Saturday, August 2, 2008

Online Shopping in India

If online shopping has to become big in India, we would need scale both on the transacting buyers as well as on the sellers’ side. Currently, there are less than 1,000 merchants in the country who are doing business online. Large chunk of these merchants are SMEs. Most of them do not even have their own websites but are just plugging in as vendors / suppliers to the major online shopping portals.

The number of buyers who are buying stuff online also remains low. Major reasons are low internet penetration (around 25 million total internet users), low credit card population (less than 15 million credit card population with unique credit card owners even lower than 10 million), non-willingness of people to use credit cards for online purchases, adverse taxation rules etc.

No wonder, online shopping still remains a small activity. If we were to exclude Travel & online stock broking then the total size of online shopping in India will be in the region of US$ 60-70 million annually (Gross Merchandising Value basis). On the net commission basis it will be as low as US$ 15-17 million.

The current proposition online shopping portals are giving to their customers are “convenience” and scattered “deals” they are able to get from the vendors / brands. This is not compelling enough. The proposition needs to move away to aggregation & comparison. This can only happen when more merchants (SMEs), brand owners and retailers have their own online stores and strategies in place.

In US all major retailers – Walmart, Target etc have their own online portals. All the big brands too have their own online presence. However, in India barring LG who were early movers, I cannot even recollect any other Indian brand being available online! Amongst retailers, I know of only Pantaloon who are now in the process of setting up their online shopping portal. In 2005, ComScore Networks estimated to be the third most visited online shopping site after eBay and . Also, in 2005 online shopping in USA contributed more than 5% of all non-travel retail sales: Shopper’s stop, Pyramid, Lifestyle, Westside.. are you listening?

I am sure over the next 18-24 months we would see several national brands / retailers having their online shopping offerings. In the same timeframe, I estimate that the total number of merchants online would reach 50,000 and the total internet users around 50 million. Once this happens, I estimate that the B2C online shopping will scale up to US $ 500 million.


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