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e-tailing picks up steam

While the Indian retail sector is upbeat about the change that has seen customers buying even expensive products online, it is yet to overcome a few barriers in consumer mindset, which will hopefully disappear over time, writes Kushal Shah

Have you ever felt like shopping in the middle of the night? Or needed a gift for your wife whose birthday you had forgotten due to your busy schedule? Or wanted to sell a used product which was in good condition? Well, all these needs and more can be effectively, timely and conveniently solved by one way of shopping—e-tailing. Whether you call it a technology or a business model, e-commerce has changed the way people shop for and vendors sell products. This is one platform where we find ample choices to explore, sitting right at home.

With the retail boom attracting large corporate houses to jump into the race and the increasing disposable income of the Indian middle class, convenience is becoming the top priority, and with that the growth in online organized retail business is clearly visible to all. If we talk of e-tailing as online version of retail shopping, it accounts for about 10% of the overall e-commerce market. According to the Internet and Mobile Association of India (IAMAI) and IMRB report, the e-tailing market was worth Rs 850 crore for 2006-07 and it is expected to grow by 30%, touching Rs 1,105 crore in 2007-08. The largest chunk of e-commerce business is accounted for by the travel industry with about a 80% share worth Rs 5,500 crore. “One of the key elements of retailing is organized retail, and with more organized retail players taking the online path, we expect to keep doubling for the next four to five years,” said K Vaitheeswaran, Chief Operating Officer, Indiaplaza.in.

Rapidly changing technology, a growing Internet user base, growing consumer confidence and improved delivery models have been the prime factors fueling this trend. Ironically, low Internet penetration, lack of trust and flawed delivery models are some of the concerns of e-shopping players, a few of which can be tackled by the companies whereas others are common issues affecting many businesses.

Consumer behavior

We have seen a tremendous surge in consumer interest in online shopping over the last three-four years. Several factors have brought about this change. With Internet usage growing, consumers have got used to the online interface and technology growth has made online shopping more convenient. At the same time, some established offline retailers have expanded their reach to the online mode, which has resulted in the options available for brand conscious consumers multiplying. Consumer confidence and convenience have been the greatest fillip for this sector. “Consumer confidence to shop online has been growing rapidly; this is backed by the satisfactory experience of transacting online. Besides the convenience and better deals, the positive experience of buying tickets and paying bills online have also helped in increasing consumer confidence,” stated Manish Agarwal, Vice-president Marketing & Head of Ecommerce, Rediff.com. Arguably, the biggest advantage of online shopping is pricing—be it in online direct retail or in online auction-based Web sites—they can offer much better deals and bargains offers compared to retailers in stores, primarily because online players save substantial costs in areas such as operating inventory and maintenance.

Additionally, the increasing PC and Internet penetration is helping accelerate the share of e-commerce in India and because of this people are discovering convenient ways to do routine shopping online. Besides this, various payment modes beyond online credit cards, Net banking, and cash-on-delivery have made people comfortable with purchases online. “The range and availability of thousands of products at a great price is one the biggest drivers. Online shopping is gaining in popularity in India, particularly among the upwardly mobile young people who are spending a lot of time online and have large disposable incomes,” said Ambareesh Murty, Director, Marketplace Development, eBay India.

Transitional trends

The buying pattern of Indian online consumers has changed drastically over the years. From CDs and books shopping, consumers have started to buy more expensive products such as mobile phones and MP3 players. In terms of product favorites for consumers, traffic is different for different sites and is changing rapidly. “About a year back, consumers’ interest tilted towards books and CDs but now things are changing rapidly. We are seeing tremendous increase in the electronic segment and mobile phones. MP3 players and digital cameras are our top performing categories now,” explained Vaitheeswaran.

For Rediff.com, according to Agarwal, online shopping categories are widening. Entertainment electronics like MP3 players, digital cameras, mobiles as well as serious computer products like flash drives, Web cameras, and other peripherals are the biggest segments. Apparel, in particular, menswear items such as shirts and t-shirts as well as accessories like watches and sunglasses are the next most popular category. Even consumer electronics has started showing signs of movement.

Surprisingly, sometimes jewelery has been the fastest selling item. “Interestingly, jewelery is the most popular category. For many buyers, a piece of jewelery is their first purchase online. Many sellers sell certified diamonds and this is very popular with buyers,” stated Murty

On an average day, on eBay India, a piece of jewelery sells every seven minutes. Closely followed by an item of apparel every 13 minutes and a book sale every 14 minutes. On eBay India, a mobile handset sells every 15 minutes, which is a sign of growing sales of high cost electronic items. Even with these trends, in India the number of computers and laptops sold online is low.

There has also been a surge in buyers and sellers from tier-II and tier-III cities with as many as 40% of online shoppers coming from non-metros for whom access to products, which are not easily available in their city, is the driver.

Another trend is that of reputed brands exploring e-commerce. Many brands have set up an eBay shop or started listing on eBay India in an effort to attract buyers from small towns in India as well as the time-starved metro buyers.

Murty pointed out that one of the key reasons driving this trend is the fact that while media penetration of a brand campaign is truly national, the product distribution may not quite be as comprehensive. For brands selling new-in-season products, both in the lifestyle and technology categories, setting up an online store offers them an opportunity to fulfill the demand created by their media campaigns for buyers in tier-II and tier-III cities.

Brands power is a big draw in e-commerce space as customers love to buy products directly from the brand usually after they have viewed the launch of its television campaign. For a first-time online shopper, confidence increases when he is buying a branded product from a reputed company.

Flying high

India is in the throes of an aviation boom and e-ticket penetration has grown from a mere 10% in 2005 to 65% in 2006, and with IATA setting up the deadline of 2008 for e-ticketing rollout; this business is surely going to grow exponentially.

The primary reason for online air bookings are convenience (at any time), quality experience, low cost due to better negotiations with airline and a direct XML interface. “Online ticketing has gained a share of more than 55% in a year’s time and I feel we can see this market being stable at around the 90% mark. The only ones who will continue to book offline would be elderly people. There has been very little effort to increase the share of e-ticketing, things have happened on their own,” explained Amal Purandare, Head-India Operations, Arzoo.com. Some of the top Indian portals are selling around 6,000 domestic tickets a day, which is quite a number for a growing market.

The ‘M Way’

Mobile commerce wherein a mobile phone is used to make payments is catching on in India. With more people carrying mobile phones, and mobile Internet and the SMS becoming a way of life for the Indian youth, e-commerce Web sites are integrating mobile-based solutions as part of their business. “Online shopping through GPRS and SMS is yet to catch on in a big way. Right now m-commerce is at the place where e-commerce was about five years back,” stated Vaitheeswaran.

Payment gateways for mobile platforms are being set up. As of now the companies running these gateways are working purely as service or technology providers. One such player is Paymate, which enables a consumer to shop, buy, select, book tickets, products, gifts and pay for utility services using the cell phone and SMS.

PayMate is platform and operator independent. The customer has to register once with PayMate to link his mobile number with his bank account. Once the registration is done, the user gets a 4 digit PIN which is similar to any bank ATM PIN. Now when he wishes to make payments via his mobile phone, he simply enters his mobile number instead of cash or credit/debit card number into the system, he instantly gets an SMS from PayMate asking him to validate the transaction by replying with the alphanumeric code mentioned in the SMS and the 4 digit PIN. On authentication, the transaction is completed and the customer as well as the merchant gets a confirmation SMS.

“The challenge is to make consumers try out new methods. So constant communication, ease and ubiquity of use, and comfort factor will drive usage of newer electronic payment channels like ours and will drive m-commerce,” said Probir Roy, Co- founder and Director, PayMate.

Another challenge to m-commerce is simplicity of use and the missing comfort of a laptop or a desktop. “Buying products over GPRS seems a more workable model than a SMS-based model, which is a little inconvenient for the buyer.

I see the cell phone as a medium only as a secondary way of e-commerce, in the absence of a laptop or desktop,” asserted Purandare.

Consumer mindset

The key problem that needs to be countered by the sector has more to do with consumer mindset than a change in business model. The biggest barrier is lack of trust. In this highly technologically advanced market, people do not trust the payment mechanisms and are skeptical about online transactions. “Security is not a concern for us; the perception about security is a concern. We have all the possible security measures taken care of but to make people understand this is a problem. I think that third parties like banks or the government should have an awareness campaign for this which would make customers feel more confident about buying online,” felt Vaitheeswaran.

Another mindset problem which e-retailers are facing is that of touch and feel. Indians are used to buying products after feeling it with their hands. They buy clothes after verifying the quality by touch, and this becomes a bottleneck for apparel sales online. “The mindset of touch and feel of Indian consumers reflects in the product categories. Those products which don’t require the consumers to touch and feel do very well online,” conceded Agarwal.

Another typical Indian tendency is to ask multiple questions before buying. This is missing from the Internet platform, which is another hindrance for the e-commerce industry. For example, if someone is buying an expensive product such as a laptop, he wants to ask various questions and would like compare items verbally rather than though the electronic medium.

Though all these problems are fading with generation change and youth confidence, there are a few other disadvantages—low PC and Internet penetration, flawed or untimely delivery of products, and extreme competitiveness due to falling prices.

Strategies for the future

Numerous strategies have been adopted by sellers to rope in new customers and strengthen the buying habits of existing customers. Starting from feedback systems to different payment mechanism to partnerships, companies are doing everything they possibly can with the help of technology and business intelligence.

In terms of reviews and feedbacks, Rediff.com does a background check on all sellers who are also encouraged to maintain a user feedback system. Buyers can leave a positive feedback for a satisfactory purchase. This feedback system acts as reputation management system which are useful for fresh buyers. Even Indiaplaza has a product review mechanism which can add real value to new customers. eBay also adopts similar means to ensure the authenticity of sellers.

Companies are adopting several methods for payment and not restricting themselves to only credit card transactions. Mobile payment, cash on delivery, DD, Net banking and many other means are picking up. Partnerships with banks and other separate payment gateways are also on the rise. Tie-ups with bodies such as Verisign and Paypal increase customer confidence. eBay has added a feature such as PaisaPay in which sellers gets paid only when a customer gives a positive feedback about the delivery, which ensures that the seller is not fake and customers can shop without any tension of the delivery of the product. “We have introduced many new innovations and features, both leveraging the global product and introducing India specific products and features to target the nascent e-commerce population,” added Murty.

With the advent of Web 2.0 and user generated content, Internet shopping companies are making the best use of this trend. They plan to integrate features around it in the near future. Web optimization, better user reviews and discussions about products, and increased personalization will enable users to shop more and more online.

In the future, we will see more organized retailers coming online and using it as an additional sales channel. Even smaller retailers from smaller markets are realizing the potential of selling online. There will be large scale participation of sellers from smaller markets. From India-specific point as the base of Internet users grow in India there will be another trend: “Indian language support on shopping platforms and introduction of social shopping will help the industry to grow further. It will lead to large scale participation and social shopping will help in increasing conversion rates,” insisted Agarwal.

In short, with smart strategies, the right use of technology and Internet penetration will help this market grow at a much faster pace, which in turn will benefit not only vendors and consumers in metros but those living across the country.

kushal.shah@expressindia.com