Emerging trends in E-tailing: A novel perspective

Presented By

Anju Aruja, Belli P K

Department of Business Administration

College of Engineering, Trivandrum

Date: 27.11.2012

IntroductionA decade before shopping experience was always hectic. We used to go shop to buy things from

A to Z. at that time shopping was more over a fighting arena, where we bargain with shop

keepers, complaint enormously, have cold war with other customers for the ownership of limited

stock products, rush to the point of sale for billing, runs for a fast check out. But now we are not

worried of shopping, we are least bothered for limited stock products, moreover we get more

offers, more customized products, with reasonable prices and everything is possible with a

‘click’. Welcome to the era of E-tailing…

The year 1997 is considered the first big year for e-tailing. This was when Dell Computer

recorded multimillion dollar orders taken at its Web site. Also, the success of Amazon.com

(which opened its virtual doors in 1996) encouraged Barnes & Noble to open an e-tail site. E-

tailing was started in India in Early 2000. The increasing penetration of technology enablers like

internet, broadband, 3G, laptops, PCs, smart phone, tablet, dongle etc and the growing young

demographics and changing consumer lifestyle has become the key drivers of E-tailing. A recent

report states that E-retail has been gaining ground and is expected to touch a market size of

around $70 billion (Rs 3, 56,000 crore) by 2020 from the present Rs. 2,700 crore in India. In fact,

the industry is upbeat and feels these estimates are conservative, and the growth and market size

could be even higher by 2020. 

E-tailing (or electronic retailing) is the selling of retail goods on the Internet. It is the most

common form of business-to-consumer (B2C) transaction. Now it has become the new shopping

method. When most of the consumers spend more time for social meetings, entertainments and

other recreational activities, there is hardly any time for physical shopping. E-tailing sites

provides exclusive feature which no other retail outlets can offer and makes the customer

shopping experience new and worthwhile.

The Internet has evolved into an important retail channel, with millions of online consumers

across the globe turning to it to make their purchases. Despite the financial crisis and recession,

the Internet and other new channels continue to drive long-term shifts in consumers’ purchase

behavior and the way products and services are distributed. Convenience, value, and selection –

key catalyst for growth: The online retail channel has consistently outperformed in comparison

to store growth and weathered the recession well because most consumers are valuing low and

transparent prices, convenience, and comprehensive assortment of goods and services. Even

though internet penetration growth does not have a direct relationship with online retail market

growth, online retail market dynamics change as the global internet penetration changes. Also,

rapid expansion in online population boosts international expansion for most retailers. Some of

the reasons why customers choose e-tailing are

1. buyers find the products online that they cannot find in stores easily

2. buyers buy the products online as they save time by shopping online

3. buyers find better deals online.

Altogether, the market potential is huge. Online retailers who want to capture the growing

number of online users — and their growing funds spent online — will need to look beyond the

markets of developed countries and think globally about their online strategies.

“There is only one boss: the customer. And he can fire everybody in the company from the

chairman on down, simply by spending his money somewhere else.” As rightly observed by Sam

Walton, retail is all about customer experience and taking it to the next level. In these changing

times, price is no more the only differentiator; customer experience has emerged to be equally

important.

Contents

India: The potential market PwC’s 15th Annual Global CEO Survey indicated that half of CEOs in developed countries

believed that emerging economies are more important to their company’s future. With the

developed markets witnessing an economic turmoil, emerging countries are fast becoming the

retail hotspot for foreign players. In the past five years, retail chain giants such as Wal-Mart,

Tesco and Metro Group, saw revenues in developing countries grow 2.5 times faster than their

home markets. India provides an opportunity for retailers seeking to make investment in the

emerging economies to participate in the growth and increase their global presence

India’s retail market is expected to cross 1.3 trillion USD by 2020 from the current market size

of 500 billion USD. Modern retail with a penetration of only 5% is expected to grow about six

times from the current 27 billion USD to 220 billion USD, across all categories and segments.

The current estimated value of the Indian retail sector is about 500 billion USD and is pegged to

reach 1.3 trillion USD by 2020. The penetration level of modern retail (currently 5%) will

increase six-fold from the current 27 billion USD to 220 billion USD in 2020. The Indian retail

sector is expected to grow at a CAGR of 15 to 20%. Factors driving the organized retail sector

include the following:

• Higher incomes driving the purchase of essential and nonessential Products

• Evolving consumption patterns of Indian customers

• New technology and lifestyle trends creating replacement demand Increase in rural

income as well as urbanization

• Increase in easy access to credit and consumer awareness

• Growth of modern trade format across urban, Tier I, Tier II and Tier III cities and towns

• Rapid urbanization and growing trend towards nuclear families

A strong GDP growth, rising consumer confidence, consumption-based behavior, increasing

income, and a large pool of consumers provide windows of opportunities for global retailers to

invest in the Indian market. Largely deals are happening in the online model whether it is

pharmacy, apparel, baby care or books. Considering that we have the youngest population in the

world, such companies are bound to see growth, making it inevitable for financial investors to be

present in this segment.

Modern retail has been in existence for some time now and there have not been many cases

where kirana shops had to shut down due to an organized player coming up in the neighborhood.

In fact, large retailers had to reinvent and evolve their business models to arrive at a format that

could compete with a local mom-and-pop-shop. One such innovation leads to the era of e-tailing

in India. According to Google, India has more than 100 million internet users, half of whom

make online purchases, and the number is growing every year. With such a large market size,

retailers as well as consumer goods manufacturers are entering the web space to attract potential

customers.

The average Indian consumer has been experiencing increasing time-poverty these days. People

have been spending more time commuting to and at their offices, on leisure and recreation, on

vacations, in grooming and maintaining their well-being, socializing, teaching school-going

children etc. leading to limited time available for shopping and such activities. There is an

increasing emphasis on reducing the stress and time taken for routine activities (household

chores/ shopping etc.) and maximizing the time spent with families and friends. Convenience in

terms of ease and time, information, decision-making, transactions and flexibility has been a

major factor influencing adoption of e-commerce. This factor to a large extent also plays out for

apparel e-tailing. Increasingly consumers feel stressed to drive to a crowded mall and navigate

through it to buy a garment. Rather, they prefer the convenience of shopping at home and getting

the goods home-delivered. For them, this allows comparison of designs and prices at their

leisure, and in the privacy of their homes, without having to deal with either hovering sales staff

or the rush of the stores.

The Internet’s ubiquity gives online brands the capability to reach all Indians, even those with no

access to an online payment facility, as most brands offer Cash-on-Delivery (COD) options,

offering them the luxury of seeing the product before making payment for it. In fact, COD has

been a one of the big factors for online retailing to take off in its second innings in India (first

being in the year 2000).

There are several models through which e-tailers are targeting their customers:

• ‘Standard’ - This is the basic model wherein products are listed on the web portal, and

customers browse and buy the products e.g. www.flipkart.com

• Deal based - These sites focus on providing lucrative deals across product and service

categories e.g. www.snapdeal.com

• Club based –These sites position themselves as private shopping clubs and are open to

members only Eg. www.fashionandyou.com

• Marketplaces - These sites essentially bring together buyers and sellers and serve as a

platform for their interaction e.g. www.ebay.in

Multi-brand route - Few players have cashed in on early-bird benefits and captured a significant

online market share: Myntra.com – an online fashion store for women and men launched in

2007; Yebhi.com (Big Shoe Bazaar India Pvt Ltd) launched in 2008, is the fastest growing

company in lifestyle category in India; Futurebazaar.com – an online retailer which caters to the

fashion and apparel category, launched in 2007.

Among big cities, consumers in Mumbai topped the numbers of online shoppers, followed by

Ahmedabad and Delhi. However, shopping on the net is gaining traction with consumers beyond

metros and Tier I cities as well and gaining momentum across the country.

In e-tailing customer preference, customer convenience has been given more importance.

Customer needs, demands etc is different in different countries. The strategy applied in US may

not work for India. In a thickly populated country like India, e-tailers have to come up with a

completely localized strategy. Here are some of the examples

Dilligrocery.com services the Delhi NCR area and offer home delivery free-of-cost if the bill is

over 2,000 INR or they charge a flat 50 INR (which in today’s world is less than the cost of fuel

one would incur to go to a modern format for shopping groceries) for delivery. They have a

turnaround time of one to two days. They even have a clear return policy which is important for

online retailers.

Greenytails.com has a common website for India and the US. In India, they service Bangalore

and Hyderabad and offer free home delivery with an extra service charge in a few areas. Their

website is well-designed and user-friendly. The prices are also competitive with the regular

grocery stores. They currently offer ‘cash on delivery’ mode of payment which is actually a good

way to get customers to try the website,

Availability of the right merchandise at the right place, in the right condition, within the right

timeframe and at a minimum cost is the primary objective of retail supply chain management.

Poor infrastructure and the availability of only a few organised supply chain and logistics players

further increases the problem for retailers leading to a delayed availability of stock and huge

costs. With the government investing heavily in infrastructure, and with global logistics

giants investing in India, we shall soon witness the consolidation in the supply chain and

logistics sector. This will help retailers and consumers significantly.

Exploring the rural market70% of the population in India lives in villages. e-tailing is not limited to large cities. As per

IAMAI, ~48% of the total urban internet users were in smaller cities (with population below 1

Mn) and only a third of internet users were in top 8 metros in 2011. Other factors that have been

equal contributors towards the rise of online buying in these cities are growing aspirations,

changing lifestyles and increasing purchasing power of people. Consumer awareness of the latest

brands and fashion trends has further fuelled aspirations to own global products and brands, but

the limited availability of these in tier II and II cities is driving consumers to go online and shop.

Another driver for growth is multiple payment options offered by players (like cash on delivery)

and the flexibility in product replacements/exchanges, which have instilled confidence in the

small town consumer and created trust in online buying. The eBay India Census 2011 indicates

that ~40-50% business in the online space comes from consumers from tier II and III cities.

Retailer inspired by the wall-mart story of growth in small town America, are tempted to focus

on smaller towns and villages in India. However, a careful analysis of the town strata-wise

population, population growth, migration trends of customer spending analysis reveals a very

different picture of India

India 1 India 2 India 3

Consuming class Serving class Struggling class

· Constitutes only 14 %

of the country’s

population

· Most of these customers

have a substantial

disposable income and

they form part of

usually called as the

upper middle and the

lower middle class

· Includes people like

drivers, house hold

helpers, office peons,

liftmen, washer man etc.

· These people make

life

easier and more

comfortable for the

consuming class or

India 1.

· Research indicates that

for every India one at

least three India Twos

are there, making up

approx. 55 % of the

population but due to

low income they have a

very little disposable

income to spend on

buying aspirational

goods & services

· It lives hand-to-mouth

existence, so can not

afford to even aspire for

good living.

· Unfortunately this

segment will continue to

be on the peripheries of

the consumption cycle

in India, in years to

come.

Source: Future Group Research, Published in the Book “It Happened in India” by Kishore

Biyani, 2007 issue.

Chennai based market research firm Francis Kanoi estimated the size of the rural market to be

INR 1, 08,000 crore annually. During the survey in 2002 the firm took into account four

categories - FMCG, durables, agro-inputs, and two- and four wheelers for their estimation. Rural

incomes are growing steadily as well. NCAER data shows while the number of middle-class

households (with annual income between Rs 45,000 and Rs 2.15 lakh) is at 16.4 million in urban

India, the figure stands at 15.6 million18 in the rural areas, data from. Largely this rural market is

untapped and there is huge opportunity for retailers

It is in the context that organized retailing is emerging not only in urban area but there is a trend

of planning deeper and wider penetration of rural network in Rural India, which has been

prompted by greater recognition of the potential of rural market especially in the FMCG &

consumer durable sector. At present, Rural India accounts for 55% of the total retail market and

it will grow by $ 90 billion in the next 5 years, the fact is that nearly 70% of India’s consumers

are in rural areas and more than half of the national income is generated by rural India.

“The economic growth may have come from urban India; it is rural India that will now lead the

way”. Today more than 50% of FMCG & consumer durable products are sold in the rural

market. Over the last two year FMCG sales in rural India has grown 14%, while the growth in

urban India has been only 8%. More than 50% of all new mobile phone connections and 40% of

all vehicles are sold in rural India. Though Indian rural market is widely scattered, about half of

India’s rural population lived in just one sixth of 6, 00,000 villages. This means that an organized

retailer can target 50% of rural population by reaching out just to about 1, 00,000 villages.

Initiatives to explore rural Potential:During recent past a number of initiatives have been taken to explore rural potential,viz.

1. Establishment of 1200 multipurpose retail outlets in rural sector( DCM Haryali, ITC

Chaupal, Tata Kisan Kendra, Aadhar etc. ) & 2700 Kisan Seva Kendra by IOC

2. Designing of products according to specific need of rural sector ( LG Sampoorn TV,

Samsung- Guru mobile chargeable by solar energy, Tide Natural –a 30% cheaper version

of Tide Detergent by Proctor and Gamble )

3. Inclusion of NGO’s and self help groups in Channel of Distribution (HUL-Shakti

Project, Tata Tea’s Gaon Chalo, TTK Prestige NGO involvement )

4. Change in advertising strategy-Substitution of National level Brand Ambassadors by

Regional Brand Ambassoders, language and display more suitable to rural audience, Use

of rural folks by Coca Cola

Emerging ways to tap rural market by e-tailingSome of the major problems in e-tailing in rural areas are lack of infrastructure, sophisticated

transport facilities. India is developing at a faster rate, with more investments in infrastructure

and connectivity; it appears that former stated problems are going to be solved. One of the

advantages of e-tailing in rural market is that buyers can buy products which are not available in

their stores. Most of the electronic gadgets, branded products, automobiles etc can be found on

internet. Rather than involving a middleman customer is directly speaking to the company.

It is not possible for the e-tailers to have frequent shipment to villages, reason being it is costly.

So the effective method to reduce cost is to deliver goods once in a month. The e-tailer on

receiving the orders sorts it and place it under the hub to which the villagers are connected. A

group of villages may be under a hub according to the distance of village to hub. Always the hub

and village having shortest distance are connected. A hub may be connected to 15-20 villages.

So the e-tailers deliver the shipment to hubs, from the hub it is distributed to the villages or

villagers can collect it from a nearby hub. This method can improve logistics and at the same

time reduce cost. The following figure explains the same.

Farm to fork conceptHere comes an opportunity for the farmers to sell their products directly to the consumer. Here a

group of farmers from different villages can collaborate to open a website. They can also seek

help from other interested companies. In a better way company can have access to different

villages and buy their products. Then company run website shows the details. The farmers will

be getting fair price for the same. Their web site gives access to buyers to place order for farm

fresh fruits and vegetables and other crops. Based on the seasonal variation and harvest changes

are made accordingly in the website. Eg: seasonal fruits, seasonal vegetables etc.

The farm products can be stored in hub connected to different cities. By processing the order,

sorting the address of buyer according to details the goods can be dispatched. In this process

customer is getting farm fresh food items and farmers is directly benefitting from the customer.

ConclusionE-tailing has become the next level of shopping experience. In order to survive the players have to come up with localized strategy to gain more market share. It is clearly evident that e-tailers have to tap the un-tapped market which is the potential market in developing countries. In Countries like India, where majority of the population lives in villages, strategies have to be taken to tap those markets. E-tailing has a steady growth in India and the recent Surveys predict that it will have a phenomenonal growth by 2020. Survival of business not only depends on being the fittest, but also being the smartest. E-tailing is simply a smart way to become the fittest in business, but in order explore the full market potential, e-tailer has to come up with new innovations to stay ahead of customer expectations and needs.

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