Home >Companies >Start-ups >A snapshot of what’s happening in online retail

The year 2016 so far has been an exciting one for Indian e-commerce. It saw one more company, ShopClues, join the Unicorns club, start-ups with over a billion dollars in valuation. Of the nine in the list, four (or five, if one includes Paytm) are e-commerce companies.

The sector saw its first public funding with Infibeam. There were acquisitions, stepping up on gas and rejig. The government came up with a new set of rules for foreign direct investment (FDI) in e-commerce marketplaces, kicking up an intense debate on business models, discounts, offline retailers and funding.

Here are some charts that capture what’s happening in the market. They tell us why the marketplace model has an edge, why discounts are complicated, why mobile payments could change the game, why the action won’t be just online, and finally, why online firms will have a tougher time raising money from venture capitalists.

India’s retail sector

Indian retail is predominantly unorganized and highly fragmented with thousands of local brands controlled by local distributors. This structure makes it easier to let vendors list on a platform, rather than build inventory ground up.

Inventory-led vs Marketplace

The marketplace model is also more profitable than the inventory-led model. For a gross merchandise value of 1,000, the marketplace model loses about 50 or half of what the inventory-led model does.

E-commerce expenses

The one factor that will have a maximum impact on profitability is cutting down on discounts. At 30%, it’s second only to the cost of goods sold.

Why people shop online

However, the low prices are the topmost reason that customers cite for shopping online. The good news is that the convenience comes a very close second.

Share of payment systems

Yet another feature Indian e-commerce firms can do better without is cash on delivery. It adds to both cost and complexity.

Evolution of online payments

E-commerce firms expect cash on delivery to come down, and mobile payments, coupled with Aadhaar, can be a game changer.

Gross merchandise value of Indian online shopping

Irrespective of these limitations, the gross merchandise value (GMV) of goods sold online is expected to grow in the coming years.

Online sales shares for global retailers

If the trends in the West is are any indicator, sales will also be driven by the offline firms, if they play their cards right.

Annual funding needs

Given the cash burn at e-commerce firms, they will have to raise about $17 billion in the next four years to touch a gross merchandise value of $47 billion by 2020.

Industry share of global unicorns

Raising that amount from VCs is likely to get tougher. The concentration of e-commerce in the unicorn club in India is 55%, at the cost of other segments. Globally there are 20, 14 and 9 unicorns in the fintech, big data and on-demand space, respectively. India has just one each (if we include Mu Sigma). There are 24, 11, and 8 unicorns in the internet software, healthcare and cybersecurity space globally. India has none.

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