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Online Retail’s Brisk Growth Attracts Investors in India

  • Anjana Pasricha

FILE: Employees of, an Indian online discount shopping website, work inside their company office in New Delhi, Mar. 1, 2012.

FILE: Employees of, an Indian online discount shopping website, work inside their company office in New Delhi, Mar. 1, 2012.

As online shopping posts brisk growth in India, investors are pouring billions of dollars into e-commerce companies.

But small-shop owners worry about falling customer traffic and loss of business.

It’s the time of the year when Indians shop feverishsly as the Hindu festival of lights, Diwali, approaches on October 23. Some want to redecorate homes, others have saved up to buy new clothes, fashion accessories, televisions or mobiles.

But instead of picking these up at stores, millions logged onto websites this week to grab the best deals as online companies announced deep discounts for the festive season.

Goods sold quickly

Many were disgruntled as goods disappeared quickly. Some sites came crashing down due to heavy traffic. Nonetheless the electronic shopping spree put the spotlight on the rapid strides e-commerce is making in India.

India’s largest online retailer, Flipkart, said it clocked up sales of $100 million in a day during its discount offer.

Heena Bajaj, a young executive in the business hub of Gurgaon near the Indian capital, has become a committed online shopper.

“I think I buy everything apart from clothes, otherwise perfumes, watches, electronics, wallets, everything, anything that you don’t have to try on, basically and it is easier to compare prices. Online shows all the availability ... all the colors, so basically you don’t have to waste time searching for your stuff,” said Bajaj.

For another young executive, Mahima Dhawan, the big draw of online shopping is the money you save.

“You get it like Rs. 500 or Rs 600 ($8 to $10) cheaper than what you might get at a store. Whatever we can save, we end up saving," said Dhawan.

Smartphones, Internet access

Penetration of smartphones and access to the Internet has fuelled the online bazaar. And the money is not just pouring in from India’s big metros.

Pragya Singh of retail consultancy Technopak said nearly half the sales of online retailers came from outside places which do not have access to merchandise available in cities like New Delhi and Mumbai.

“There is so much demand and aspiration in smaller towns because India is such a big market. It’s almost like 1000 towns across the country. So the lack of availability and inability of brick and mortar retail to go beyond the top cities is one factor which has fuelled the need and online is bridging this gap very well,” said Singh.

Estimates of India’s online market vary greatly.

Technopak estimated that last year it was worth $2.3 billion, which is less than 1 percent of the country’s retail market and is tiny compared to China.

But as deeply entrenched shopping habits change rapidly, it is set to grow to $32 billion by 2020.

Surge in investments

The huge growth potential has led to a surge in investments. Amazon recently invested an additional $2 billion to ramp up its presence in the Indian market, where it made its debut last year.

India's biggest player, Flipkart, has raised $1 billion from local and international investors in recent months.

Several other online companies, like Snapdeal, have also raised millions of dollars as investors put their faith in the Indian online market. The infusion of capital is helping them rapidly expand the market.

But not everyone is happy as more and more and more people log online. In a popular market in Gurgaon, store owners selling electronic and electrical items are despondent.

Owner Ramesh Chandra of Electri City says foot traffic has dwindled and sales have plummeted by at least 20 per cent, even during the usually busy festive season.

“Most customers come here, they check the prices, then they open their laptop, and say no, it is available at this price, so why should we pay you more? People talk of growth, we talk of de-growth. Future is very bleak, I am so worried about the future of my children,” said Chandra.

The story is repeated at book stores, shops selling mobiles, laptops, music, DVD’s etc - the segments that have been hit hardest by online sales.

Traders upset

That has led to an outcry from traders, who have complained to the government about the heavily slashed prices on online sites this season, calling them a threat to their businesses and demanding more regulation. Commerce Minister, Nirmala Sitharaman, has promised to investigate the grievances.

But Pragya Singh of Technopak said traders would have to accept that online companies would make inroads into their market share.

"They cannot wish away the e-tail market, you like it or don’t like it, it is here to stay. So it is better to accept the reality and then change your business model or change your product and services so you still remain relevant to the consumers in the face of online growth,” said Singh.

It remains to be seen how brick and mortar stores will adapt to changing times.

But online retailers are adapting quickly to the Indian market. In a country where credit card ownership is still limited and customers can be hard to please, they allow people to pay cash on delivery and to return goods.