In India, online stores catch on with buyers

At first, Kunal Bahl and his high school buddy Rohit Bansal had modest ambitions for their online shopping site, Snapdeal.

Their previous venture — a physical coupon booklet into which they had sunk their combined savings — flopped in just months. And online retailing was still a largely unproven endeavour in 2010, particularly in India, a country where most people don’t have bank accounts, let alone credit cards to make purchases on the Internet. When an angel investor offered $200,000 as seed money, they took only half and aimed for just 100 transactions a day.

Snapdeal is now on track to handle more than $1 billion in sales this year for over 30,000 merchants across more than 500 categories of goods and services. “We sell a sari every 12 seconds,” Bahl said.

The rise of Indian e-commerce — which has started to gain traction only in recent years — has captured the attention of international investors.

This year, Snapdeal has raised $233 million, with about half coming from the American Internet company eBay. Bahl said Snapdeal was considering an initial public offering in a year or two.

At least half a dozen other leading Indian shopping sites have announced major fund-raising deals in recent months. Recently, Flipkart, India’s largest e-commerce company, said that it had raised $1 billion from investors, including American firms like Tiger Global and Accel Partners. The amount represents the largest ever for an Indian Internet company, and globally, it matches Facebook’s fund-raising round in February 2011 and ranks only second to Uber’s $1.2 billion bonanza this June, according to Thomson Reuters.

“E-commerce in India is poised to take advantage of larger shifts in society,” said Vani Kola, now the managing director of Kalaari Capital and formerly of NEA-IndoUS Ventures, Indian-based venture capital firms that both have invested in Snapdeal. “The whole industry has begun swiftly growing and evolving.”

The investment surge reflects the changing landscape in India. Internet access has rapidly expanded, mostly through mobile devices, and Indians are now increasingly shifting daily activity online, like reading the newspaper, doing bank transactions and buying goods and services, from shoes to refrigerators (with installation included).

Untapped market

Billboards, text messages and emails bombard people every day with news of deep online-only discounts and special offers. E-commerce is growing at a compound annual rate of 34 per cent, according to the Internet and Mobile Association of India. But online shopping remains a largely untapped market. While estimates of the total worth of India’s online retail industry vary greatly, most analysts figure that it accounts for less than 1 per cent of the country’s $500 billion retail market, which is still mostly cash-driven.

Comparatively, China’s e-commerce sales are expected to top $180 billion this year, accounting for roughly 9 per cent of the country’s retail spending, according to iResearch Consulting, which specialises in China’s Internet industry. The country’s largest online retailer, Alibaba, is expected to go public in the coming months with an estimated value of more than $200 billion.

“There’s tremendous headroom still,” Bahl said. “I think 20 years from now, 20 per cent of retail will be online.” Yet particularities to India’s shopping culture have impeded the industry’s growth.

By and large, India remains a bastion of the “kirana,” or neighborhood general store, as well as the roving hawkers, whose nasal cries carry the names of their wares through narrow lanes and up to the top floors of apartment buildings.

Cash upon delivery

These entrenched habits, combined with the newness of the Internet and credit cards, have led to a trust gap between online retailers and their customers. To bridge it, the biggest names in e-commerce, including Snapdeal and Flipkart, allow customers to pay cash upon delivery for their purchases and let consumers return items at the very last second, even when the delivery person arrives at their door.

To address the widespread perception that the state’s postal service is unreliable, e-commerce players like Snapdeal, Flipkart and Jabong have developed their own delivery logistics companies. Snapdeal and others have built fulfillment centers and hired delivery workers to help ensure packages arrive in a timely fashion.

The logistic network, in part, has helped Snapdeal court small business owners to its marketplace. “In the early days,” Bahl said, “we were calling every family and friend who we knew was running a small business or wanting to start one, and for whom nationwide distribution would be a godsend. It was quite hard to convince them, given many of them hadn’t ever used the Internet themselves.”

Looming large over the industry is last year’s entrance in India of Amazon. Huge American online retailers like Amazon and eBay own marketplace platforms here, which connect merchants with consumers. But the country’s regulations prevent Amazon and other overseas players from selling directly to consumers from their own inventory as they do elsewhere.