“Sapnon ki apni dukaan; Find it, love it, buy it”,these are some of the taglines of leading online shopping firms that describe the ever growing online shopping industry. Online shopping is a B2C component of e-commerce industry which allows customers to buy products online and get it delivered at their doorstep by a delivery partner. Business that sells products or provides services to end-user consumers is called B2C. Today it has not only become a part of utility services but also habit of its customers.
The concept of online shopping had emerged in late 1980s but it reached at a global scale when Jeff Bezos, Silicon Valley entrepreneur, started his own online shopping website, Amazon in 1995. Internet was commercialised after LPG reforms of 1991-92 in India, and soon thereafter the first wave of e-commerce started. Initially, it was limited to B2B (Business-to-business) where one business makes a commercial transaction with another. However, B2C component also started soon but it was not diversified well and was limited mainly to travel segment. It was in 2007 when Sachin Bansal and Binny Bansal started Flipkart as one of the earliest attempts made by Indians to monetise internet users at pan-India level in shopping segments other than the travel segment. The real wave of online shopping emerged in country only after 2010-11 and this was propelled to next higher level in 2013 when Amazon launched its first online shopping site in India. Today, there are over 50 macro and micro online shopping firms operating in India.
There are a number of factors that allowed penetration of online shopping in Indian market—Growing internet and smartphone users and rising middle class segment have the potential of further monetising the online shopping market. The very nature of online model allows better access, affordability, choices to make that enhance ease of doing shopping for consumers. As per a recent report, India’s Internet users expected to register double digit growth to reach 627 million in 2019 and this growth is propelled by rural India, registering a growth of 35% in internet users in the past year with over 90% users opting for mobile phones as one of the means to access internet. Also, online market in India is still operating below the saturation point with only 30% users shopping on internet. This creates a fertile ground for online firms to proliferate in India.
Experts divide the growth of online shopping in two phases based on changing nature of customers and areas of operation. Initially, it was limited to some Tier-1 and metropolitan cities and better suited to sell structured and branded products. At this level, customers are highly sophisticated who consider selection and convenience as two major factors to pitch for a purchase. Currently we are in the beginning of 2nd phase where the targeted customers are Next Half Billion (NHB) populations who are expected to be added as new internet users by 2022. These targeted customers are mainly residing in Tier-2 cities and rural areas. The success of adding this NHB population as customer base would depend on three factors—value consciousness, trust and confidence with resonance i.e. pulling the products instead of being discovered by search. As per a report by management consulting firm Redseer, almost 70% of Gross Merchandise Volume (GMV) in online retailing is likely to be contributed by Tier-2 cities and rural areas by 2023 as compared to 40% in 2018.
Another factor is the customer-centric nature of online shopping model. It allows its users to choose from large inventory of products, compare their prices, read customer reviews, cash back offers and heavy discounts. Further, they even provide customers with easy return facility in case of damaged or wrong product; this enhances trust building between customers and these websites. Today, many of the websites like Flipkart and Amazon prime have also started same day delivery and that too through cash on delivery mode. The very dynamic and flexible algorithm allows online market to personalise their products based on festivals, occasions and user demands. This not only fulfils their utility but also create demands.
Today this virtual market has undergone a drastic change, it is not restricted to just fashion and electronics segments but has diverged its product range from medicines, food products to corporate gift cards. In last few years, we witnessed a change in pattern where we saw rise of micro-retailing websites which are mainly dealing in non-branded & designer products and are more affordable than the usual branded ones. Today, these micro players are dominating over their giant counterparts. Websites like koov, Limeroad, Zivame, etc., are some forerunners in this category.
On the positive side, this virtual market has allowed the exploitation of economy of scale and scope by expanding its geographical reach and continuously increasing its customer base. It has been estimated that GMV (gross merchandise volume) from
Tier-2 cities and rural areas will grow to over $70 billion by 2023; that is going to be an important component of India’s GDP growth. Apart from this, it has given a boost to our logistic sector. Many online shopping firms have started their own logistics firms like eKart by Flipkart, Amazon transport services by Amazon. On social front it has empowered women entrepreneurs, self-help groups (SHGs) by allowing them to sell their products online; this has monetised the unaccounted efforts of women and gave them an individual identity of their own. Experts opine that online shopping has also helped in promoting the usage of sexual wellness products, especially in rural areas, by doing away with ‘shaming factor’ in purchasing from physical shops. It has its own positive impact on fertility rate, women health and sexually transmitted diseases. Besides, online shopping has other numerous advantages like boosting the demand for tribal products, creating market for ‘Micro, Small and Medium Enterprises’ (MSMEs) and others.
However, there has been an increase in possible vulnerabilities also with the growth of online shopping. First, in terms of data security, as the whole model of online shopping rests on three levels of interaction—customer-seller, seller-delivery partner and customer-delivery partner, there is a risk of customer data breach. Today, data has become a monetised asset and hence became more valuable. As stated by one CEO (Chief Executive Officer) of a leading online firm, there is a possibility of customer data leak from delivery side as these online firms have no control over the conduct of their delivery partners. In terms of employment generation, though it has created millions of direct and indirect jobs in different sectors like logistics, IT (Information and Technology), Supply Chain management but it could not match the number of workers being displaced from physical retail market stores, due to their automated operations. Moreover, jobs created have been restricted to major cities and that too in high skill domain. Another major threat of online shopping is its Inventory-based model that allows them to offer big discounts. It has impacted local economy to the extent that local shops and businesses run the risk of going out of business.
The Union Government, guided by the principle of welfare state, has to look beyond its economic benefit and in this context, our former Finance Minister the late Arun Jaitley had brought new FDI (Foreign Direct Investment) rules in early 2019. These rules direct online firms, funded by foreign investors, to shift to market based model by limiting their inventories to threshold level of 25%. This has not only provided relief to local markets but also restricted online firms from providing heavy discounts and hence created an equal playing field for both virtual and physical market. However, influenced by the inclusivity and transparency of online model, the Union Government started its own B2B market model—Government e-Marketplace (GeM) which enables public offices, public sector undertakings (PSUs) to procure material from MSMEs through online mode. Recently, Tribal Cooperative Marketing Development Federation of India Limited (TRIFED) has signed a MoU with Amazon to sell tribal products at global level. It will give not only boost to tribal economy but will also give recognition to their culture on global platform.
Being an emerging industry, online shopping firms have to bring some structural reforms in their model. In order to monetise NHB population of Tier-2 cities and rural areas, they have to move from their ‘All-English’ content to more vernacular languages and many firms have already started working in this direction. With emerging competition surfaced the unethical practices in online shopping necessitating the ‘Competition Commission of India’ to play a major role in ensuring level playing field to recently launched micro firms to save them from unethical takeovers by their giant counterparts. The government needs to address the structural bottlenecks to reduce logistics cost, which is as high as 14% of nation’s GDP (Gross Domestic Product) and impact the operation cost of online firms to limit their profit margins. Today, online markets have completely revolutionised our shopping experience; it has become a hobby in the sense that we love to explore the products on these websites during our free time. The excitement with which we use to wait for delivery boy is very similar to that of villagers of ‘Malgudi Days’ waiting for postman (as authored and narrated by R. K. Narayan published in 1943). Still there is a long way to go with a lot of challenges ahead. If entrepreneurs and government come together to address these challenges in a cooperative manner, it can give a boost to our target of achieving $5 trillion economy by 2024.