Immune to all concerns about the country’s uncertain and fluctuating policy environment, the Indian e-commerce has been thriving and witnessing unprecedented growth over the last few years. Attracting investors and detractors, this unprecedented ecommerce bubble growth raises fear of the dot com bubble of the 90s which collapsed many internet companies worldwide. Amidst intense speculation about the ecommerce future in India, UBS securities, a global brokerage firm, have dismissed the concerns as “misplaced” and is optimistic of its growth. Let’s perceive some of its interesting aspects:-
E-Commerce sector foretasted to be profitable by 2020
The present struggle of e-commerce companies to break even and lack of a proper business model or strategy have raised widespread speculations about the e-commerce viability. Dispelling all doubts, the USB report based on various aspects like internet penetration, affordability, adaptability and accountability states that the business’ inherent operating leverage and lower discounts would ultimately lead to operating profit for the industry. They project the market to grow ten times to $50 billion by 2020.
Discounts will fall
In a drive to grow as fast as possible, e-commerce companies are presently offering aggressive discounts to scale up market share by luring customers. Aided by easily available e-commerce funding, this is driving up GMV. Between April 2013 and March 2014, the combined loss of Flipkart.com, Snapdeal.com and Amazon.co.in, the largest e-commerce giants of India was about $160 million against their cumulative total sales of $85 million. UBS agrees that this indeed clouds objective analysis raising speculations about the e-commerce bubble burst. Looking optimistic, UBS feels that this model is unfeasible and thus will not last long. As the investors will raise questions and accountability about profits, the e-commerce companies would have to cut on the discounts which UBS forecasts to be around 7%.
Potential of the grocery segment
About 65% of Indian retail market constitutes of grocery but forms just about 14-15% of cumulative online retail. UBS believes that e-commerce companies should tap on this potential. If they can successfully build e-retail business model for grocery, then the growth opportunities would grow exponentially,
Amidst the optimistic lookout, it would be unwise to overlook the various potential risk factors like economic slowdown, unfavorable and hindering government regulations, Internet penetration not hitting the expected mark, unpredictable and ever-changing consumer behavior, e-commerce companies failing to ramp up logistics and of course the weakening currency.
The Indian e-commerce industry has number of factors pinched in its favor at the moment but it needs to buck up and grow the learning curve if it does not want to fizzle out and e-commerce bubble burst actually happens.