Thoughts. The e-commerce giants dominate the arena but what will be the future of the small ones?

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1 Thoughts Reflexion and Analysis for the Indian Market June 2014 The e-commerce giants dominate the arena but what will be the future of the small ones?

2 From $2.5 billion in 2009 to $16 billion in 2013, the e-commerce market is expected to reach up to $56 billion by The $75 billion giant Amazon couldn t avoid this market! In June 2013, Amazon, after quietly watched the local market, decided to make its entry into the market with a marketplace format. Since its launch, the company has gone from 2 categories to 24 and from zero sellers to more than 1,000. Amazon has been on the move, not only by launching category after category, but pushing the envelope on other fronts such as next day and same day delivery and innovated by piloting deliveries at HPCL and BPCL outlets and even dropping off packages at small kirana stores in certain location. Amazon takes its investment in the Indian market very seriously. It spent nearly $4 million on lobbying in 2013 and did it again in the first quarter of this year to press its case. While the Giant put its step in the market, the local big boys are standing their ground. However, the battle is evolving into an Amazon vs Flipkart one, with Snapdeal as a scrappy third rival. The changing trend of the market: the Mobile-Commerce Today, Flipkart is preparing to go to the battle. The company, which has raised $550 million from investors, started off with an inventory-led model and changed into a full-fledged market place, lining up an assortment of 4,000 sellers in its quest for $1 billion in revenue it has already reached a year before its expectation. The next battle won t be on the computers and broadband connections but over mobile broadband users.

3 In a country where there are over 930 million mobile subscribers against 160 million internet users, the m-commerce can become even bigger than the e-commerce. It is not denying fact that mobiles devices are far more affordable than desktops and laptops, and an average Indian consumer doesn t have much disposable income in his hand to buy high end devices. Plus, one doesn t even really need expensive smartphones to shop online or make mobile transactions. The affordability of mobile devices is a key of the development of the m-commerce. M-commerce customers are not bound by limited wired and WiFi Internet connections. In the last 3-4 years, the number of users who access the internet through a 3G connection has grown to round 22 million. If you compare this figure with the 15 million fixed line broadband connections accrued over the last 17 years, the difference is notable! Mobile payments participate to that market trend. A customer can use a mobile phone to transfer money or to pay for goods and services. So anyone who has a bank account can make a transaction. Last but not least a mobile has become an indispensable extension of oneself so people are more comfortable using their mobiles for various activities, as it gives them a sense of

4 privacy and security, while offering easy usability. Since already there are way more mobiles in India than computers, m-commerce could gradually grow bigger than e-commerce. The big squeeze in e-commerce The market has been through several rounds of churn, as Venture Capitalists initially chased opportunity in the market, only to see many of their investments crash and burn. To give a figure from NextBigWaht, 136 e- commerce firms shut down between November 2012 and April According to other data from Allegro Capital, 80% of all Indian e-commerce companies are on their last legs, having failed to raise fresh funds. Between 2010 and 2013, 52 e-commerce firms in funding, but just 18 of them attracted a follow-up round. In the past year to 18 months, there has been a substantial clear-out in India s e-commerce space, as investors have been wary of investing in this space, either backing large scale players such as Flipkart or putting smaller amounts into high-margin niche start-ups. The future of the Giant players India s e-commerce industry has reached an inflection point. Amazon s entry has bought some urgency and competition into the market. The consolidation of the market will have for consequences to see emerging 3 or 4 large Indian players and a long tail of high margin speciality players in categories such as apparel, accessories and jewellery. In that context, the leaders of the market will open their development for inorganic growth. Thus end of May we have seen Flipkart bought fashion portal Myntra in a deal estimated to be worth $370 million. Just to give an idea of how many different investors have invested in these 2 companies: the two companies have three common investors, Tiger Global, early-stage investor Accel Partners and Belgian family office Sofina. Flipkart s other investors are Naspers, Dragoneer, Morgan Stanley and Vulcan Capital. Myntra s investors also include Premji Invest, Kalaari Capital and IDG Ventures India.

5 Snapdeal too is keen on inorganic growth. Most recently it acquired Doozton, an online product discovery firm, to expand its presence in apparel and fashion. Previously, it acquired Grabbon, Esportsbuy and Shopo to expand into areas such as sports equipment, Indian handicraft and strengthen its presence as full-fledged e-commerce market place. However the real scale may come by adding new categories and products to their baskets. For example, Flipkart has rolled out a range of furniture and wants to expand its presence in white goods. Snapdeal too is constantly ramping up several categories including some unexpected ones such as car tyres where it is seeing strong sales. Value-added services will be the next big battle in India s e-commerce market.

6 The future of the small players Creating an online store is no longer limited to those who are adept with computer programming. Entrepreneurs can bring their products and services online even with only a little knowledge due to the existences of market place platform. But the model of the e-commerce in inventory management has shown its inefficiency in term of profitability. That s why 80% of the e-commerce nowadays are on one leg and just use their last cash flow before shutting down. The two main reasons are: - Marketing spend is very reckless: the cost of the customer acquisition is very high. If you are an inventory-led model, the pressure of selling it sooner and faster is higher and that means you need to use more aggressive marketing techniques. The consequence is that you have to spend more money to acquire a customer. With the level of marketing spent, profitability is impossible to reach - Free shipping: in the USA and Europe, frees hipping for an online shopper is a privilege and not a right! In India, free shipping kills the profitability of each delivery Thus how can a small player can survive in this jungle where the big players raise million of dollars and small players shut down one after the other. The solution lies in an evolution of the format from a boutique to a showroom.

7 About Nymex Consulting Nymex Consulting is one of the fastest growing management consultancy firm providing growth management, market expertise and a solid return of investment. Our sector focus includes FMCG, Retail, Food & Beverage, E Commerce, Distribution and Outsourcing. Our functional expertise entails Strategy, Marketing, Sales & Distribution, Operational Efficiency, Risk Management and overall Project Management Office including topics such as Business transformation, Customer Base Management, Channel Management and Organizational redesign. We work with leaders and challengers combining our strategic vision for growth with a pragmatic and solution oriented approach in our projects, delivering sustainable growth. For more information, please visit