Heady year for e-commerce

The year 2014 was perhaps the most eventful year – and a heady one -- for the decade old Indian e-commerce industry. The sector saw some milestone achievements, including the ₹2800-crore acquisition of fashion portal Myntra by Flipkart, a whopping $1 billion raised by Flipkart and a similar billion dollar investment by global giant Amazon.com.

There was plenty of media buzz with global investors and entrepreneurs such as Mayoshi Son, Jack Ma, Jeff Bezos and Ratan Tata investing and betting big on the Indian online market.

From radio to television, the online market dominated each and every marketing medium this year surpassing even the FMCG sector, till now the biggest ad spender.

But it had its pitfalls too. Flipkart fumbled on its big billion sale day with technical glitches marring the show and was at the receiving end of a social media backlash.

Another leading portal, Snapdeal, faced the wrath of online consumers for delivering a brick to a customer instead of a smartphone.

Apart from such logistical issues, the major problems for the industry were unclear regulations and laws.

Market experts, industry players and investors feel that the growth in the sector was fantastic with awareness of online shopping growing exponentially. They expect the government to get pro-active and understand the needs of the technology-driven consumer sector and come up with rules and regulations for the sector in 2015.

Swati Bhargava, founder of Cashkaro.com ,said that the coming year would see an easing of Foreign Direct Investment rules, clearer guidelines on taxation, stringent cyber laws and the Consumer Protection Act being extended to cover online transactions.

“These things will bring in more credibility and help build trust among consumers that will finally boost the growth of the sector,” she added.

There are several issues related to sales tax laws that have cropped up in Uttar Pradesh, Kerala, Karnataka, West Bengal and a few north-eastern States causing uncertainty in the e-commerce ecosystem.

According to Harish HV, partner at Grant Thornton, “These things take time and are usually prompted by some incident or the other and as a reaction to it (Amazon, for instance, in Karnataka) the lawmakers try to formulate laws for that. There are several grey areas in relation to e-commerce, particularly with respect to VAT.”

Besides, the proposed Goods and Services Tax (GST) law is expected to be implemented in the coming year. “GST will create a single, unified Indian market to make the economy stronger,” says Sanjay Sethi, founder of ShopClues.com .

According to Gartner, the $3.5-billion e-tailing industry reported a 33 per cent growth rate and players feel that with transparent and well-defined laws coupled with large-scale global investments and entry of bigger players, the sector is set to double its growth in 2015.

The Internet and Mobile Association of India (IAMAI) has already formed a Digital Commerce Committee, with leading e-commerce companies of India as members.

It is talking about amending the Consumer Protection Act, 1986. According to Anupam Mittal, founder of Shaadi.com , “There is way too much left to interpretation with different people in different agencies and government departments interpreting the law as they deem fit. The Modi government must affect a cultural change so that entrepreneurship is celebrated and not viewed negatively, which is a licence raj hangover.”

The lack of clarity or existence of these rules and regulations did not hamper the growth of the industry in 2014, but it will surely become a stumbling block over the next few years, feels Ashish Jhalani, founder of e-Tailing India, which is working on extending its platform to become the unified voice of the e-commerce sector.

According to e-Tailing India, the online industry saw unprecedented growth to reach almost $12 billion this year with online retail contributing close to $3.5 billion. This is expected to surpass the $100-billion mark by 2021 with growing usage of smartphones and mobile Internet penetration. Mobile e-commerce is going to be the next big thing, feel experts. For Flipkart, the surge in the number of people shopping on mobile across India has been dramatic with the majority of traffic coming from tier-II and -III cities.

“Most of our first time customers visited us only through the mobile medium. For instance, one out of every two visits to our platform has been through our app,” said a Flipkart spokesperson.

Players feel that technology will continue to be one of the key driving forces in Indian e-commerce and significantly contribute towards improving the customer experience, strengthening supply-chain network and redefining the retail set-up for the domestic market. Increasing automation, personalisation and effective use of intelligence at scale is how the industry players see this space panning out in the coming year.

Players and investors are also bullish about funding next year that will significantly contribute towards the development of the online ecosystem thus putting India on the global map.

Investors will now look more closely to identify key USPs of e-commerce sites that will enable them to beat the existing leaders.

However, 2015 will see more investment flowing to vertical players such as Urbanladder, Bluestone and Zivame that specialise in one single category. Investors are expected to show interest in furniture/home furnishings, grocery, and baby care.

E-commerce enablers like logistics providers, payment enablers, are also expected to gain investors’ attention.

Though the sector witnessed the largest acquisition, so far, with the Myntra buy followed by a few small ticket deals in 2014, the coming year is not likely to witness much of consolidation.

The key, however, will be the ‘differentiator’ between the players. While niche and specialty players will attract acquisition by the bigger ones, players sharing common investors will increasingly look at mergers and acquisitions amongst themselves.