INDUSTRY: E-COMMERCE

SECTION D GROUP 7






MEMBERS:
ASHISH ARORA - 2014PGP064
JATIN KHANNA - 2014PGP144
NABARUN SARKAR 2014PGP451
SADHNA IPM2011087
SHWETA 2014PGP362
SOMA BANIK 2014PGP370



EXECUTIVE SUMMARY
E-commerce is one of the fastest growing sectors in the Indian economy which includes
everything a customer purchases online right from home appliances, dcor, apparels, gifts,
electronic devices, jewellery, travel, movie, tickets to online banking services, books, education
etc. The list is never ending. In this report, we have focused on the e-retail industry that includes
consumer apparels, electronics, books and accessories. The report is divided into 3 segments
the industry profile, player profile and macroeconomic profile of the e-retail industry.
The industry profile gives a takeaway on the current market scenario, growth curve, future
expectations and predictions of growth of e-retail in India. It also focuses on the recent events
that has occurred in the industry, mergers and acquisitions, technological trends and analysts
views on the industry as a whole.
The player profile..



















Contents
Industry Profile ............................................................................................................................. 4
Overview Of The Industry ........................................................................................................... 4
Growth Over Last Few Years .................................................................................................. 4
Present And Future Trends ...................................................................................................... 4
Major Events Related To The Industry In Last 2-3 Years ................................................... 5
Importance To The Economy................................................................................................... 6
Business Model/Revenue Model ............................................................................................... 6
Scope ........................................................................................................................................... 7
Technological Trends And Major Innovations .......................................................................... 7
Key Drivers Of Growth In The Retail Industry ..................................................................... 7
Mergers And Acquisitions ........................................................................................................ 8
Analysts Views ............................................................................................................................. 9




INDUSTRY PROFILE
Overview of the industry
The e-commerce industry is one of the fastest progressing domains of business in the world. The
basic definition of e-commerce is Transactions carried electronically over the internet. Every
industry today is trying to make a web presence through its online portal. People today can
literally shop anywhere at any time of the day. Rising giants like Amazon, Flipkart, Jabong and
Myntra are the highlights of the e-retail sector.
In this report, we have primarily focused on the e-retail domain and how it has contributed
towards Indian economy on the whole. Exhibit 1.1 shows different e-commerce segments in
India. Exhibit 1.2 shows the size and growth of online retail market.
Growth over last few years
The growth of the online retail was majorly due to changing consumer lifestyle and the necessity
for easy shopping from home. E-tail developed in early 2007 with the launch of multiple online
retail websites.
[1.1]
In the past few years, e-retail has crossed the national boundaries and acted as an intensifying
force in Indias foreign trade, offering millions of enterprises, most of which are SMEs/MSMEs,
to expand beyond the domestic market. Over 30,000 sellers sell on eBay India annually to 4
million consumers in 3,311 Indian cities. Over 15,000 sellers export a variety of Indian
handcrafted products to 112 million customers in over 190 countries.
[1.2]
Online retail sector majorly comprises of sale of consumer electronics, apparels and accessories.
In the financial year ended March 2013, online retail companies earned revenue of $2.24 billion.
Between 2008 and 2013, the revenue generated from e-commerce grew by 56%. In 2009, e-
commerce in India was worth $2.5 billion which went up to $6.3 billion in 2011 and $14 billion
in 2012. Around 75% of this was generated by travel and tourism industry. Online retailing
comprised only about 12.5% ($300 million as on 2009).
[1.3]

Present and future trends
Currently there are 250 million internet users in India and the number is likely to reach 500
million by 2015. The number of online transactions is on the rise from $11 million in 2011 and is
likely to reach $38 million by 2015. E-retail sector in India is expected to grow from current $3
billion, as per Business Standard, Aug edition to $8.5 billion by 2016 and $22 billion by 2020.
Coming to the customer side, young Indians (19-24 yrs) are more comfortable with online
services like Facebook and thus could potentially add upto 40 million new shoppers in next 3
years. [1.4]
Online retail sector has grown significantly in the past 5 years. Cash-on-delivery has been one of
the key reasons for its growth. Introduction to COD has increased the reliability of customers on
these online shopping sites. 50 -80% sales online are via COD.
[1.5]
The try and buy option in the
apparel industry has immensely attracted the online customer base that earlier had complaints
about size and quality of clothing.
Major events related to the industry in last 2-3 years
By 2012, most of the e-retail industries started making money. It has attracted a good number of
venture capitalists who are ready to fund in the Indian e-retail market. Flipkart in August 2012,
raised about $140 million followed by another $200 million from investors like Tiger Global,
Naspers, Accel Partners, Morgan Stanley. Snapdeal also had a raise of $50 million in July 2013.
In Feb 2014, Myntra raised $50 million from a group of investors led by Premji Invest. May
2014 witnessed acquisition of Myntra by Flipkart for around $20 billion. Jan,2014 Jabong
raised around $100 million from CDC, a U.K. govt. backed private equity fund that invests in
major markets, as mentioned in Economic Times. Myntra also raised $50 million in February.
Foreign companies like Amazon has launched its Indian website this June, 2014.
[1.6]
Recently, there has been a significant leap in average order value due to penetration of new
product categories like jewellery, home dcor, etc. Users were infact more comfortable buying
costly items online to avoid carrying too much cash or chance of thefts. Fashion category e-
commerce has almost doubled by 2013. Considering the growing concern on appearance and
beauty consciousness, this industry is forecasted to grow by 400% in the next 2 years. Exhibit
1.3 and 1.4 graphically represent the same.
[1.4]
The most recent talked about investments are those of Amazon and Flipkart. Flipkart raised $1
billion from private equity funds. The very next day, Amazon announced an additional $2 billion
investment in India. News reports from Business Standard, Aug 2014 edition suggest that
Snapdeal will soon join the race by raising funds from Tata.
Importance to the economy
As more Indians start to use the internet, revenues generated from e-commerce industries could
triple over the next 3 years to over $8 billion, according to Crisil Research, Mumbai as published
in Wallstreet journal, February 2014 edition. The scope of growth in this sector has attracted a
huge amount of venture capitalists who are seeking the opportunity to invest in it. The above
section mentions all the important investments that have occurred in recent times. This industry
is expected to contribute 4% to the Indian GDP by 2020.
Business model/Revenue model
New business models have emerged in the e-retail sector, all of which are customer-centric
models. The COD model, Try and Buy model, return policies ranging from 7-30 days, free home
delivery model, Discount coupon model, ease of bulk purchase model, flash sales, all have led to
an increase in consumer demand. It is believed that more than 50% of the transactions occur
through COD.
[1.5]
E-mall or e-marketplace is a business model followed in the e-tail sector. Sellers set up virtual
stores to sell their products to reduce their offline set up costs and complexities of supply chain
management.
Two inventory models have arisen within e-shops with respect to inventory management.
Stock and sell model : assumes inventory risks and stores inventory
Consignment model: ships product directly from vendor to the customer with no
intermediate inventory storage.
Most e-Tailers in India work on a consignment model based on the following principles:
e-Tailers tied up with networks of merchants to source products.
They then prepared web catalogs of products offered by their partner merchants.
Once a customer order was received for any of the catalog items, a notification was sent
to the merchant for its fulfillment.
The merchant then supplied the goods to the customer, and financial settlement was
made between the e-Tailer and the merchant for the products sold.
[1.1]
Overall, the e-commerce sector is still considered to be in its child stage with newer business
models yet to be validated. While some companies such as Flipkart and Snapdeal have a
horizontal business model with different offerings, other websites such as Zivame, BigBasket
and FirstCry are having vertical business models with specialized product offering.
Distribution network also varies amongst the companies. Some of the large players such as
Flipkart, Naaptol and Myntra are building their own warehouse and supply chain logistics with
huge investments, while others such as Indiaplaza use a third-party supply network. In addition,
the business model adopted by companies such as eBay is of providing a platform for third-party
transactions, wherein a seller sells various products to registered users. This way, the company
saves money on inventory.
[1.5]
Scope
Due to low internet penetration in India as compared to the world and lack of general awareness
about online shopping, there is further scope of development in the e-retail sector. Exhibit 1.5
displays some possibilities of penetration. Of the total 200.0 million credit and debit card
holders, just about 10.0 million people transact online, indicating a huge untapped market. A
study showed that there are around150 million users who are willing to shop online.(rise and
rise of e-commerce in India)
Technological Trends and Major Innovations
With the rise of the digital shopper, shopping has increasingly moved online and to the mobile
platform. Today, e-commerce is experiencing Double-digit growth and further boom in this
sector is highly predictable with improved technology like faster mobile phones, widespread and
penetrated broadband access. New sophisticated mobile devices, big data and cloud computing
together work to provide ready access to information, products and services from virtually
anywhere and act as key drivers for innovation. The further integration of the cloud and mobility
with social networking creates powerful, new platforms that allow retailers to engage.
Key drivers of growth in the retail industry
An expanding population base and largely urbanized consumer class provides a thriving market
for retailers. Entry of large, organized retailer into developing nations like India will also be a big
boost. Shift in demographics and purchasing power of the younger section of the population is
also driving demand.
With the advent of technologies consumers have the opportunity to virtually experience a
product before actually purchasing it. The growing penetration of technology facilitators such as
Internet connections, broadband and third generation (3G) services, laptops, smart phones,
tablets and dongles, coupled with increasing acceptance of the idea of virtual shopping, is set to
drive the e-commerce eco-system. The e-commerce story in India would surely witness a new
world of digitalization in the coming decade, with a host of start-ups emerging to compete with
existing players in order to draw benefits from the new and existing markets.

MERGERS AND ACQUISITIONS
Many big firms in order to be on par with recent development and to meet the increasing
consumers demand, take alternative way of merging and acquisition instead of developing R&D.
Flipkart-Myntra
Recently, we have seen one of the biggest merging activities undertaken by FLIPKART in
developing market in India. FLIPKART acquired Myntra (online fashion retailer) with the
purpose of expanding its market and compete with its rivals like Amazon, Snapdeal etc. to create
the largest e-commerce online platform in India. Myntra is one of the biggest online fashion
portals in Indias e-commerce industry with 30 percent of the fashion e-retail market. With this
collaboration, FLIPKART hopes to command more 50 percent share of the online fashion retail
market in the next few years.
Snapdeal And Esportsbuy.Com
Snapdeal had acquired a delhi based eSports.com in year 2012 which was an e-retailer of sports
and fitness equipment. As the predicted growth in Indian sports market was as high as $2.7
billion industry by 2014 and given that the offline market for this sector is highly fragmented and
unorganized to a large extent, Snapdeal saw a great opportunity to bridge the gap in demand and
supply.
Analysts views - CRISIL
According to Crisil, Indias online retail industry is very small compared to the overall retail in
the country. They expect the industrys revenues to more than double to around 18% of
organized retail by 2016 from 8% in 2013. Over the last 5 years, competition from Jabong,
Flipkart, Myntra and others have taken over the revenues of physical retailers. Severe
competition has forced physical retailers to go online despite the losses they have incurred in
their physical stores. Unable to match the huge discounts offered by online retailers, traditional
booksellers and music stores are either shuttering outlets or folding up. For example, PlanetM, a
part of Videocon-owned Next Retail, has been closing stores since 2012.
[1.7]
















Exhibit 1.1

Source: Rebirth of e-commerce in India, Ernst & Young, 2012










Exhibit 1.2: online retail market size and growth (as on February 2014)



Exhibit 1.3 Exhibit 1.4

Source : accel-partners-India, e-commerce insights, March, 2014

Exhibit 1.5

Source : Accel estimates, CMR, RCCI, Delloitte

REFERENCES
[1.1]Ernst & Young, Rebirth of e-commerce in India, 2012
http://www.ey.com/Publication/vwLUAssets/Rebirth_of_e-Commerce_in_India/$FILE/EY_RE-
BIRTH_OF_ECOMMERCE.pdf
[1.2] IAMAI, KPMG-e-commerce- Rhetoric, Reality and Opportunity , 2013,
https://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/Documents/KPMG-
IAMAI-ES.pdf
[1.3] Crisil, report on Indian e-commerce to become 8-billion dollar industry
http://blogs.wsj.com/indiarealtime/2014/02/25/report-indian-e-commerce-to-become-8-billion-
industry/ (as on 25
th
Feb, 2014)
[1.4] Accel India, India e-commerce Insights, March 2014,
http://www.slideshare.net/AccelIndiaVC/accel-partners-india-india-ecommerce-insights-march-
2014
[1.5] IBEF, The rise and rise of e-commerce in India, Jan 2013
http://www.ibef.org/download/The-Rise-and-Rise-of-E-commerce-in-India.pdf
[1.6] HBL, article6288499August 6 ,
http://www.thehindubusinessline.com/features/smartbuy/tech-news/why-big-names-are-
interested-in-ecommerce/article6288499.ece
[1.7] Crisil, article on online retail, February 2014
http://www.crisil.com/pdf/research/CRISIL-Research-Article-Online-Retail-Feb14.pdf

Sadhna kindly site these 3 references in your writeup
http://firstbiz.firstpost.com/corporate/flipkart-myntra-merger-to-create-indias-largest-e-
commerce-platform-85487.html
https://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/Documents/Six-
Converging-tech-trends.pdf
http://yourstory.com/2012/04/snapdeal-com-acquires-online-sports-retailer-esportsbuy-com/