INDUSTRY: E-COMMERCESECTION D GROUP 7

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EXECUTIVE SUMMARYE-commerce is one of the fastest growing sectors in the Indian economy which includes everything a customer purchases online right from home appliances, dcor, apparels, gifts, electronic devices, jewellery, travel, movie, tickets to online banking services, books, education etc. The list is never ending. In this report, we have focused on the e-retail industry that includes consumer apparels, electronics, books and accessories. The report is divided into 3 segments the industry profile, player profile and macroeconomic profile of the e-retail industry. The industry profile gives a takeaway on the current market scenario, growth curve, future expectations and predictions of growth of e-retail in India. It also focuses on the recent events that has occurred in the industry, mergers and acquisitions, technological trends and analysts views on the industry as a whole. The player profile..

ContentsIndustry Profile4Overview Of The Industry4Growth Over Last Few Years4Present And Future Trends4Major Events Related To The Industry In Last 2-3 Years5Importance To The Economy6Business Model/Revenue Model6Scope7Technological Trends And Major Innovations7Key Drivers Of Growth In The Retail Industry7Mergers And Acquisitions8Analysts Views9

INDUSTRY PROFILEOverview of the industryThe e-commerce industry is one of the fastest progressing domains of business in the world. The basic definition of e-commerce is Transactions carried electronically over the internet. Every industry today is trying to make a web presence through its online portal. People today can literally shop anywhere at any time of the day. Rising giants like Amazon, Flipkart, Jabong and Myntra are the highlights of the e-retail sector. In this report, we have primarily focused on the e-retail domain and how it has contributed towards Indian economy on the whole. Exhibit 1.1 shows different e-commerce segments in India. Exhibit 1.2 shows the size and growth of online retail market. Growth over last few yearsThe growth of the online retail was majorly due to changing consumer lifestyle and the necessity for easy shopping from home. E-tail developed in early 2007 with the launch of multiple online retail websites.[1.1]In the past few years, e-retail has crossed the national boundaries and acted as an intensifying force in Indias foreign trade, offering millions of enterprises, most of which are SMEs/MSMEs, to expand beyond the domestic market. Over 30,000 sellers sell on eBay India annually to 4 million consumers in 3,311 Indian cities. Over 15,000 sellers export a variety of Indian handcrafted products to 112 million customers in over 190 countries.[1.2]Online retail sector majorly comprises of sale of consumer electronics, apparels and accessories. In the financial year ended March 2013, online retail companies earned revenue of $2.24 billion. Between 2008 and 2013, the revenue generated from e-commerce grew by 56%. In 2009, e-commerce in India was worth $2.5 billion which went up to $6.3 billion in 2011 and $14 billion in 2012. Around 75% of this was generated by travel and tourism industry. Online retailing comprised only about 12.5% ($300 million as on 2009). [1.3]Present and future trendsCurrently there are 250 million internet users in India and the number is likely to reach 500 million by 2015. The number of online transactions is on the rise from $11 million in 2011 and is likely to reach $38 million by 2015. E-retail sector in India is expected to grow from current $3 billion, as per Business Standard, Aug edition to $8.5 billion by 2016 and $22 billion by 2020. Coming to the customer side, young Indians (19-24 yrs) are more comfortable with online services like Facebook and thus could potentially add upto 40 million new shoppers in next 3 years. [1.4]Online retail sector has grown significantly in the past 5 years. Cash-on-delivery has been one of the key reasons for its growth. Introduction to COD has increased the reliability of customers on these online shopping sites. 50 -80% sales online are via COD. [1.5] The try and buy option in the apparel industry has immensely attracted the online customer base that earlier had complaints about size and quality of clothing. Major events related to the industry in last 2-3 yearsBy 2012, most of the e-retail industries started making money. It has attracted a good number of venture capitalists who are ready to fund in the Indian e-retail market. Flipkart in August 2012, raised about $140 million followed by another $200 million from investors like Tiger Global, Naspers, Accel Partners, Morgan Stanley. Snapdeal also had a raise of $50 million in July 2013. In Feb 2014, Myntra raised $50 million from a group of investors led by Premji Invest. May 2014 witnessed acquisition of Myntra by Flipkart for around $20 billion. Jan,2014 Jabong raised around $100 million from CDC, a U.K. govt. backed private equity fund that invests in major markets, as mentioned in Economic Times. Myntra also raised $50 million in February. Foreign companies like Amazon has launched its Indian website this June, 2014. [1.6]Recently, there has been a significant leap in average order value due to penetration of new product categories like jewellery, home dcor, etc. Users were infact more comfortable buying costly items online to avoid carrying too much cash or chance of thefts. Fashion category e-commerce has almost doubled by 2013. Considering the growing concern on appearance and beauty consciousness, this industry is forecasted to grow by 400% in the next 2 years. Exhibit 1.3 and 1.4 graphically represent the same.[1.4]The most recent talked about investments are those of Amazon and Flipkart. Flipkart raised $1 billion from private equity funds. The very next day, Amazon announced an additional $2 billion investment in India. News reports from Business Standard, Aug 2014 edition suggest that Snapdeal will soon join the race by raising funds from Tata. Importance to the economyAs more Indians start to use the internet, revenues generated from e-commerce industries could triple over the next 3 years to over $8 billion, according to Crisil Research, Mumbai as published in Wallstreet journal, February 2014 edition. The scope of growth in this sector has attracted a huge amount of venture capitalists who are seeking the opportunity to invest in it. The above section mentions all the important investments that have occurred in recent times. This industry is expected to contribute 4% to the Indian GDP by 2020. Business model/Revenue modelNew business models have emerged in the e-retail sector, all of which are customer-centric models. The COD model, Try and Buy model, return policies ranging from 7-30 days, free home delivery model, Discount coupon model, ease of bulk purchase model, flash sales, all have led to an increase in consumer demand. It is believed that more than 50% of the transactions occur through COD.[1.5]E-mall or e-marketplace is a business model followed in the e-tail sector. Sellers set up virtual stores to sell their products to reduce their offline set up costs and complexities of supply chain management. Two inventory models have arisen within e-shops with respect to inventory management. Stock and sell model : assumes inventory risks and stores inventory Consignment model: ships product directly from vendor to the customer with no intermediate inventory storage. Most e-Tailers in India work on a consignment model based on the following principles: e-Tailers tied up with networks of merchants to source products. They then prepared web catalogs of products offered by their partner merchants. Once a customer order was received for any of the catalog items, a notification was sent to the merchant for its fulfillment. The merchant then supplied the goods to the customer, and financial settlement was made between the e-Tailer and the merchant for the products sold. [1.1]Overall, the e-commerce sector is still considered to be in its child stage with newer business models yet to be validated. While some companies such as Flipkart and Snapdeal have a horizontal business model with different offerings, other websites such as Zivame, BigBasket and FirstCry are having vertical business models with specialized product offering. Distribution network also varies amongst the companies. Some of the large players such as Flipkart, Naaptol and Myntra are building their own warehouse and supply chain logistics with huge investments, while others such as Indiaplaza use a third-party supply network. In addition, the business model adopted by companies such as eBay is of providing a platform for third-party transactions, wherein a seller sells various products to registered users. This way, the company saves money on inventory. [1.5]ScopeDue to low internet penetration in India as compared to the world and lack of general awareness about online shopping, there is further scope of development in the e-retail sector. Exhibit 1.5 displays some possibilities of penetration. Of the total 200.0 million credit and debit card holders, just about 10.0 million people transact online, indicating a huge untapped market. A study showed that there are around150 million users who are willing to shop online.(rise and rise of e-commerce in India)Technological Trends and Major InnovationsWith the rise of the digital shopper, shopping has increasingly moved online and to the mobile platform. Today, e-commerce is experiencing Double-digit growth and further boom in this sector is highly predictable with improved technology like faster mobile phones, widespread and penetrated broadband access. New sophisticated mobile devices, big data and cloud computing together work to provide ready access to information, products and services from virtually anywhere and act as key drivers for innovation. The further integration of the cloud and mobility with social networking creates powerful, new platforms that allow retailers to engage. Key drivers of growth in the retail industryAn expanding population base and largely urbanized consumer class provides a thriving market for retailers. Entry of large, organized retailer into developing nations like India will also be a big boost. Shift in demographics and purchasing power of the younger section of the population is also driving demand.With the advent of technologies consumers have the opportunity to virtually experience a product before actually purchasing it. The growing penetration of technology facilitators such as Internetconnections, broadband and third generation (3G) services, laptops, smart phones, tablets and dongles, coupled with increasing acceptance of the idea of virtualshopping, is set to drive the e-commerce eco-system. The e-commerce story inIndia would surely witness a new world of digitalization in the coming decade,with a host of start-ups emerging to compete with existing players in order todraw benefits from the new and existing markets.

MERGERS AND ACQUISITIONSMany big firms in order to be on par with recent development and to meet the increasing consumers demand, take alternative way of merging and acquisition instead of developing R&D.Flipkart-MyntraRecently, we have seen one of the biggest merging activities undertaken by FLIPKART in developing market in India. FLIPKART acquired Myntra (online fashion retailer) with the purpose of expanding its market and compete with its rivals like Amazon, Snapdeal etc. to create the largest e-commerce online platform in India. Myntra is one of the biggest online fashion portals in Indias e-commerce industry with 30 percent of the fashion e-retail market. With this collaboration, FLIPKART hopes to command more 50 percent share of the online fashion retail market in the next few years.Snapdeal And Esportsbuy.ComSnapdeal had acquired a delhi based eSports.com in year 2012 which was an e-retailer of sports and fitness equipment. As the predicted growth in Indian sports market was as high as $2.7 billion industry by 2014 and given that the offline market for this sector is highly fragmented and unorganized to a large extent, Snapdeal saw a great opportunity to bridge the gap in demand and supply.Analysts views - CRISILAccording to Crisil, Indias online retail industry is very small compared to the overall retail in the country. They expect the industrys revenues to more than double to around 18% of organized retail by 2016 from 8% in 2013. Over the last 5 years, competition from Jabong, Flipkart, Myntra and others have taken over the revenues of physical retailers. Severe competition has forced physical retailers to go online despite the losses they have incurred in their physical stores. Unable to match the huge discounts offered by online retailers, traditional booksellers and music stores are either shuttering outlets or folding up. For example, PlanetM, a part of Videocon-owned Next Retail, has been closing stores since 2012. [1.7]

Exhibit 1.1

Source: Rebirth of e-commerce in India, Ernst & Young, 2012

Exhibit 1.2: online retail market size and growth (as on February 2014)

Exhibit 1.3 Exhibit 1.4 Source : accel-partners-India, e-commerce insights, March, 2014

Exhibit 1.5

Source : Accel estimates, CMR, RCCI, Delloitte

REFERENCES [1.1]Ernst & Young, Rebirth of e-commerce in India, 2012 http://www.ey.com/Publication/vwLUAssets/Rebirth_of_e-Commerce_in_India/$FILE/EY_RE-BIRTH_OF_ECOMMERCE.pdf [1.2] IAMAI, KPMG-e-commerce- Rhetoric, Reality and Opportunity , 2013, https://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/Documents/KPMG-IAMAI-ES.pdf [1.3] Crisil, report on Indian e-commerce to become 8-billion dollar industryhttp://blogs.wsj.com/indiarealtime/2014/02/25/report-indian-e-commerce-to-become-8-billion-industry/ (as on 25th Feb, 2014)[1.4] Accel India, India e-commerce Insights, March 2014, http://www.slideshare.net/AccelIndiaVC/accel-partners-india-india-ecommerce-insights-march-2014 [1.5] IBEF, The rise and rise of e-commerce in India, Jan 2013 http://www.ibef.org/download/The-Rise-and-Rise-of-E-commerce-in-India.pdf [1.6] HBL, article6288499August 6 , http://www.thehindubusinessline.com/features/smartbuy/tech-news/why-big-names-are-interested-in-ecommerce/article6288499.ece [1.7] Crisil, article on online retail, February 2014 http://www.crisil.com/pdf/research/CRISIL-Research-Article-Online-Retail-Feb14.pdf

Sadhna kindly site these 3 references in your writeuphttp://firstbiz.firstpost.com/corporate/flipkart-myntra-merger-to-create-indias-largest-e-commerce-platform-85487.htmlhttps://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/Documents/Six-Converging-tech-trends.pdf http://yourstory.com/2012/04/snapdeal-com-acquires-online-sports-retailer-esportsbuy-com/