major impact in the New vertical players have growth of fashion category Fashion Category – GMV Growth Gross GMV, In USD Bn 2.8 3.1 3.7 8.7 11% 19% CY15 CY16 CY17 CY20F CAGR - 33% 4.5% 4.3% 4.4% 6.2% Fashion Market Y-o-Y GMV (USD Bn) Online penetration by overall retail sale (in value) Conversion of $1= ₹60 Source: RedSeer IP Note:

52. 46 Horizantals Verticals Horizontals vs Verticals (In %) CY15 CY16 CY17 65% 55% 57% 43% 45% 35% Fashion e-tailing has always been looked upon as the next big thing for e-tailers- owing to a combination of its easy to ship nature, high sales margins vs electronics and low ticket sizes vs electronics that promotes user trials. Till date, fashion failed to live up to its lofty potential, with the category growing in slower than expected to reach USD 3.7 Bn by 2017. Slow adoption of new shoppers, high return rates etc have together led to this category only realizing a small part of its large potential. However, fashion e-tailers are well placed to accelerate growth in this category over the next few years, owing to the below factors- Weexpectthatabovetrendsinconjunction with continued innovation by fashion e-tailers should see a steady growth in fashion category (33% CAGR) to reach ~USD 9 Bn by 2020. Growing number of internet savvy Tier 2+ customers- who could try out fashion purchase as their first online shopping transaction Growing trend towards using omnichannel models as a way to reduce barriers to online shopping Wider range of categories being included in online fashion- for e.g. cosmetics/beauty is a key category of focus for e-tailers, which should further drive up adoption Source: RedSeer IP

53. 47 in Metros, however contribution Online fashion has stronger penetration from smaller cities is also significant Fashion Category – Tier-wise split Tier-wise Split, in %, 2017 40-45% 30-35% ~25% ~1.1 ~0.9 ~1.4 ~3.4 9.5% 2.5% 8% Metros Tier-1 Tier-2+ Overall Online Fashion- Tier wise split (USD Bn) Online Penetration GMV Conversion of $1= ₹60 Source: Primary research, RedSeer IP xx% xx Note:

54. 48 Key Trends All the leading horizontal players receive more than 25% of their sales from tier-2+ cities leading to higher share of online fashion from tier-2+ as compared to overall online retail Online fashion shopping has significantly increased the brand awareness among Non- Metro cities where, earlier many brands had limited presence through offline channels Fueled by an increase in disposable income and increased awareness, online fashion shopping has grown and more Non-Metro youth are shifting to online shopping Source: Primary research, RedSeer IP Fashion is one of the most important online categories sold in Tier 2+ cities- as is clear from the fact that 25% of online fashion is sold in Tier 2+ cities, a higher % than any other category sold online. Strong demand for online fashion in these cities is spurred by a high aspirations for branded and quality products which is not matched by enough penetration of organized retail and branded products in these cities- a clear market gap for online retailers to close. Thus as Tier 2+ city shoppers increase to 185 Mn by 2020, we expect fashion category to grow in tandem. However, this rapid growth is not a given. E-tailers need to solve a plethora of bottlenecks to rapid fashion growth including solving for size issues, fake products, need for touch and feel etc. While innovations like omnichannel, easy returns etc are solving some of these issues, e-tailers would need to further innovate from bottom-up, taking into account the peculiarities of shopping behaviour in these Tier cities (e.g. high level of value consciousness), to drive growth. 48

55. 49 followed by footwear; Accessories with Apparels are top contributing category watches as the prime contributor account for 20-25% of the market Fashion Category – Sub category split Sub category split, in % Apparel Footwear Accessories, personal care and others Total 1.6-1.7 1-1.2 0.7-0.9 ~3.4 45-50% 30-35% 20-25% Online Fashion – Category wise split, USD Bn Conversion of $1= ₹60 Source: Primary research, RedSeer IP Note:

56. 50 Key Insights Footwear has higher adoption online where it represents 30-35% of the category compared to 5-6% offline Ethnic wear is expected to show good growth with next phase of customer growth expected to come in primarily from tier-2+ cities Share of private labels has been increasing especially in apparels due to- - Increased push by players by brand building and promotion - Higher customer adoption due to better value for money offerings Source: Primary research, RedSeer IP Apparel is driving the Fashion category with almost half of the share. Rest of the GMV in this category is contributed by Footwear and categories. Footwear has a higher online penetration compared to apparel due to higher standardization. The fit issues and returns are also lower. In the accessories, cosmetics is seeing a large growth especially with vertical players like Nykaa in this space. They are educating the customer about the brands and products, and giving access to premium brands to aspirational customers in tier-2+ cities.

57. 51 Infancy Phase ~0.05 Bn $1 Bn $4-5 Bn Initial Growth Phase Acceleration Phase CAGR 170% CAGR 65% 2011 E-FMCG market in India 2014 2017 2020 Entry of vertical players at small scale in chosen metro cities Low consumer adoption and limited selection Breakout years for sector- receives majority of $ 500 million funding Entry of horizontals and expansion to non-metros for verticals Stabilization of business models Strong take-up in both metros and smaller cities driven by growing selection, offers and innovative business models Conversion rate 1$ = 60 ₹ to be the next battleground for growth FMCG is a USD ~1 Bn market (2017) is going and is expected to reach USD 4-5 Bn by 2020 FMCG category – Growth Phase Gross GMV, USD Bn Source: Primary Research; Online Reports; RedSeer IP Note:

58. 52 FMCG products are the most bought product category in India- accounting for more than 80% of all retail purchases and 60% of all retail consumption. Considering the huge size of this pie and the potential for high repeat purchases, e-tailers have now turned attention to FMCG as the new battleground to drive e-tailing growth. While this category has existed online in some form since 2011 onwards, the category has really come into focus the last couple of years. This phase from 2014- 2017 can be called the ‘experimentation phase’ for this categories- as e-tailers tried expanding into various business models and geographies to see what works. In this period, the difficult financials of this category led to many closures inspire of heavy investments, as e-tailers struggled to discover what works and what doesn’t. What we see 2017 onwards is a relative stabilization of a few business models as e-tailers gradually have found the balance between growth and unit economics. Few business models have turned out to be more popular than others for e.g. warehouse fulfilled models and e-tailers are now expanding across city tiers with these models. Horizontals are also now deepening their interest in their category to find a competitive edge away from low margin electronics categories. Source: Primary Research; Online Reports; RedSeer IP 52

59. 53 CY15 CY16 CY17 CY20F 0.67 0.6 1 4-5 10% 67% CAGR - 65% FMCG Market Y-o-Y GMV $ Bn one of the fastest growing FMCG is expected to be category reaching 4-5 Bn in 2020 Since FMCG will be the next focussed category for all the players combined with large verticals entering the market and improvement in infrastructure, Online Grocery is expected to become $4-5 Bn market Source: RedSeer analysis

60. 54 Goingforward,weexpecthighinvestments in grocery category from both horizontals and verticals on key areas- including supply chain network build-up , offering a wide selection including private labels and aggressive marketing to bring onboard customers. Additionally, further business model innovation, e.g. expansion of express delivery offerings, is likely to continue to bring more wallet share online. Subscription based models and omnichannel based delivery models that offer fresh produce from kirana stores would also be further explored as e-tailers seek to target various customers across city tiers. We expect that these investments and continued product innovation should drive growth of this category to USD 4 Bn by 2020. Source: RedSeer analysis

61. 55 is seing high traction from horizontals BPC, while a smaller opportunity, and verticals and is poised to grow rapidly in the coming years Cosmetics Category - Trends Gross GMV, In USD Bn CY15 CY16 CY17 CY20F 0.22 0.25 0.32 1.3 14% 28% CAGR - 60% 1. Conversion rate 1$ = 60 INR 2. BPC – Body & Personal Care Major e-tailers and smaller verticals alike are focused on the growth of cosmetics category along with many offline players switching to omnichannel model to expand their customer base Source: RedSeer IP Note:

62. 56 Online [2%] Brand outlets (EBOs/MBOs) [10%] LSFs [6%] Salons [2%] Direct Selling [5%] Unorganised [75%] Channel split 51% 49% Verticals Horizontals Online Split Cosmetics is, in many ways, an ideal category for e-tailers- it is a brand heavy category with limited long tail and marketing pressure, sells at high prices and margins and need to manage returns is much lesser compared to other categories. However, this category has been underrepresented till date in the online market- owing to weak selection, limited marketing efforts, challenges with product genuineness, inability to compete with the shopping experience of offline channels. Bigger fashion players have focused more on apparel and footwear thus far rather and pushing cosmetics while grocery players have focused on low ticket size personal care segments. Together, this has limited the online scope of this category till date. Source: RedSeer IP

63. 57 Infancy Phase ~0.03 Bn ~$1.3 Bn ~$0.3 Bn Initial Growth Phase Acceleration Phase CAGR ~97% CAGR ~70% 2011 E-cosmetics market in India 2014 2017 2020 Entry of horizontals in the online cosmetics market Entry of vertical players at small scale in chosen metro cities Low consumer adoption and limited selection Existing modern retailers and manufacturers started their online businesses Tweaking and experimentation with business models Strong uptake in both metros and smaller cities driven by selection, offers & innovative business models Value added offerings and private label growth for better margins online retail market and grow rapidly to Cosmetics is expected to tap into the cross USD 1 Bn mark by 2020 Cosmetics Category – GMV Trends Growth Phase, In USD Bn 1. Conversion rate 1$ = 60 ₹ 2. BPC – Body & Personal Care Source: RedSeer IP Note:

64. 58 After being underrepresented in the online retail landscape till very recently, cosmetics category stands at a tipping point. We are bullish on the growth of this category and expect this to be one of the fastest growing segments in e-tailing over next few years. A combination of supply and demand side factors are likely to drive growth for this categorygoingforward.Onthesupplyside, smaller cosmetics verticals are gaining greater adoption using a combination of wide and exclusive selection, innovation in product/channel including having strong content and offline stores and savvy use of influencers etc. Larger verticals are also about to expand heavily in this category after focusing on consolidating apparel and footwear till date. They are likely to invest in supply chains and product side innovation along with aggressive marketing to further propel online cosmetics adoption in India. On the demand side, the Indian shopper is turning increasingly aspirational and often finds desired products unavailable in nearby offline stores. These are shoppers who are already comfortable with shopping online for other categories, and are increasing likely to buy cosmetics online as well as the online shopping experience improves and wider selection is available. Together, these trends are leading to rapid growth in cosmetics market and we expect it to reach USD 1 Bn in size by 2020, growing at 60% CAGR over next three years. Source: RedSeer IP 58

65. 59 AGENDA

66. 60 Deeper, faster, efficient What’s trending!! First step towards a long marathon $50 Bn bonanza The optimistic seller India’s digital population

67. 61 Sellers are optimistic on future outlook of e-tailing Seller Optimism on Business Growth in % Q. How likely do you expect that the business will grow from the following e-tailers? 73% 61% 44% Large Horizontals Large Verticals Small Horizontals ”Insights from the platforms for listing the products has helped increase the business on the platform” “Business has increased drastically during the festive Sale period on the platforms - Online seller, Large Horizontals “Fashion has seen the highest growth as a result of better advertisement & product listing” “Seller support has improved across all the platform” - Online seller, Large Verticals 1. Optimistic Sellers - Sellers who expect the business to grow ‘likely’ ,‘most likely’ in future in the respective platform 2. Data captured from survey of 2600 sellers on E-tailing platforms Source: RedSeer IP Note:

68. 62 Sellers are important stakeholders as the growth of marketplace affects their growth. RedSeer conducts quarterly surveys to assess the sentiment of sellers on various parameters. Sellers, according to 2600 surveys conducted in 2017, are most bullish on the growth of large horizontals, Flipkart and Amazon. While the e-tailing has seen slow growth in 2016, 2017 has been a year of growth for the e-tailers. Also, post DIPP regulations governing e-commerce companies, there is a feeling among sellers that marketplace models will see growth. Source: RedSeer IP

69. 63 Inventory model will retain 60-70% of the market share Inventory vs Marketplace As a % of Gross GMV CY15 CY16 CY17 CY20F 50% 53% 47% 42% 58% 70% 30% 50% Inventory Marketplace Inventory Model includes both platform owned goods as well as seller’s product stored at platforms warehouse The E-tailing industry continues to be largely inventory led and as the industry moves towards consolidation and new categories like FMCG and cosmetics emerge as the new front for growth, players are focusing more on improving their inventory capabilities to provide better services. Source: RedSeer IP Note:

70. 64 Despite sellers being bullish on e-commerce, the inventory-led model is continuously contributing a higher percentage of overall e-tailing. The trend is towards increased share of inventory- led model as e-commerce companies look towards controlling the customer experience in a better way. As DIPP regulations do not allow more than 25% of sales through one seller, the inventory-led model is driven by companies who are wholly or partially owned by e-tailers. Categories like FMCG have seen limited success through marketplace model and hence driven largely through inventory model. Source: RedSeer IP 64

71. 65 …and the thrust on increasing the seller base has slowed down Total Seller Base for a top e-tailer No.of Seller on an Online Platform 10k 45k 120k 200k 12x in less than 2 years 1.6x in 1 year Dec - 14 Dec - 15 Dec - 16 Dec - 17 Key Takeaway Leading industry players have stopped the push towards increasing the seller base in the past few years and are more focused on growing business from the existing seller base. Source: RedSeer IP 65

72. 66 Between 2014 and 2016, there was a big thrust on acquiring sellers for the marketplace model by e-commerce companies. However, the thrust to add more sellers is increasingly coming down with e-tailers adding new sellers only when they can provide specialised products. There is also a churn in sellers who opt out of selling online due to limited success. E-tailers are also trying to better the customer experience by fulfilling a higher share of orders through their own fulfilment centers. Seller policies, in this context, play a major role for seller to decide whether they want to use their own warehouse or e-tailers’ warehouse. Source: RedSeer IP 66

73. 67 Sellers are constantly worried about the returns Seller Experience Insights Seller Engagement forum experience Listing Insights from platform Returns & profitability Platform support with rebates Inwarding & logistics support Rewards & recognition Sellers are able to get their queries resolved on engagement forums & the adoption is more than 30% Sellers are able to improve their order to SKU ratio particularly in Fashion category High returns volume in festive season has increased the packaging cost for sellers Sellers are unable to reconcile payments/rebates against damages due to lack of timely notifications Stringent order-pickup timelines & Smart-fulfilment No-holiday policy are pain-points of seller Rewards & recognition is similar across all ecommerce platforms although stringent guidelines lead to dissatisfaction among some sellers Seller experience Insights High satisfaction Moderate satisfaction Low satisfaction 1. Total Surveys N = 1041 2. The data collected is from the study conducted for OND ’17 period Source: RedSeer IP Note: 67

74. 68 Increasingly, sellers are demanding better services from the e-tailers as majority of sellers operate only through online platforms. E-tailers typically create seller tiers where services like account manager are provided to sellers in the top tier due to which they also have a better experience compared to long tail. One of the biggest issues for e-tailers is returns which also hampers their profitability. E-tailers have introduced services like “seller-buyer chat” where a buyer can get in touch directly with seller to help him understand his specific needs so that multiple returns do not happen. Seller are fairly satisfied with the logistics support provided by the e-tailers as well as engagement forums which are conducted by e-tailers to educate sellers. Source: RedSeer IP 68

75. 69 Offline retailers go online to realise both direct and indirect benefits Omnichannel benefits for Offline retailers Insights Increased touch points with customer Leading to more conversions/orders Direct Benefits Customer Club Webshop Mobile App Stores Social Media Direct Mail Online Marketing Emails Omni-Channel POS Kiosks In-store immersion Clienteling Coupons Upsell, Cross-sell Loyality Programs Store Events Case Management Order Processng Up-sell Customer Sat Voice Campaigns VoC SLAs Self-ServiceHelp Carts Campaigns Mobile SMS Chat Google Adwords Bing Ads Social Networks Social CRM Social Listening Social Marketing Social Selling Social Products Social Enterprise Custom Audiences Social Append Xiaomi saw online sales increase from 10-20% after adopting an omni-channel strategy Stores E-Commerce Call- Centers Social Media Source: RedSeer IP

76. 70 Indirect Benefits LEAD VERY IMPORTANT IMPORTANT not IMPORTANT boring dull 0 Invaluable data on customer online behaviour Build intelligence to target customers Integrate business - reduce cost, improve service As e-commerce continues to grow, there is a push by offline players to come online. Large Indian corporates like Tata Group, Reliance and Aditya Birla are building their online strategy so they can gain market share in this fast growing industry. For an offline player, the benefits of an omnichannel strategy are not limited to increased revenue from online channel but also gain advantages in their offline channel like: Increased touchpoints with customers: With a large number of consumers researching products online, an omnichannel strategy provides the brand with a chance to interact with customer both online and offline in an integrated manner. Customer insights and intelligence: Due to transactional nature of offline business, the insights into customer buying behaviour can be limited but online sales provides a large amount of valuable data into customer buying behaviour which can be leveraged for offline sales. Improve Service Delivery Reduce Cost 10% 10% 10% 11% 12% 15% 21% Online Store Purchase In-Store Purchase 22% 24% 26% 19% 10% 9% 33% Online Rating and Reviews Google Search 25% 19% Email Promotion Paper Catalog Pinterest Twitter Mobile Advertising Facebook MOST INFLUENCE LEAST Source: RedSeer IP

77. 71 AGENDA 71

79. 73 will be the key factor owing to Increase order share from tier2+ cities higher overall shipment Indian Etailing Industry – Shipment No. of shipments(Mn), cost per shipment(USD) Cost per shipment (USD) CY15 CY16 CY17 CY20F 1.1 1.3 1.5 4.4 14% 22% CAGR- 40% CY20F CY17 CY16 CY15 3.0 2.8 2.4 2.3 Source: RedSeer IP, Counterpoint Research Market monitor CY 17 Conversion rate 1$ = 60 INR Note:

80. 74 Key Insights Industry shipment are expected to grow at a CAGR of 40% from 2017-2020 owing to similar growth in e-tailing industry. Captive shipments will be on the rise as the players look to increase their control over the customer experience with minimum risks. Costpershipmentisexpectedtoremainon similar lines as the order share from tier2+ cities is expected to increase resulting in higher variable costs & volumes, hence the overall impact would result in similar cost per shipment. Source: RedSeer IP, Counterpoint Research Market monitor CY 17 74

81. 75 significantly in last 3 years with increasing E-tailing infrastructure has improved number of warehouses and delivery centres Infrastructure Details Number of centres, % share of fulfilled shipments 60+ 200+ 90+ 800+ 105+ 1200+ CY15 CY16 CY17 Number of Centres % share of fulfilled shipments Fulfillment Centres Delivery Centres CY15 CY16 CY17 45% 52% 55% Only captive Infrastructure for E tailing players has been considered, Fulfillment centres - Captive warehouses used to exclusively store platform’s inventory (Products from sellers and private labels on the platform). Source: RedSeer IP Note:

82. 76 Key Takeaways Both Flipkart and Amazon have focused on developing self capability for managing the shipments, establishing control over the quality and speed of delivery which is reflected in the increase in number of warehouses and share of fulfilled shipments in the industry. Processing of orders, at the back-end, plays a significant role in the success of an e-tailer. Efficient supply chain can significantly improve delivery times for products to reach the customers. Fulfilment Centers are large warehouses where orders are processed for shipping. Delivery Centers are sorting stations where orders are sorted by pin code for final delivery. The growth of FCs and DCs indicates the significant investments e-tailers are making in fortifying their back-end processes. Broadly, there are 2 modes of fulfilment for an order- one where seller fulfils their order through their own warehouse, and other where the fulfilment is done by e-tailer. E-tailers increasingly prefer to fulfil the orders themselves as they are able to control the experience better. Source: RedSeer IP 76

83. 77 Gati Bluedart Ecom Express Delhivery Ekart ATS Xpressbees Vulcan 19 18.8 18.5 18 17.2 3.5 11 5.5 6.8 3.8 5.4 3.6 5 2 2 4 99% 96% 90% 57% 35% 28% 26% 10% Both teaditional logistic players gati and bluedart cover mejority of the pin code due to their extensive B2B logistic network Both Flipkart and Amazon are focused on redusing their dependency on 3PL players and expansion of their respective captive logistics network, specially in tier-2 cities increasing with more and more Reach of logistics players are deliverable pin codes added Player wise Pin code reach No. of Pin codes served across India(‘000) Players wise pin code reach 2016 2017 Pin codes covered as a % of overall pincodes in India Data comparison has been done for Q2’16 and Q2’17 Source: RedSeer IP, Pincode.org.in Note:

84. 78 Traditional 3PL companies: These are 3rd party logistics services providers who have an extensive B2B logistics network eg: Gati, BlueDart. New-age 3PL companies: These are 3rd party logistics services providers who focus mainly on e-commerce companies for logistics eg: E-com express, Delhivery. Captive logistics- These are fully or There are broadly 3 kinds of logistics players: partly owned by an e-tailing parent company eg- Ekart, ATS. As customers from tier-2+ cities are increasing,reachisbecominganimportant factor for the success of e-tailers. Delivery companies, both 3PL and captive, have to make significant investments for increasing their reach in areas where they are not currently present. Source: RedSeer IP, Pincode.org.in

85. 79 Delivery speeds have improved continuously in the last 2 years Delivery Performance, O2D Days No. of Days taken from order to delivery CY15 CY16 CY17 0.5 days Delivery time in Tier-II+ cities has improved the most due to expansion of supply chain infrastructure in these smaller cities Overall Metro Tier 1 Tier 2 4 6 Source: RedSeer IP 79

86. 80 Delivery speed is an important lever for e-tailing companies to keep the customer happy and NPS higher. High delivery times often dis-incentivizes customer to order from an e-tailing platform and instead buy offline, for faster gratification. E-tailing companies have been investing in logistics and infrastructure capabilities to reduce the delivery times. O2D (Order to Delivery) is typically broken down into O2S (Order to Shipment) and S2D (Shipment to Delivery). Bringing down O2S entails investment and innovations in first mile logistics infrastructure like availability of inventory in warehouses close to customer, ability to ship products as soon as order flows in and multiple pick up times from warehouse. Source: RedSeer IP 80

87. 81 share of captive logistics; Traditional 3PL E-tailing players are increasing the will continue to lose share in e-commerce Dependency on 3PL’s Share of 3PL shipments as a % of overall shipments 47% 14% 39% 37% 33% 32% 11% 10% 8% 52% 57% 60% CY15 CY16 CY17 CY20F 345 394 479 1374 Captive Overall annual shipments(Mn) Traditional 3PL New age 3PL 1. Captive includes ATS, Ekart, Myntra Logistics & others 2. New age 3PL share includes major players like Delhivery, Ecom express, Xpressbees, 3. Traditional 3PL includes Gati, Bluedart and Others Source: RedSeer IP Note:

88. 82 Key Takeaways The dependency on 3PL partners is reducing since major platforms like Flipkart and Amazon have infused significant sum of money on their respective logistics arm Ekart and ATS Majority of shipments(>75%) on both Flipkart and Amazon are managed by their own logistics arm Large e-tailers have developed captive logistics arms for delivery so that they are able to better control the customer experience. They have also developed sophisticated algorithms which assign a particular shipment to in-house or a particular 3PL partner. There are largely two different types of 3PL partners- New Age companies (like Delhivery), and traditional 3PL companies (like Gati and Bluedart). While New Age companies typically have a lower cost structure, traditional companies have a wider reach due to established routes in far flung areas. E-commerce companies have been reducing their dependence on 3PL by increasing the reach of their captive arms and creating logistics capabilities in-house. Source: RedSeer IP 82

89. 83 capabilities for end-to-end supply chain Large horizontals are developing for large appliances and furniture Typical supply chain Sourcing unit/imports Wearhouse/ fulfilment centres Delivery centres Installation/other services Major domestic hubs are Jodhpur, Mumbai and Delhi, with Jodhpur accounting for majority (60-70%) of the overall products 2 fulfilment centres in Bhiwandi and Gurgaon and 1 sourcing centre in Jodhpur 14 distribution centres in cities like Hyderabad, Bangalore and Pune Own – 25%(product weighs<50 Kg) 3PL – 75% Major sourcing hubs for furniture are in Mumbai and Jodhpur, large appliances are sourced from multiple sellers in various locations 9 exclusive centres for furniture and large appliances, 7 of them were launched in 2017 NA Installation is taken care by the respective brands except in cities where the brand cannot provide an installation partner Flipkart is sourcing 70% of the furniture products from manufacturers in Jaipur, Jodhpur and Nagpur, launch of private labels Perfect homes and MarQ in 2017 2 exclusive fulfilment centres for storing furniture products, and about 10 fulfilment centres are being used for large appliances NA Flipkart has partnered with Jeeves for scheduling installation, requesting for exchange etc. Parameters Key domestic sourcing locations and their share Fulfilment centres Delivery centres Installation/ service team Type of Players Verticals Horizontals Source: RedSeer IP

90. 84 Warehousing and fulfilment centers: The biggest sourcing hub for furniture is Jodhpur for all e-tailers. Warehouse requirements for large appliances and furniture are different from that of other products due to larger size. First mile logistics also needs to be optimized as the delivery trucks can carry less no of SKUs. Delivery centers: Vertical furniture e-tailers like Peppersfry have delivery/ There are 3 key pieces in the large appliance and furniture supply value chain: distribution centers which are close to the customer while horizontal e-tailers deliver do not have separate delivery centers for furniture and large appliances. Installation:Verticalplayersinfurniture are building in-house capabilities for installation as it forms a large part of consumer experience. While Flipkart has acquired Jeeves for installation of large appliances, Amazon passes on the installation request to respective brands. Source: RedSeer IP

91. 85 AGENDA

93. 87 likely to be the major drivers in improving Subscription model, Private labels are customer loyalty and increasing margins for the online platforms Key Trends – E-tailing Insights Trend (#) Key Trends Future Outlook Set to grow Set to grow Set to grow Wait and Watch Insights Trend 1 Subscription model Trend 2 Private label Trend 3 Festive sales Trend 4 Online- to-offline model Amazon has been successful in implementing their subscription model with a significant share of orders(~35%) coming from prime members Other companies are expected to come up with similar strategies to increase customer loyalty on their platforms Private labels are expected to prosper in future as platforms are able to earn higher margins on the products successfully increasing customer loyalty by providing quality products similar to National/global brands Festive sales would continue to dominate the sales driven Indian market with high Jumps during the festive sale period Paytm has been growth in its business post implementation of the O2O model, however there are still constraints around its awareness and adoption among customers Source: RedSeer IP

94. 88 Are customers adopting Amazon prime? Are Prime customers spending more? Are Prime members buying more frequently? Are Prime members browsing other platforms? Are Prime members buying on other platforms? Subscriptions will have moderate success over a large base Subscription Model – Amazon Prime Insights Based on extensive consumer research conducted by RedSeer on Amazon Prime members, we have identified 3 large cohorts: Natural selection: Customers who subscribe to Prime because they shop frequently. Value-seeker: Customers who buy Amazon Prime membership as it is value- for-money. Deal-tied: Customers who buy Amazon Prime membership due to deals offered The effect of Amazon Prime on customer loyalty has been a mixed bag so far. While Prime members spend almost double of Amazon in a year compared to non-Prime, 78% of customers still shop on other platforms after subscribing to Amazon Prime. Data captured from survey conducted of 300 Prime users 2X- number of prime members in 2017(7.3 Mn) compared to 2016(3.7 Mn) Prime customer spends 1.9X in a year compared to Non- Prime customer Average prime members shops 2.1X more frequently in a year compared to Non-Prime members 15% Prime members have not browsed other platforms after becoming a prime member 22% Prime members have not shopped on other platforms after becoming a prime member Source: ELI Survey, RedSeer IP Note:

95. 89 Private label will become 10% of the E-tailing GMV Private Label – Future Outlook Key Growth Rates Share of private labels (As a % of Gross GMV) CY16 CY17 CY20F 98% 96% 90% 2% 4% 10% Private Labels Other Brands *Category penetration is defined as the % of sales contributed by private label in the overall GMV of the category Source: RedSeer IP Note:

96. 90 Mobile Fashion Large Appliances Furniture and Home FMCG and Grocery <1% 5% 18% 7% 15% 18% 12% 3% 10% 12% >10% 5-10% 1-5% <1% Category Private label penetration* and future outlook Category 2017 2020F As e-tailers commit themselves to a path of profitability, they are looking at ways to increase their gross margins. Globally, Private labels have proved as a dependable model to improve gross margins significantly. While all the large players are looking to introduce (or have already introduced) private labels, the success will depend on various factors including the customer’s behaviour while shopping for a particular category. Private label is expected to grow the maximum to fashion and FMCG category followed by ‘Furniture and Home.” Source: RedSeer IP

97. 91 in bringing O2O model to India Paytm has been moderately successful similar to China Paytm O2O (Online to Offline) Business Model Incase the product is not available at the moment, the customer can awail the option of some day home delivery Customer can pay using Paytm and avail cashbacks and discounts Each store has its own catalogue of products available in the store and the customer can chose the product to buy from the app The customer can scan the QR code at the store using the Paytm Mall App. Each merchant is given a Paytm Mall QR code and the com- plete catalogue of the store is mapped to this QR code Source: RedSeer IP

98. 92 Indian retail market was estimated to be ~670 mn$ in 2017 growing with a CAGR of 17-18%. E-tailing accounts for <3% of the total retail market. Despite the growth in e-tailing, industry stalwarts are convinced that even in a mature stage, at-least 70% of entire retail market will remain offline. Since offline retail is expected to remain a sizeable portion of retail market, e-tailers are coming up with business models to grab market share in the organized offline retail. One such example is O2O model launched by PayTM where a customer can browse a shop’ catalog on their smartphone using QR code, and pay online. This model has been fairly successful in China where customers purchase even offline through T-mall, which in turn provides retailers with customer insights as well as help them personalize customer’s shopping experience and promotions/ offers. Source: RedSeer IP 92

99. 93 like China as ~30% of Industry GMV Indian e-tailing market is sale driven was contributed by 10% of the days (Sale Days) in 2017 Sale vs Non-Sale GMV Performance Key Insights; 2017 Industry GVM (Sale vs Non-sale) AOV ($) Daily Transactions (MN) Overall GVM Sale Days Non Sale Days 70% 30% 1.3x 3x $35 1.1 3 $50 1. Jan, May, Jun, Aug, Sept, Oct, Dec are considered sale months 2. Total number of sale days considered are 35 Note: Source: RedSeer IP

100. 94 The trend of festive sales started with BlackFridayinUS,whichstartsfromFriday following Thanksgiving and continues till Sunday. The sales in this period typically cross 50Bn$ across US. E-tailers in US follow this trend and provide deals and discounts during this period; Black Friday sales has crossed 5Bn$ sales for e-tailers in the past few years. Festive sales in India contribute to 30% of GMV. While the largest festive sale is in September end/ October beginning before Diwali, there are many small sales which happen during the year. These sales provide the e-tailers with an opportunity to acquire new customers through deals and promotions. Sale periods typically have higher AOVs as new customers tend to buy mobiles which have a higher average value. Festive month sales in 2017 was 3.3 Bn$ which is expected to increase with a 50% CAGR till 2020. Source: RedSeer IP Key Takeaways Flipkart witnessed higher jump in sales (3-4X) compared to Amazon(2-3X) during all sale events in 2017 owing to its efficient marketing and attractive prices during sale events 94

101. 95 APPENDIX

102. 96 Methodology & Glossary Customer Insights Seller Insights Integrated Research Approach Expert Interactions Mystery Shopping 36000+ Customer Surveys in one year 5000+ seller survey Proprietary research approach by our data analytics team 3000+ Industry expert interactions 20000+ orders in 46 pincodes across India Customer insights such as customer perception about the platform, buying behaviour, experience etc have been established from extensive surveys conducted on quarter on quarter basis while with more than 5000+ seller interaction gave in depth analysis of 1 USD 65 INR GMV Gross Merchandise Value Y-o-Y Year on Year BPC Beauty and Personal care O2D Order to delivery CAGR Compound Annual Growth Rate O2O Online to Offline the seller preference of platforms, view point on gaining accurate and deep understanding from more than 3000+ experts throughout the industry and assessing the individual platforms through the mystery shopping exercise with more than 20,000+ orders. Acronym Definition Most Comprehensive E-tailing Industry Report Glossary

103. 97 RedSeer Team Executive Summary Anil Kumar is Founder of Redseer Consulting. He has been part of engagements in Internet, Private Equity, Retail CPG and Healthcare among others. He specialises in growth and investment strategies. Anil is a believer of the data-driven approach in solving business problems. His consulting approach leverages Data IP, sector expertise and the client’s core hypothesis. He can be reached at anil@redseer.com Education He holds B.Tech from IIT-Delhi. Executive Summary Ujjwal is an Engagement Manager at RedSeer. He is a big believer in the power of technology to disrupt the status quo. He specializes in due-diligences especially in consumer internet space. Prior to joining RedSeer, Ujjwal has co-founded and exited a healthcare startup. He can be reached at ujjwal@redseer.com Education He is an IIT Delhi alumnus Executive Summary Mrigank has 4+ years of experience in research and strategy creation across key consumer internet sectors in India, ranging from e-tailing to FinTech, He is regularly quoted in the media as a thought leader in the space and can be reached at mrigank@ redseer.com Education He is an IIT Roorkee alumnus Anil Kumar Founder & CEO Ujjwal Chaudhry Engagement Manager Mrigank Gutgutia Engagement Manager

104. 98 Executive Summary Krishna is a senior business analyst with extensive experience in working with new-age companies and major players in E-tailing industry He can be reached at Krishna@redseer.com Education He is an IIT Guwahati Alumnus Executive Summary Saurabh has worked with major E-tailing, VC and PE firms in the E-commerce industry and has a deep understading of the E-tailing market . He can be reached at Saurabh@redseer.com Education He is an RTU Alumnus Executive Summary Eshan has conducted extensive research for market sizing and competitive bench marking across multiple verticals in the consumer internet sector, he has developed a deep understanding of the supply chain and logistics. He can be reached at eshan@redseer.com Education He is an BIT alumnus Executive Summary Abhinav has experience in market sizing, competitive benchmarking, & due diligence in the e-tailing industry. He can be reached at abhinav@redseer.com Education He is an VIT (Vellore) alumnus Krishna Choudhury Senior Business Analyst Saurabh Joshi Business Analyst Eshan Tyagi Business Analyst Abhinav Sharma Junior Business Analyst

105. 99 Notes

106. 100 Disclaimer While we have made every attempt to ensure that the information contained in this report has been obtained from reliable sources, Redseer consulting is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this report is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Nothing herein shall to any extent substitute for the independent investigations and the sound technical and business judgment of the reader. In no event will Redseer Consulting or its partners, employees or agents, be liable to you or anyone else for any decision made or action taken in reliance on the information in this report or for any consequential, special or similar damages, even if advised of the possibility of such damages. The information contained in this report is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. The application and impact of laws can vary widely based on the specific facts involved. Given the changing nature of laws, rules and regulations, and the inherent hazards of electronic communication, there may be delays, omissions or inaccuracies in information contained in this report. Accordingly, the information on this report is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax, or other professional advice or services. As such, it should not be used as a substitute for consultation with professional advisers.

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