Amidst the much hype around Online Retail in India in recent months, a lot of questions are being asked about the frothy valuations of the homegrown e-tail giants such as Flipkart and Snapdeal. We decided to take a look at the online Retail market trends in India to put these valuations in perspective.
As you can see, in 2016, eCommerce will be barely 2.5% of the total Retail market in India. The growth however has been very impressive- the market was less than $1 Billion in 2011 and has grown more than seven-fold in the 5 years since. However it is important to note that even in 2019, according to eMarketer, the online retail market will be less than 5% of the total Retail market in India. The US online market which is considered to be a mature online retail market is almost 7.7% of the total Retail market in the country in 2016.
All of this makes investors question the hype around online retail. Discounting- a strategy increasing employed by the major players to win over more customers- after all cannot be sustainable unless it is complemented by a relentless cost reduction strategy. The only answer seems to be aggressive supply chain efficiency improvements. With the tremendous infrastructure challenges in India and problems with last-mile delivery, this seems unlikely to come to fruition over the next 4-5 years. The Retail market however as a whole is projected to grow significantly over the next few years. Which should make the brick-and-mortar retailers such as Big Bazaar, Reliance Fresh, and possibly Walmart India, winners at least over the near future.