Deepa Thomas, Head – Partnerships, eBay India, shares her assessment of the Indian market and tells what kind of e-commerce players she thinks would eventually emerge the winners in the country in an exclusive interaction with Payal Kapoor. E-commerce is currently hot in india. It has a market size of $10 bn which is growing at 30-40 percent year-on-year. The space is attracting many new players who want a share of the pie.
Q. What is your assessment of the online retail industry in India?
E-commerce in India is at an interesting phase. Its current market size is about $10 bn, according to a report by the Internet and Mobile Association of India (IAMAI), and about 10 million Indians are participating in e-commerce today. The industry is in an interesting stage from multiple factors. One is that device prices have come down over the last few years and laptops and smart phones are now available at very affordable prices. The average time spent on the Internet is also going up. From merely consuming content, Indian Internet users are now moving on to the next level, which is commerce. This is one big factor from the consumer demand perspective.
From the other side, many Indian entrepreneurs as well as brands have started participating in e-commercein a big way. Therefore, the amount of supply available online is becoming huge. The brands now-adays are following consumers. Just as the consumers are going online, so too are brands.
There are a lot of things that have happened around the e-commerce ecosystem in recent months. The 3G services have been rolled out which provide a better Internet connectivity on mobiles, laptops, and tablets. The broadband plans are increasingly becoming extremely cheap. This encourages a lot more consumers to go online in India. And, of course, it also helps to have a lot of reputed players in this market.
One of the biggest moves in the e-commerce segment occurred when IRCTC first came online and started selling Indian Railways tickets on its website. Even offline players such as Shoppers Stop, Landmark, and Crossword have brought their brands online. So, e-commerce is at a very interesting phase in the country where it is growing pretty rapidly at 30-40 percent y-o-y. We anticipate that in 2012, the growth of online retail might be as high as 80 percent.
Q. What are the key challenges that have to be overcome before online retailing achieves its full potential in India?
There are 100 million Indians today who use the Internet, but out of these, only about 10 million participate in e-commerce. So online shopping penetration in India is very low. This becomes a concern area, as to how can we penetrate better into the Internet user base.
Mobile commerce is going to start in a big way. Out of the 800-900 million mobile users in India, a large percentage will gradually start doing some kind of online transaction. They will probably start with research and then shop. To tap this segment is a challenge for us.
Yet another is that there are currently large parts of India that are not well serviced by the logistics companies. We at eBay have consumers from 3,311 cities in India, which include 1,300 rural areas. It could be much better if a lot more logistic companies start covering the length and breadth of the country.
Online payment systems are very good right now. We have 90 percent of our transactions happening through the online channel. Consumers today are a lot more confident to shop online. However, as an industry, we can do a lot more to get Indian consumers online.
Q. What are the differences you have spotted in the online shopping behavior of Indians compared to the past? How are they evolving?
There are three different phases of this. The first one was the early phase of 2004-05, when consumers were comfortable only in buying low-value items online like gifts and books. That evolved over between 2006 and 2010, when consumers started buying different kind of gadgets online. And the third phase is the current scenario where consumers are a lot more confident in buying high-value items.
Many women shoppers have also come online these days and started purchasing lifestyle items such as furniture, fragrances, health and beauty products, kitchen equipment, diamond jewellery, and so on.
Q. What is the contribution of the Indian market to eBay’s overall revenue pie?
This we cannot share. However, we can say that globally eBay has called out India as one of its priority markets because the potential here is huge and this is the market of the future.
Q. Inspite of enjoying increased investors’ confidence and customers’ trust, why most of the e-commerce companies are still trading in negative?
We strongly believe that you need to build an e-commerce business with a clear sustainable model and build it for scale. In a sustainable business model, you cannot just look at demand creation – you need to have a revenue mindset as well. Most Indian online portals are investing in creating demand, brand-building and marketing, but I am not sure if they have invested enough in building a scalable business. Businesses with scalable and sustainable models are the ones that will dominate in the long-run. New players should be looking at these things.
Q. Do you think Amazon’s debut in India would intensify competition in the e-commerce space?
Not really. These are early days for e-commerce in India and the market is at a very nascent stage. Any player which comes at this stage will actually help expand the market and create more awareness. We do not see any of the national or international players which are starting up affecting the e-commerce market leadership, which we have already created over the last seven years in India.
Q. What is eBay’s sales ratio between metros and tier II and III towns?
About 51 percent of our customer base comes from metros and clusters and about 9 percent from rural India. The tier II and III cities contribute the rest 40 percent.
Q. Do you think online retail in India is a bubble that will burst?
To some extent this could be true. Let’s take an example of a category: group buying. It has come out in a big. Till recently, there were a 100 e-commerce sites in India trying to do group buying of services. They had tied up with local spas, beauty parlours, restaurants, etc. Thereafter, some players had to shut down while others had to diversify into the products market.
It is not sustainable beyond a point to make money like `50 per transaction, which most of these sites were making. Some were not even in the money-making phase. They were all going after the same market segment. The group-buying space has already started shaking out and players are diversifying into different business models. So definitely, it’s all about having a clear business model. If you do not have a good business model and are blindly following international players like Groupon, that does not make sense.
I think there won’t be a bubble which will burst for the entire e-commerce market. But any business that has not got a sustainable model and cannot be scaled up or evolved to customers’ demands will definitely not do well in the long-run. It will cease to exist.
Q. The niche segment focusing on one vertical versus the departmental store format catering to multiple categories – which format out of these do you think would be more suitable for India?
We at eBay definitely go by the range and variety positioning than focusing on a single vertical. But the latter is something you can get tapped, and that is what eBay has successfully done. We have vertical category managers who are domain experts and actually work with entrepreneurs to get the best suppliers in individual categories. So we already invested into vertical category management. But we believe that horizontal players offering multiple categories can actually cater for the entire family as well as all the life stages of a customer.
Q. What is your take on opening up multi-brand retail to FDI?
This is actually a good thing. But the government has not specifically stated whether it is actually applicable to e-commerce sites or not. This needs a clarification. I think the good news is that the moment you have FDI in multi-brand retail, there will be a lot more disposable income with Indians because a lot more employment will happen, especially in smaller cities, the standard of living will go up, and Internet usage will rise. Currently, FDI in single-brand retail has targeted only 63 cities in India, so the potential still stays with e-commerce to connect with the other 8,000 odd cities which have been left out.
*This interview was originally published in March 2012 issue of Images Retail.