TRENDS IN INDIAS eCOMMERCE MARKET

This Report is provided by Forrester Research as the Research Partner for ASSOCHAMs 2nd National Conference on e-Commerce 2012 and distributed to the Delegates of this Conference. COPYRIGHT Entire contents 1997-2012, Forrester Research, Inc. All rights reserved. Forrester, Forrester Wave, Role View, Techno graphics, Tech Rankings, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. Forrester clients may make one attributed copy or slide of each figure contained herein. Additional reproduction is strictly prohibited. For additional reproduction rights and usage information, go to www.forrester.com. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.

FOR: eBusiness and Channel strategy Professionals

Trends In Indias eCommerce Market

by Zia daniell Wigder and Manish Bahl, August 13, 2012

Key TaKeaWays eCommerce in india is Growing Quickly The eCommerce market in India is smaller than in other markets that Forrester forecasts in Asia, but it is growing the fastest. Retailers have a sizeable opportunity as the online population starts to spend more and buy more frequently online. Todays online shopper in india has inated expectations Similar to retailers in most emerging eCommerce markets, retailers in India are doing whatever is necessary to drive consumers to shop online. Online shoppers expect to see good deals online accompanied by free or very low-cost shipping. Localization is Crucial To be successful online in India, eBusiness professionals must understand local eCommerce trends. Two key areas that companies must focus on in all markets -localized payment and fulfillment options -- are particularly essential in India.

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Trends In Indias eCommerce Market

How Online Retail In India Is Evolving Differently From Other Major Markets by Zia Daniell Wigder and Manish Bahl with Kelland Willis and Lily Varon

Why Read This Report Indias eCommerce market is at an early stage but is expected to see huge growth over the next four to five years. Over the past 12 months, venture capitalists have invested heavily in Indias eCommerce market, new players have emerged, and the eCommerce ecosystem has developed, presenting a huge opportunity for companies willing to work through some of the logistics and payments challenges in India. eBusiness professionals with an interest in the online retail market in India must understand how India differs from other leading eCommerce markets and where hurdles do and dont exist. In this report, we outline some of these local nuances and explain the key trends shaping eCommerce in India.

Table Of Contents
2 Indias eCommerce Market Is Small But Will Grow Strongly The eCommerce Market In India Is Poised For Rapid Growth Online Consumers In India Have Specific Demands 5 Payment Options And Fulfillment Are The Key To Localization eBusinesses Must Offer A Variety Of Payment Types Logistics Are One Of The Largest Hurdles For eBusinesses In India
recommendations

Notes & Resources

Forrester interviewed AaramShop, BindaasBargain, eBay, Flipkart.com, Helion Venture Partners, IndoUS Venture Partners, Myntra.com, Snapdeal.com, Sonata Software, and Symantec for this report.

Related Research Documents

Asia Pacific Online Retail Forecast, 2011 To 2016 April 16, 2012 Establishing A Global Direct Online Sales Footprint January 26, 2012

8 A Flexible Strategy Is The Key To Success In Indias eCommerce Market 9 Supplemental Material

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Indias eCommerce market is small but will grow Strongly An increasing number of global companies are eyeing the rapidly growing eCommerce market in India as improvements in infrastructure are made and Indias economy grows. As the worlds 11th-largest economy (and fourth-largest emerging economy after BRIC peers China, Brazil, and Russia), India is starting to appear on eBusiness organizations lists of key international markets.1 While Internet penetration is low at just 10% of the overall population, the government is building infrastructure to improve and enable connectivity in metropolitan and rural areas.2 And with the 2001 census showing an estimated English-speaking population of 125 million, India currently appeals to global companies looking to sell online using their English-language websites.3 Currently, shoppers in metropolitan India are driving eCommerce: These consumers are primarily buying travel, consumer electronics, and books online.4 And although spending per online buyer remains low, some 59% of online consumers in metropolitan India already make purchases online at least monthly.5 Consumers in nonmetropolitan areas will also help fuel growth; unlike online consumers in cities, they are more likely to shop online for goods that are unavailable at local stores. The eCommerce Market In India Is Poised For Rapid Growth eCommerce revenues in India will increase by more than five times by 2016, jumping from US$1.6 billion in 2012 to US$8.8 billion in 2016 (see Figure 1).6 While US$8.8 billion is still less than other countries in Asia Pacific, such as China and Japan, Indias CAGR is much higher than any other country that Forrester forecasts in the region.7 The following factors are influencing this growth:

Venture capitalists are bullish on eCommerce growth. In 2011, venture capitalists invested

US$177 million in eCommerce in India more than recent estimates of eCommerce investment in Russia in 2011, for example.8 A partner at one of Indias top early- and mid-stage venture funds noted that Indias online population which is largely upper and middle class has moved well beyond the initial stage of online shopping. Another venture capital firm in India that is investing heavily in eCommerce stated that it is confident that consumers in both urban and nonurban areas are ready to shop online. Investment firms are also diversifying to include retail sectors that have faced challenges offline: Womens lingerie, for example, is expected to grow quickly online, where women can purchase anonymously.

Online grocery shopping is starting to appeal to the upper- and middle-class consumer.

Grocery, traditionally a category that shifts online in the later stages of eCommerce development, has started to move online and is doing well with the middle- and upper-class online shopper in metropolitan India. Revenues are small today but poised to grow: MyGrahak.com, for example, expects to have a turnover of US$179.1 million by 2015.9 The site currently has only 22,000 registered users, but sign-up rates are increasing by 25% per month. In 2012, the firm is focusing its efforts on raising more capital to double warehouse capacity and improve logistics.

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eCommerce is expanding into nonmetropolitan India. eCommerce retailers in India

are expanding their offerings to the online population outside metropolitan India and are investing heavily in the infrastructure to support these cities.10 Online apparel retailer Myntra. com is already seeing demand for its products outside metropolitan India: 50% of its sales are outside Indias 10 biggest cities. To widen their reach, for example, multiple retailers are building warehouses outside central locations; testing shipping options that work in rural areas; offering payment options like cash on delivery (COD) that provide options for the unbanked; and subsequently marketing these to semi-urban and rural consumers. Additionally, retailers often view urban and rural users as having two distinct goals: Many of the former shop online because they have more money but cant access the products they want (such as unique or imported items), while many of the latter shop online for things they need (such as shoes) but cant access or cant access cheaply where they live.

Large retailers are looking to build an online presence. Some brick-and-mortar retail

operations are also recognizing the opportunity online in India. For example, Croma, one of Indias largest consumer electronics stores, moved online to sell its full range of products. And global multibrand, multichannel retailers like Walmart that are currently restricted by Indias foreign direct investment (FDI) laws are anxiously following developments to take advantage of opportunities as they arise.11

Social media and mobile are helping accelerate eCommerce adoption. The social and mobile
trends that are prominent worldwide are also underway in India. With 51 million Facebook users (5 million of whom joined in the past three months alone), India is ranked as Facebooks third-largest audience in the world after the US and Brazil.12 Social networks have not been major drivers of eCommerce transactions in other markets, yet these sites play an important role in driving consumers online and getting them to engage with brands.13 And in mobile, India has close to 1 billion wireless subscribers: As of May 2012, the Telecom Regulatory Authority of India reported more than 929 million wireless subscribers in the country.14 While 3G penetration today is estimated to be in the low single digits and users complain of low network speeds, mobile will be a key tool in helping users connect in a market where overall Internet penetration remains low.15

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Figure 1 Forecast: India Online Retail Revenues (B2C And C2C), 2012 And 2016
US$8.8 billion

US$1.6 billion

2012
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2016
Source: Forrester Research, Inc.

Source: Forrester Research Online Retail Forecast, 2011 To 2016 (Asia Pacic)

Online Consumers In India Have Specific Demands As the eCommerce market in India develops, so will its consumers. Retailers should be aware that:

Consumers expect the returns process to be seamless and convenient. Traditionally, the

shopping culture in India is not returns-friendly. However, online shoppers have come to expect the option to return items purchased online, and retailers have made doing this convenient at their own cost. One of the top online retailers in India, for example, has gone so far as to offer an at-home pickup service for returned goods. The cost is high, but the retailer considers this option necessary to develop consumer trust and confidence in the retailer. While such at-home pickup for returns is typical in other emerging markets, markets tend to shift from this labor-intensive, often inconvenient process to prepaid return labels as the eCommerce ecosystem develops.

Free door-to-door shipping is commonplace. Like eCommerce retailers in other emerging

markets such as Brazil, it is standard for eCommerce retailers in India to offer free, relatively quick delivery of online orders. HomeShop18, for example, offers free shipping for the majority of its items and delivers within five days. MyGrahak offers free 48-hour delivery, but it will deliver within 24 hours for an extra US$0.88. To compete in Indias nascent eCommerce market, online retailers have little choice but to offer the same convenience and low cost that their local counterparts are offering, a situation that venture capitalists have identified as unsustainable in the long term. While retailers cite free shipping as an essential first step to drive customers to shop online and win customer loyalty, companies investing in the space must consider how long they can sustain this type of offering.

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Consumers have been trained to expect low prices. In addition to the challenges of offering

free shipping, retailers also face hurdles in matching the highly discounted prices that leading online retailers have traditionally offered on their sites.16 New entrants have struggled to keep up: Upstart Taggle.com ceased operations in late 2011, for example, citing its unwillingness to engage in a price war with retailers selling below cost to gain customers.17

Payment options and Fulfillment are the key to localization In India, as in all other markets, payments and fulfillment are two of the areas that retailers must most heavily localize. eBusinesses Must Offer A Variety Of Payment Types In India, online payments present multiple challenges. Even those companies that offer a variety of localized payment methods can hit challenges with the infrastructure: Payment gateways, for example, are notorious for being inconsistent, with failure rates as high as 35%.18 However, retailers can take a series of steps to ensure they are offering the payment types that most appeal to consumers today. By doing so, these businesses position themselves to capitalize on growing online spending as infrastructure issues are addressed. eBusiness professionals must keep the following in mind:

Local partnerships are essential to localized payments. As in most markets, credit and debit

card payments dominate in India: 44% of online buyers cite having paid with a credit card, and 41% have paid with a debit card.19 Online bank transfers are also a common online payment method: In the past three months, 24% of online buyers in India used one to pay for a purchase made online (see Figure 2).20 Local retailers offer the option to use a bank transfer with a long list of partner banks. These payment options are necessary to offer consumer convenience but will pose a challenge for non-Indian companies; there are government restrictions that keep non-local players from offering local payment solutions. Symantec, one of the top Western security software retailers in India, overcame that problem by linking its site to Flipkart.com, thereby giving customers without an international credit card the option to purchase with a localized payment.

In India, COD remains too big to ignore. Local players in India offer a variety of payment

options (see Figure 3). Like most emerging markets, cash on delivery, most commonly referred to as COD, is a popular option with 23% of online shoppers in metropolitan India choosing to pay for online purchases with cash.21 COD is essential to reaching first-time shoppers who fear sharing their information over the Internet and shoppers who dont use widely accepted cards and banks. Myntra, for example, sees 60% of its transactions paid for with COD. While COD can be a great way to acquire new customers, return rates on these orders can be staggering. In India, venture capitalists report COD return rates of up to 25% in some categories.22 Indeed, COD return rates tend to be much higher than when a consumer pays online: The COO of a logistics

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company serving the Middle East and South Asia recently cited return rates seven times higher on purchases made via COD than via online payment methods.23

COD can mean more than just cash on delivery. To appeal to those who prefer to pay with

cards, retailers in India have started to offer card on delivery, also (and confusingly) known as COD. With this payment option, a courier brings a mobile point-of-sale (POS) machine to the shoppers door to accept payment.24 Online retailers in other emerging markets also offer such options: Amazon.com, for example, offers this option to online shoppers in China.

Figure 2 Payment Options In India Cater To Consumers Payment Preferences

Which of the following payment methods have you used in the past three months to pay for products you bought online? Credit card Debit card Online bank transfer Cash on delivery 24% 23% 44% 41%

Base: 1,167 Indian online adults (18+ and online monthly or more) who bought products online (multiple responses accepted) Source: Asia Pacic Technographics Online Survey, Q3 2011
78361 Source: Forrester Research, Inc.

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Figure 3 Localized Payment Options Are A Must In India

Source: Snapdeal.com
78361 Source: Forrester Research, Inc.

Logistics Are One Of The Largest Hurdles For eBusinesses In India As in most emerging markets, the infrastructure to support eCommerce in India remains at the development stage. Deliveries to remote areas can require retailers to piece together multiple logistics partners. No full-service eCommerce solution provider exists for companies interested in outsourcing all parts of their offering in India. To overcome these challenges, retailers are coming up with solutions to problems as they arise:

Larger online retailers are building out in-house delivery solutions. For example, leading

online retailer Flipkart solved its fulfillment issues with an in-house delivery department. In a move similar to online retailers in other emerging markets for example, 360buy in China and Ozon in Russia the retailer uses its own trucks and employees to fulfill orders to ensure customers receive superior service. While not an option for all companies, smaller retailers may ultimately be able to take advantage of the networks of big players: Russias Ozon, for example, is starting to make its logistics network available to smaller eBusinesses for a fee.25

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Effective fulfillment solutions often require multiple couriers. The lack of a wholly developed
eCommerce ecosystem and underdeveloped towns require retailers to creatively fulfill an order. If a retailers usual shipping method will not get a package to a customer, it will use more than one shipping method. While India Post, FedEx, and DHL International do deliver in India, our interviews revealed that online retailers frequently rely on couriers to deliver the last mile. For example, they send the package using FedEx or DHL to the nearest package distribution center and hire a local courier to pick up the package and deliver it to the customers door, frequently on a bike. In rural areas, where even capturing a standard address for a consumer can be challenging, bike delivery is often the most convenient option.

R e c o m m e n d at i o n s

a flexible strategy is the key to succeSS in indias ecommerce market eCommerce norms are still being established in India, where the eCommerce market is just developing and experienced eBusiness professionals are still hard to find. To offer your customers the best experience one that reflects your brands service level Forrester suggests the following:

eBusinesses must be willing to work with many different partners. In India, no single

player today can handle all aspects of the eCommerce business on behalf of major retailers or brands. Instead, eBusinesses will need to manage every step of the eBusiness operation from site design to fulfillment solutions to employee training. Leading eCommerce sites in India today tend to build their capabilities rather than buy, although that scenario is likely to change as more global players with existing vendor partners enter the market. eBusinesses entering the Indian market must be aware of the need to work with a variety of partners and be willing to work through the challenges of integrating multiple solutions.

Savvy businesses will make mobile a part of the eCommerce mix from the start. While

the mobile opportunity in India is nascent, it is undeniably going to be a critical part of how consumers interact online. eBusinesses should take advantage of this growing trend by including a mobile website as part of their offering ensuring that it is accessible on both feature phones and smartphones, given the relatively low penetration of smartphones in India today.

Multibrand retailers should be ready to launch as soon as FDI constraints are lifted. FDI

regulations currently keep multibrand retailers from establishing a business in India: Amazon. com, for example, altered the business model it used when entering other markets and launched in India with an online shopping service, Junglee.com. While it is impossible to know exactly when and if the FDI restrictions will be relaxed, foreign eBusinesses with an interest in India should map out their potential offerings in India now so that they can move

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quickly when this type of investment is allowed. It will be hard for slow movers to get a piece of the action, given that so many global companies already have their sights set on the market.

Be prepared to move beyond English to differentiate longer term. In our research, we did

not come across a single major site in a language other than English. While it is a safe bet that online buyers in India will predominantly be English speakers in the short term, global businesses often overestimate the number of consumers in India who speak and understand English fluently. Global media sites have already taken notice of Indias diverse online population: Yahoo, for example, provides news in Bengali, Hindi, Malayalam, Marathi, and Tamil; MSN also offers a multilingual site. eBusiness leaders should consider multilingual websites as a potential long-term option for differentiating their offerings and appealing to consumers who may understand English but prefer a local language.

Supplemental MATERIAL Methodology Forrester Research conducted the Asia Pacific Technographics Online Survey, Q3 2011 in July 2011 of 7,085 consumers ages 18 and older in South Korea, Australia, Japan, metropolitan China (including Hong Kong, Shanghai, Beijing, Guangzhou, Chengdu, Wuhan, and Xian), and metropolitan India (including Mumbai, New Delhi, Kolkata, Bangalore, Chennai, Hyderabad, and Ahmadabad). Forrester weighted the data by age, gender, and geographical distribution to be representative of the adult population in each country or region surveyed. The samples in South Korea, Australia, and Japan are geographically representative of the adult population according to the latest country-specific census. The samples in India and China are representative of the urban population, with a heavier weight attributed to these countries largest urban areas. The sample in India is representative only of the SEC ABC groups. Respondents in India completed the survey either in English or a native language: Marathi, Hindi, Bengali, Kannada, or Tamil. The survey for all other countries was administered in the countrys or territorys official language. The forecast data in Figure 1 was drawn from the Forrester Research Online Retail Forecast, 2011 To 2016 (Asia Pacific). As part of the forecast modeling, Forrester develops comprehensive historical and base-year market size estimates based on a variety of sources, including public financial documents, executive interviews, Forresters proprietary primary consumer and executive research, and analysis of the Internet traffic database. All of Forresters forecasts are designed by a dedicated team of forecasting analysts who build the models, conduct extensive industry research, and manage the process of formally building consensus among Forresters analysts. Forecast analysts have backgrounds in investment banking, management consulting, and market research, where they developed extensive experience with industry and company forecasting. For more information on Forresters ForecastView offering, including access to additional details and metrics not included in this report, please contact us at data@forrester.com.

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Companies Interviewed For This Report AaramShop BindaasBargain eBay Flipkart.com Helion Venture Partners ENDNOTES
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IndoUS Venture Partners Myntra.com Snapdeal.com Sonata Software Symantec

Source: Annalyn Censky, Indias economic growth slows sharply, CNNMoney, May 31, 2012 (http:// money.cnn.com/2012/05/31/news/economy/india-gdp/index.htm). Source: Debjoy Sengupta, India achieves a 10.2% internet penetration rate, The Economic Times, April 10, 2012 (http://articles.economictimes.indiatimes.com/2012-04-10/news/31318824_1_internet-userspenetration-number-of-facebook-users). Source: Indiaspeak: English is our 2nd language, The Times Of India, March 14, 2010 (http://articles. timesofindia.indiatimes.com/2010-03-14/india/28117934_1_second-language-speakers-urdu). Source: Asia Pacific Technographics Online Survey, Q3 2011. Source: Asia Pacific Technographics Online Survey, Q3 2011. For more information on the growth of the online retail market in India, see the April 16, 2012, Asia Pacific Online Retail Forecast, 2011 To 2016 report. For more information on the growth of the online retail market in India, see the April 16, 2012, Asia Pacific Online Retail Forecast, 2011 To 2016report. Source: Time for shakeup in Indias e-commerce, The Times Of India, February 21, 2012 (http://articles. timesofindia.indiatimes.com/2012-02-21/services-apps/31082650_1_e-commerce-consolidation-venturecapital). eCommerce related projects attracted the most investment in 2011. This sector saw 33 deals raising approximately US$107 million in investment. Source: MoneyTree Venture Capital Market Navigator, PwC (http://www.pwc.ru/en_RU/ru/technology/assets/MoneyTree_Russia_2011_eng_final.pdf).

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Source: Steven Millward, Ahead of Indias E-Commerce Boom, MyGrahak Hopes To Raise $3.5 Million This Year, Tech in Asia, June 14, 2012 (http://www.techinasia.com/mygrahak-investment-plans/). Metropolitan cities are broken down as follows by IAMAI, the Internet and Mobile Association of India. The top four most populous cities in India are Delhi, Mumbai, Kolkata, and Chennai (top metros). The next four most populous cities in India are Bangalore, Hyderabad, Pune, and Ahmedabad (other four metros). Cities with a population of more than 1 million but less than the metros are small metros. Non-metros are towns with a population between 0.5 million and 1 million. Small towns are towns with a population of less

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than 0.5 million.

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Source: Rajesh Roy and Paul Beckett, India Takes Steps to Open Economy, The Wall Street Journal, July 17, 2012 (http://online.wsj.com/article/SB10001424052702303754904577532520602068292.html). Source: Facebook Statistics By Country, Socialbakers (http://www.socialbakers.com/facebook-statistics/). For more information on how Facebook affects eCommerce, see the April 7, 2011, Will Facebook Ever Drive eCommerce? report. Source: Highlights On Telecom Subscription Data as on 31st May 2012, Telecom Regulatory Authority Of India, July 4, 2012 (http://www.trai.gov.in/WriteReadData/PressRealease/Document/PR-TSD-May12.pdf). Source: Shrenik Avlani, 3G fails to strike the right note with users, Hindustan Times, February 12, 2012 (http://www.hindustantimes.com/News-Feed/SectorsInfotech/3G-fails-to-strike-the-right-note-with-users/ Article1-810396.aspx). Source: Rohin Dharmakumar, Can Flipkart Deliver? Forbes India, July 6, 2012 (http://forbesindia.com/ article/boardroom/can-flipkart-deliver/33240/0). Source: Swati, Indian ecommerce site Taggle.com shuts down its operations, Buzzom, December 6, 2011 (http://www.buzzom.com/2011/12/indian-ecommerce-site-taggle-com-shuts-down/). Source: Anshoo Sharma, Emerging Trends In Indian E-Commerce: On Logistics, No Poach, Payment Gateways & More, MediaNama, May 30, 2012 (http://www.medianama.com/2012/05/223-emergingtrends-in-indian-e-commerce-on-logistics-no-poach-payment-gateways-more/). Source: Asia Pacific Technographics Online Survey, Q3 2011. Source: Asia Pacific Technographics Online Survey, Q3 2011. Source: Asia Pacific Technographics Online Survey, Q3 2011. Source: Anshoo Sharma, Emerging Trends In Indian E-Commerce: On Logistics, No Poach, Payment Gateways & More, MediaNama, May 30, 2012. (http://www.medianama.com/2012/05/223-emergingtrends-in-indian-e-commerce-on-logistics-no-poach-payment-gateways-more/). Source: Nancy Messieh, E-Commerce in the Middle East grew 300% in the past year, The Next Web, June 3, 2012 (http://thenextweb.com/me/2012/06/03/e-commerce-in-the-middle-east-grew-300-in-the-pastyear/?awesm=tnw.to_1Ef5T&utm_campaign=social%20media&utm_medium=share%20button&utm_ source=Twitter&utm_content=E-Commerce%20in%20the%20Middle%20East%20grew%20300%%20 in%20the%20past%20year). Source: Willis Wee, MyGrahak.com Rolls Out Card on Delivery Service. Its Not a Square Though, Tech in Asia, March 19, 2012 (http://www.techinasia.com/mygrahak-card-on-delivery/). Source: Sarah Lacy, Ozon: Surviving the Long Winter of the Russian Internet, PandoDaily, March 31, 2012 (http://pandodaily.com/2012/03/31/ozon-surviving-the-long-winter-of-the-russian-internet/).

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About ASSOCHAM
ASSOCHAM acknowledged as Knowledge Chamber of India has emerged as a forceful, pro-active, effective and forward looking institution playing its role as acatalyst between the Government and Industry. ASSOCHAM established in 1920 and has been successful in influencing the Government in shaping Indias economic, trade, fiscal and social policies which will be of benefit to the trade and industry. ASSOCHAM renders its service to over 4,00,000 members which includes multinational companies, Indias top corporates, medium and small scale units and Associations representing the interest of more than 400 Chambers and Trade Associations from all over India encompassing all sectors. ASSOCHAM has over 100 National Committees covering the entire gamut of economic activities in India. It has been especially acknowledged as a significant voice of Indian industry in the field of Corporate Social Responsibility, Environment & Safety, e-Commerce, Corporate Governance, Information Cyber Technology, Security, Agriculture, Nanotechnology, Biotechnology, Defence,

Entertainment & Media, Pharmaceuticals, Telecom, Banking & Finance, Company Law, Corporate Finance, Economic and International Affairs, Tourism, Civil Aviation, Infrastructure, Energy Power, Education, Legal Reforms, Real Estate, Rural Development etc.. The Chamber has its international offices in China, Sharjah, Moscow, UK and USA. ASSOCHAM has also signed MoU partnership with Business Chambers in more than 75 countries.

Mr. D. S. Rawat Secretary General ASSOCHAM Ph: 011-46550555 Email: d.s.rawat@assocham.com