Online sales are growing at an unprecedent rate (113% from 2014 to 2015) making India one of the most promising emerging markets. Forecasted to be the fifth largest consumer market by 2025, India presents many opportunities for brands and retailers. However, entering this market can be challenging when it comes to regulations, fulfilment and payment methods.
To find out more about how brand and retailers can maximise their chances of success when expanding into India, we spoke to Shailesh Solkar, Head of Merchandising and Supply Chain at Trent Ltd, one of India's largest and fastest growing chains of retail stores, part of the Tata Group.
eCommerce is growing at an unprecedented rate in India. What do you think is driving this trend?
Four key elements are driving the exponential eCommerce growth in India.
- The Indian government is very proactive and focussed on growing the eCommerce space, and its initiatives are gaining momentum through various campaigns and programmes such as Digital India, Make in India, Skill India.
- Increased Internet penetration – there have been major improvements in infrastructure. With new 3G and 4G networks in place, it is now reasonably fast for people to shop online
- Tremendous growth in smartphone usage – mobile accounts for 70-75% of online traffic in India. Mobile sales are growing at a 41% rate in India. It’s very cost effective nowadays
- Evolution of new payment methods – Cash On Delivery (COD) remains the most popular form of payment, but new payment solutions such as Paytm and mobile wallet are increasingly used making online payment processing very simple and accessible.
It is also important to note that the eCommerce landscape in India is owned by four major players– Flipkart, Amazon, Snapdeal and Paytm, which are all marketplaces. They follow an aggressive discounting model, which allows them to generate big volumes and partly explains why online sales numbers are growing so fast.
Are there certain categories in which consumers prefer to purchase online?
Electronics is very popular and within that category mobile devices in particular. Fashion has been growing in popularity in the last two seasons. Online fashion players are very competitive. Jabong.com, owned by Global Fashion Group (founded by Zalando for its operations in emerging markets) brought international fashion brands to India and offer last season collections at a discounted price.
What payment methods should retailers consider in India?
Cash on delivery is the most popular method in India and has also contributed to the growth of eCommerce. Around 50% of payments are still in cash. Indian consumers like to try a product before buying it. If they don’t like it, they can return it straight away without having to wait for a refund. It’s a very customer-centric approach. Card-swipe on delivery is becoming more and more common. Both of these methods are complex to manage, especially in terms of logistics. Telecom-operated mobile wallet is also slowly gaining traction, as it’s easy to use and practical, and is led by the increasing use of mobile internet.
What do Indian consumers expect when it comes to delivery?
Delivery is usually free, and takes between 7 to 10 days, although most retailers will deliver within 4 to 7 days. Some shoppers will be ready to pay up to 100 rupee (£1) for a 24-hour delivery, if the product is exclusive and they really want it. But most customers (90-95%) will expect a free delivery and won’t mind the wait.
Retailers usually own their own logistics companies and are able to deliver across the whole country even to the most remote villages (it will take up to 10 days to deliver to tier-three cities).
Third-party logistics service providers, like Blue Dart Logistics, are starting to enter the eCommerce space in order to provide adapted last-mile deliveries. Some are partnering with existing infrastructure in tier-two and tier-three cities, such as India Post, to facilitate deliveries in those areas.
Are many foreign-owned retailers entering the market?
Most international retailers enter the Indian market through physical stores and then via one or several marketplaces. It is important to note that international multi-brand retailers are not allowed to engage in an eCommerce activity directly though, unless they have a local partner, either under a franchising arrangement or a joint-venture. Without a partner, they will only be allowed an online presence for marketing purpose (no transactional site). This is part of the Foreign Direct Investment (FDI)* regulation, implemented to protect local small businesses.
Given the popularity of mCommerce, do international retailers need to have a mobile app to succeed?
Yes, mobile apps are extremely popular. Most of online sales are made through a mobile app, with the most popular being Amazon and FlipKart. Almost everyone in India will have these two apps on their Smartphone.
What would you say is the attitude towards international retailers?
International retailers are very popular with young people.. European brands in particular are very popular, especially the brands that enter the market through the Indian Zalando, Jabong.com. If a brand is popular in Europe, it will likely be popular in India too.
Bear in mind that a large part of the Indian population is cost conscious. They will favour price over the latest fashion. Primark is a retail model that would do well in India.
What would you say is the biggest mistake that foreign-owned retailers make when expanding into India?
The market is very different to Europe. You can’t enter India like you would a European market. You need to hire a consulting company to understand the market, its trading regulations and its consumer’s expectations on price, payments and delivery.
Do you have an example of a retailer who has done well and one who has not?
Retailers who have done well are Shoperstop, Lifestyle, Zara and H&M. Max is also doing very well, and so is FBB. International brands on TataCliQ and on marketplaces in general are doing well.
What would be your #1 piece of advice for British retailers wanting to expand into India?
Having the right partners to understand the market well is essential. The market is growing and changing very fast and if you go the wrong route you’ll be off on a false start. Location, when opening a physical store, is very important. Again, the right partner will be able to indicate the right location.
Indian shoppers are extremely price conscious. You will need to offer promotions and discounts to attract them. However, this needs to be a carefully considered strategy.
For more advice on planning your international strategy, download our 10-step guide to building an operational plan.
*FDI policy – a controlling ownership in a business enterprise in one country by an entity based in another country