At first, Kunal Bahl and his high school buddy Rohit Bansal had modest ambitions for their online shopping site, Snapdeal. Their previous venture — a physical coupon booklet into which they had sunk their combined savings — flopped in just months.
And online retail was still a largely unproven endeavour in 2010, particularly in India, a country where most people don’t have bank accounts, let alone credit cards to make purchases on the internet. When an angel investor offered $200,000 (Dh734,000) as seed money, they only took half and aimed for just 100 transactions a day.
Snapdeal is now on track to handle more than $1 billion in sales this year for over 30,000 merchants across more than 500 categories of goods and services. “We sell a sari every 12 seconds,” said Bahl.
The rise of Indian e-commerce — which has only started to gain traction in recent years — has captured the attention of international investors. This year, Snapdeal has raised $233 million, with about half coming from the US internet company eBay.
Bahl said Snapdeal is eyeing an initial public offering within the next year or two. At least half a dozen other leading Indian shopping sites have announced major fundraising deals over the past few months.
On Tuesday, Flipkart, India’s largest e-commerce firm, said that it had raised $1 billion from investors, including US firms like Tiger Global and Accel Partners. The amount represents the largest ever for an Indian internet company, and globally, it matches Facebook’s fundraising round in February 2011 and ranks only second to Uber’s $1.2 billion bonanza this June, according to Thomson Reuters.
“E-commerce in India is poised to take advantage of larger shifts in society,” said Vani Kola, now the managing director of Kalaari Capital and formerly of NEA-IndoUS Ventures, Indian-based venture capital firms that both have invested in Snapdeal. “The whole industry has begun swiftly growing and evolving.”
The investment surge reflects the changing landscape in India. Internet access has rapidly expanded, mostly through mobile devices, and Indians are now increasingly shifting daily activity online, like reading the newspaper, doing bank transactions and buying goods and services, from shoes to refrigerators (with installation included). Billboards, text messages and emails bombard people every day with news of deep online-only discounts and special offers.
Untapped market
E-commerce is currently growing at a compound annual rate of 34 per cent, according to the internet and Mobile Association of India, an industry trade group. But online shopping remains a largely untapped market.
“While estimates of the total worth of India’s online retail industry vary greatly, most analysts figure that it accounts for less than 1 per cent of the country’s $500 billion retail market, which is still mostly cash-driven. Comparatively, China’s e-commerce sales are expected to top $180 billion this year, accounting for roughly 9 per cent of the country’s retail, according to iResearch Consulting, which specializes in China’s internet industry. The country’s largest online retailer, Alibaba, is expected to go public in the coming months with an estimated value of more than $200 billion.
“There’s tremendous headroom still,” said Bahl. “I think 20 years from now, 20 per cent of retail will be online.”
Yet particularities to India’s shopping culture have impeded the industry’s growth. By and large, India remains a bastion of the neighbourhood general store, as well as the roving hawker, whose nasal cries carry the names of their wares through narrow lanes and up to the top floors of apartment buildings.
Most people tend to shop from sellers they know personally and live near, running grains of rice through their fingers and smelling the different varieties to determine their quality before, perhaps, moving to the next shop where they might closely inspect the stitch count of a new batch of shirts sold by the local ready-made clothes dealer.
These entrenched habits, combined with the newness of the internet and credit cards, have led to a trust gap between online retailers and their customers. To bridge it, the biggest names in e-commerce, including Snapdeal and Flipkart, allow customers to pay cash upon delivery for their purchases and let consumers return items at the very last second, even when the delivery person arrives at their door.
To address the widespread perception that the state’s postal service is unreliable, e-commerce players like Snapdeal, Flipkart and Jabong have developed their own delivery logistics companies. Snapdeal and others have built fulfillment centres and hired delivery workers to help ensure packages arrive in a timely fashion. The logistic network, in part, has helped Snapdeal court small business owners to its marketplace.
Momentum
“In the early days,” said Bahl, “we were calling every family and friend who we knew was running a small business or wanting to start one, and for whom nationwide distribution would be a godsend. It was quite hard to convince them, given many of them hadn’t ever used the internet themselves.”
Momentum is now on the industry’s side. Bahl said that the company barely needs to recruit merchants any more, with 80 per cent requesting to join Snapdeal. “Virality amongst small business owners is very acute,” said Bahl. “If one sees success, then word spreads really, really fast.”
Once merchants join the site, Snapdeal works with them to develop their listings and bolster sales. When Rakesh Sareen started selling his line of traditional women’s clothing made of locally sourced materials, Snapdeal, as part of its services, promoted the launch and covered the cost of a photo shoot and online catalog.
“They send out targeted newsletters, which promote our products, and their fashion category manager advises us on trends as well as updates on how certain products of mine are selling,” said Sareen.
Looming large over the industry is last year’s entrance in India of Amazon. Huge American online retailers like Amazon and eBay own marketplace platforms here, which, like Snapdeal and Flipkart, connect merchants with consumers.
But the country’s regulations prevent Amazon and other overseas players from selling directly to consumers from their own inventory as they do elsewhere. Currently, foreign investment in multi-brand retail is limited to 51 per cent.
There are hints that the system may be changing, at least in the online space. The current government is perceived as backing small business owners who fear that opening retail to foreign behemoths will put them out of business.
Global challenges
But Narendra Modi, the prime minister, recently urged the industry to embrace change at a widely televised rally during his election campaign. “There is no need to fear global challenges,” said Modi, adding, “this is the age of online marketing, so accept modern science and make use of it”.
Amazon in particular stands to benefit from any change to the existing rules. “Customer loyalty isn’t so strong yet, so it’s conceivable that Amazon would either look to buy big names here, or their expansion might just kill some of the smaller horizontals altogether,” said Nikhil Pahwa, the founder and editor of Medianama.com, which analyses India’s digital economy.
On Monday, Amazon announced that it would open five new fulfillment centers across India to bring its nationwide total to seven. In a recent email, a spokeswoman for Amazon in India affirmed that the company is in “continual dialogue” with the government and that it strongly supports “opening up this sector” to foreign direct investment.
Bahl of Snapdeal seems unfazed. “It wouldn’t affect our marketplace.”
Within the next year, he thinks Snapdeal’s network of sellers will reach 100,000, and the company plans to double their number of fulfillment centres as well as engineering employees.
As for the prospect of competition from Amazon, he thinks that small businesses will congregate on marketplace platforms like Snapdeal’s so as to collaboratively compete against the giants. “We’re the ones who are going to help small businesses compete against Amazon,” said Bahl. “We are that platform.”
