India’s e-commerce market – Hype or Real?

Is it just hype or is India’s e-commerce market really taking off? There’s been much discussion in the press concerning this. According to Gartner, India’s e-commerce market is estimated to grow to $6bn in 2015, a 70% increase over 2014. Forrester Research noted that in 2014, India’s e-commerce market was worth $3.9bn while e-Marketer notes retail e-commerce sales reached $5.30bn in India during the year. For 2015, the market research company expects India’s retail e-commerce sales, including all products ordered over the internet except travel, to grow by 45.2% to $7.69bn. It does seem there is credence in the growth of the market and such growth probably explains the interest in logistical needs facing e-retailers. Indeed, according to Ti’s Global e-Commerce Logistics 2015 report, India’s e-commerce logistics market was estimated at $2.76bn for 2014. By 2018, it is expected to grow to $5.07bn.

A recent example of this logistical interest is from US-based Amazon. This past week, it was noted in several publications that it had set up a logistics subsidiary in India. Amazon Transportation Services Private Limited will deliver goods ordered from the company’s website directly to consumers. However, it will also continue to work with such partners as India Post, Gati, Blue Dart and DHL. In addition, Amazon also operates nine fulfillment centers in eight Indian states.

Meanwhile, two of India’s largest home-grown e-commerce players, Flipkart and Snapdeal also announced their own logistics plans. Snapdeal acquired a percentage of the delivery firm Gojavas, former logistics arm of e-retailer Jabong. Furthermore, Snapdeal plans to invest $150m to $200m over 2015 on expanding its delivery operations. According to the Chief Operating Officer and co-founder of the company, the investment is necessary as it expects to be delivering 80m to 100m packages a month within two to three years.

Flipkart plans to separate its logistics group, eKart, in preparation for a possible US IPO within the next year or so. According to the company, eKart ships about 85% of products ordered on the website. It was suggested in The Economic Times that eKart might focus more on such value-added services as returns management while shipments done by 3PLs, including FedEx and Blue Dart will likely increase.

So where does the possibility of hype come in? Snapdeal was valued at almost $2bn towards the end of 2014 while Flipkart was valued at $11bn within the same period. Both of these e-retailers are seeking even more funding to expand operations and increase their valuations. According to Quartz online publication, Alibaba Group Holding backed away from acquiring a stake in Snapdeal due possibly to the potential overvaluation of the business. The publication notes that the valuations are based on the potential of India’s market, a bit reminiscent of the US e-commerce scene during the 1990s which ultimately resulted in a big bust for many businesses.

However, as noted previously, these e-retailers and others are investing heavily in logistics operations. Besides acquiring a portion of Gojavas, Snapdeal also plans to expand fulfilment centres to 75 facilities in 30 cities. Perhaps these e-retailers would not have to make such investments if adequate infrastructure was already in place as well as the ease to expand and connect networks across the country. But India is a unique e-commerce market in which infrastructure is poor and government regulations are constricting. Logistics providers such as FedEx, DHL, Gati, Delhivery, DTDC and Aramex are building their networks as well but the uniqueness of the market is such that apparently no one has yet found the right recipe for customer satisfaction. As such, India’s e-commerce market and its logistics needs will continue to grow as long as the economy improves and the government is receptive to needed changes.