India’s e-Commerce Market Explodes

India’s US$2.3 billion annual e-commerce market has caught fire following two big-ticket announcements this week. First, homegrown market leader Flipkart, a US$1.76-billion e-commerce conglomerate founded in 2007 by two ex-Amazon employees, raised more than US$1 billion in India’s capital markets.

That was followed by Amazon itself, the Seattle-headquartered US$148-billion e-commerce titan pumping an additional investment of US$2 billion into Asia’s third largest economy “to support its rapid growth and continue to enhance the customer and seller experience."

The aggressive move by both companies to scale up and vitalize their pan-Indian footprint has heated up competition in one of the fastest growing e-commerce markets in the world.

“After our first year in business, the response from customers and small and medium-sized businesses in India has far surpassed our expectations," said Jeff Bezos, the 50-year-old founder and CEO of which first entered the Indian market last June. "We see huge potential in the Indian economy and for the growth of e-commerce in India. With this additional investment of US$2 billion, our team can continue to think big, innovate, and raise the bar for customers in India."

Amazon’s India investment, the largest ever by an e-commerce company, will not only be double the amount Flipkart has raised in its latest round, but is also more than the US$1.76 billion intotal funding the latter has rustled up since its launch in 2007.

Soon after announcing his company’s fundraising, Sachin Bansal, the 33-year-old chief executive and co-founder of Flipkart, set the company’s next goal – to catapult the company into the US$100-billion valuation league.

Flipkart also plans to plough more funds into mobile technology in a bid to keep pace with growing use of smart phones among Indian consumers. Mobile users now account for about half of Flipkart’s transactions, up from less than 5 percent a year ago.

Though Flipkart, which sells everything from computers to clothes, is barely seven years old, while Amazon boasts of a 20-year track record, the former is giving stiff competition to the American marketer, leading Amazon to pursue a strategy of slashing prices, launching next-day delivery, adding new product categories and embarking on an audacious advertisement campaign. India has turned out to be Amazon’s fastest growing market.

India’s third largest online marketer, Snapdeal, has racked up US$300 million. However, it now seems like a distant third player after Flipkart and Amazon. Snapdeal’s investors include eBay, Blackrock Financial hedge funds Myriad Asset and others. However, as sourcing, retailing and warehousing costs plummet due to internet penetration, market dynamics could alter drastically over the next few months and it could be anybody’s game then, say market analysts.

India’s ecommerce market which currently comprises just 0.4 per cent of total retail sales according to the most recent estimate by the consultants Technopak, is projected to balloon to about US$32bn within the next six years, propelled by the country’s expanding smartphone technology.

Online sales of retail goods in India totaled US$1.6 billion in 2013, according to research firm Forrester, and are expected to reach US$76 billion by 2021, compared withChina's business and consumer e-commerce sales, which are poised to cross US$180 billion this year.

“A fortuitous mix of a young population and exploding internet access are attracting a medley of money, technology and companies into India while spelling a bonanza for Indian consumers hit hard by inflation,” according to New Delhi-based angel investor Rohit Aggarwal.

Be that as it may, there are worries whether the online giants will wipe out smaller players like Tradus, Infibeam and ShopClues and paving the way for a two- or three-way race between Amazon, Flipkart and Snapdeal. In a fiercely competitive e-commerce market, investor appetite to pour money into smaller horizontal players will then likely plummet substantially, analysts say.

However, experts remain optimistic of the country’s ecommerce potential.

“Fears regarding e-commerce in India are totally misplaced,” said Prakash Girotra, an investment banker and former consultant to Flipkart. “They’ve not hurt local businesses. Instead, they’ve helped many small firms, geographically restricted due to limited resources, find a nationwide market for their products.”

Besides, this is a sector which holds enormous investor interest and continues to be under penetrated, Girotra said, a reason why India’s digital commerce companies are pulling out all the stops in a bid to assert their supremacy in the country’s online retail market.

Amazon’s India head and country manager Amit Agarwal says Amazon is unfazed by competition. “We’ve always remained focused on the Indian market,” he told reporters recently, explaining that the company will continue to add more categories, investing in developing technology for the sellers, payments and mobile commerce.

Agarwal is certainly putting his money where his mouth is. Amazon invested around US$250 million as of December last year into the Indian market. Its fresh burst of investment comes despite the fact that Amazon, whose business straddles 10 countries, reported global operational losses of US$126 million in the April-June quarter. Flipkart is also yet to turn profitable. However, with the market pegged to touch US$30 billion by 2020, the stakes are high.

Amazon is also eyeing expansion of its “fulfillment centers,” large warehouses from which the company ships products to customers. From the current two centers in Mumbai and Bangalore, the e-commerce giant plans to expand to Delhi, Chennai, Jaipur, Ahmedabad and Gurgaon on the outskirts of Delhi, doubling Amazon’s Indian storage capacity to more than half a million square feet.

Amazon currently markets more than 17 million products across several categories. Of these, 300,000 are available for next-day delivery. Indicative of the company’s aggressive growth plans, Amazon is also launching a new category every 13 days.

Such ambition is hardly surprising considering the Indian market’s prospects. Apart from the consumers’ growing purchasing power, the country’s demographic of 243 million internet users is expected to explode due to enhanced smart phone penetration. This will likely lure more players to fight it out for a slice of the country’s internet shopping market. India’s e-commerce battle may have begun.

Neeta Lal is a New Delhi-based senior journalist & Editor. Email: neeta