A close friend of mine, who has turned entreprenuer to start a ecommerce play targeted at school students had a startling comment to make to me. His strong view, which he even put up in his investor pitch deck, was that ecommerce will be India's orgainsed retail.
This was a few months back, and I soundly rubbished his claim when I heard it. But now, as the months have gone by, and I think more about it, I agree with him!
India has a consistent history and pattern of leapfrogging industries. The most well known example is mobile telephony, of course: wired phones remained stuck at 5% (and now declining) penetration, while mobile telephony leapfrogged it and exploded to the 65% penetration that we have today. It seems quite clear that mobiles, and now tabs, will leapfrog PCs. The Indian PC market refuses to grow out of its teens (at 12-13mn) now, while smartphones are already selling at half that volume and almost doubling every year. In fact, the total value of smartphones sold in India at $6bn is the same as the value of consumer PCs sold in India! And the tablets are just about coming in. In a few other places, this has happened or is happening - deal sites leapfrogging catalogues, for example.
Ebay gives a very precise estimate of 3311 ecommerce hubs in India, selling an estimated 10 billion dollars worth of goods and services. Granted that 70-80% of it is travel, but it is still digital and replaces a travel agent's shop somewhere. More importantly, the industry is growing at 2-3% every month, or by 50% every year. By 2015 it is estimated that 40mn people will be buying stuff online, and the stuff will be worth $ 50bn, if the same growth rates continue. And with all the growth finally happening in internet access, and low cost devices, and with Mr. Ambani threatening to roll out his pan-India 4G network, it will happen.
Now lets look at conventional organised retail in India; what we call LFRs (or large format retail). The industry, across all categories, is estimated to be at $10bn today and growing at 30-35% to $60bn by 2015. But this takes into account one very important assumption: that somewhere along the way, if not already, FDI in retail opens out. And all of us know where that assumption is currently.
Think about the macro trends and consumer scenarios: Digital infrastructure in this country is improving at a much faster rate than physical infrastructure. Every day it is more and more painful to travel to a large store or a large mall. Land prices are not decreasing, and are not going to in the foreseeable future. High real estate prices imply that they contribute to 20-40% of a retailers cost, and implies that he keeps limited inventory. An etailer on the other hand has infinite inventory; and his real estate costs (bandwidth, storage space, hosting) are actually decreasing year by year, in inverse correlation to Moore's law. Yes there are issues - payments, for example, and therefore the scourge of cash on delivery. But I can bet that the payments issues will be solved faster and better than new roads and public transport coming up in every city.
In developed countries, retail evolved sequentially and in an orderly manner. There were neighbourhood stores, and then high streets, and then big box retailers and malls,who started killing off the mom-and-pops. Cataloguing emerged somewhere along the way parallely, and then came the etailers with Amazon leading the charge. And now the etailers are slowly killing off the big box guys, especially the category killers. Take a look at book chains, all gone except a scrambling, teetering Barnes and Nobles. The electronics guys - all gone again, except Best Buy, but omnious clouds are already hovering around it. In fact, strangely and much to the exulatation of the independents, the speciality mom-and-pop stores are back, as they do not compete with the big etail behemoths, but sit comfortably and symbiotically with the long-tail speciality guys on the web.
What makes us believe that India will follow the same logical progression? As web access becomes universal (1bn data enabled mobile phones, anyone?) and cheap (Mr. Ambani.), as logistics and delivery systems become better and tailored to the chaos in India (Flipkart!), and as the payment problems are solved by a brilliant young entreprenuer sitting in Udupi, more and more Indians will gravitate to buying (and selling) stuff from the comfort of their homes, rather than wading through merciless traffic and crumbling roads to the nearest Reliance Trends (where the power would have gone off, presumably)
Big retail and etail will coexist for a long while yet. But etail will grow faster, and will be a more dominant player. My bet is that we, as consumers, will leapfrog big retail sooner than anyone expects.
And organised retail in India will really be etail...
(Rants welcome:-))
This was a few months back, and I soundly rubbished his claim when I heard it. But now, as the months have gone by, and I think more about it, I agree with him!
India has a consistent history and pattern of leapfrogging industries. The most well known example is mobile telephony, of course: wired phones remained stuck at 5% (and now declining) penetration, while mobile telephony leapfrogged it and exploded to the 65% penetration that we have today. It seems quite clear that mobiles, and now tabs, will leapfrog PCs. The Indian PC market refuses to grow out of its teens (at 12-13mn) now, while smartphones are already selling at half that volume and almost doubling every year. In fact, the total value of smartphones sold in India at $6bn is the same as the value of consumer PCs sold in India! And the tablets are just about coming in. In a few other places, this has happened or is happening - deal sites leapfrogging catalogues, for example.
Ebay gives a very precise estimate of 3311 ecommerce hubs in India, selling an estimated 10 billion dollars worth of goods and services. Granted that 70-80% of it is travel, but it is still digital and replaces a travel agent's shop somewhere. More importantly, the industry is growing at 2-3% every month, or by 50% every year. By 2015 it is estimated that 40mn people will be buying stuff online, and the stuff will be worth $ 50bn, if the same growth rates continue. And with all the growth finally happening in internet access, and low cost devices, and with Mr. Ambani threatening to roll out his pan-India 4G network, it will happen.
Now lets look at conventional organised retail in India; what we call LFRs (or large format retail). The industry, across all categories, is estimated to be at $10bn today and growing at 30-35% to $60bn by 2015. But this takes into account one very important assumption: that somewhere along the way, if not already, FDI in retail opens out. And all of us know where that assumption is currently.
Think about the macro trends and consumer scenarios: Digital infrastructure in this country is improving at a much faster rate than physical infrastructure. Every day it is more and more painful to travel to a large store or a large mall. Land prices are not decreasing, and are not going to in the foreseeable future. High real estate prices imply that they contribute to 20-40% of a retailers cost, and implies that he keeps limited inventory. An etailer on the other hand has infinite inventory; and his real estate costs (bandwidth, storage space, hosting) are actually decreasing year by year, in inverse correlation to Moore's law. Yes there are issues - payments, for example, and therefore the scourge of cash on delivery. But I can bet that the payments issues will be solved faster and better than new roads and public transport coming up in every city.
In developed countries, retail evolved sequentially and in an orderly manner. There were neighbourhood stores, and then high streets, and then big box retailers and malls,who started killing off the mom-and-pops. Cataloguing emerged somewhere along the way parallely, and then came the etailers with Amazon leading the charge. And now the etailers are slowly killing off the big box guys, especially the category killers. Take a look at book chains, all gone except a scrambling, teetering Barnes and Nobles. The electronics guys - all gone again, except Best Buy, but omnious clouds are already hovering around it. In fact, strangely and much to the exulatation of the independents, the speciality mom-and-pop stores are back, as they do not compete with the big etail behemoths, but sit comfortably and symbiotically with the long-tail speciality guys on the web.
What makes us believe that India will follow the same logical progression? As web access becomes universal (1bn data enabled mobile phones, anyone?) and cheap (Mr. Ambani.), as logistics and delivery systems become better and tailored to the chaos in India (Flipkart!), and as the payment problems are solved by a brilliant young entreprenuer sitting in Udupi, more and more Indians will gravitate to buying (and selling) stuff from the comfort of their homes, rather than wading through merciless traffic and crumbling roads to the nearest Reliance Trends (where the power would have gone off, presumably)
Big retail and etail will coexist for a long while yet. But etail will grow faster, and will be a more dominant player. My bet is that we, as consumers, will leapfrog big retail sooner than anyone expects.
And organised retail in India will really be etail...
(Rants welcome:-))
