Online retail industry grows 23% to $17.8 billion: report
Bengaluru: After nearly 18 months, India’s e-commerce market finally picked up sharply in the second half of the year, driven by strong growth at Flipkart Ltd and Amazon India and new entrant Paytm E-commerce.
Online retail grew by 23% to $17.8 billion in 2017, up from $14.5 billion in gross merchandise value (GMV) last year, according to RedSeer Management Consulting, a market research and consulting firm.
The expansion of online retail is likely to accelerate next year, with the market projected to increase by as much as 60% to $28-30 billion in GMV, according to RedSeer estimates. GMV refers to the value of goods sold on a site after discounts.
“The market showed very strong growth in the second half of the year and we expect that to continue in 2018,” RedSeer chief executive Anil Kumar said. “It wasn’t just that sale months were (better than the year-ago period), even the non-sale months in the second half were much higher than H1. So there are enough signs that the market should see very high growth next year.”
At the height of the start-up funding boom in 2015, most analysts and investors had predicted several years of flying growth for e-commerce; estimates of the online retail market ranged from $60 billion to more than $100 billion by 2020. But those bullish estimates quickly turned out to be way off the mark as growth in e-commerce slowed sharply to less than 15% in 2016 as e-commerce firms Flipkart and Snapdeal reduced discounting and advertising.
Companies and investors quickly realised that the Indian e-commerce market will not grow at the breakneck speed that the Chinese and American markets had seen.
In 2017, the growth in e-commerce was driven primarily by Flipkart and Amazon, which now together account for a majority of online retail. Sales at Snapdeal, once the second-largest online retailer, collapsed as it cut costs to survive after a proposed sale to Flipkart fell apart. Growth was also boosted by additional sales events at Flipkart and Amazon and the heavy discounting at Paytm E-Commerce Pvt. Ltd, which raised $200 million from Alibaba Group Holding Ltd and SAIF Partners in March.
Flipkart, which owns the fashion retailers Myntra and Jabong, was the clear winner in a year in which it consolidated its slender lead over Amazon India. Flipkart had started the year in the midst of a turnaround and with a new CEO Kalyan Krishnamurthy, a former executive at Flipkart shareholder Tiger Global Management. Krishnamurthy pushed Flipkart to focus on sales of smartphones, fashion and large electrical appliances, which together account for more than 80% of all online retail.
Amazon also had another strong year though it was bested by Flipkart in key sales events. The company’s subscription service Prime was at the centre of its India business as it signed up millions of Prime customers since the launch of the program in July 2016.
In 2018, both Flipkart and Amazon are expected to push deeper into smaller cities and towns. The two companies will closely monitor moves by Paytm particularly because it’s backed by Alibaba, whose India strategy is still unclear.
Overall, company executives and analysts expect the e-commerce market to accelerate sharply next year because of faster internet connections, improving comfort levels with internet usage, discounting and advertising by e-commerce firms and other factors. RedSeer has estimated a jump of 60% in e-commerce in 2018. The primary factor behind the bullish estimate is that the firm expects the number of new online shoppers to increase significantly after two years of near-stagnation.
“The ongoing efforts by Flipkart and Amazon to go deeper into Tier 2 and Tier 3 cities and Paytm’s aggressive expansion plans will drive the market next year. Because of this, we should we see that growth will come more from new online shoppers rather than selling more to existing customers. In 2016 and 2017, it was the other way round—most of the growth was coming from existing users,” RedSeer’s Kumar said.
Still, RedSeer’s estimate is extremely bullish given the moderate expansion of the past two years. There are several factors that could hold back expansion of e-commerce. The market is still over-reliant on smartphone sales, which generate more than half of the GMV at top e-commerce firms. If smartphone demand drops, e-commerce firms could take a hit. Another is whether the number of online shoppers will increase in a big way.
“E-commerce companies need to build higher trust levels with customers, especially in Tier 2 and Tier 3 cities and towns. Many of these customers are wary of shopping online because they just don’t have enough trust that products are genuine or if they will be delivered, etc. So for e-commerce companies to get these customers, they will have to find ways to be trusted,” Kumar said.
“We confirm that our growth rates have been 68% in Q1, 59% in Q2 and 72% in Q3 and overall 67% for the first three quarters of the year. If the quoted market growth rate is correct, it confirms our stated view that we are growing materially faster than the rest of the market,” an Amazon India spokeswoman said in a statement.