Now, small towns fuel e-tailers Flipkart, Myntra, Jabong
One
of the reasons why India has the fifth largest retail destination
globally is the growth in consumption for a wide variety of goods and
services exhibited by a significant portion of its 1.25 billion
people living in small towns, cities and villages.
It
was this India growth story that led many big global retailers like
Walmart, Tesco and Carrefour to seriously eye an entry into this
market. That regulations governing foreign investment in Indian
retail weren’t conducive is a different matter.
Interestingly,
the recent e-commerce revolution in India, which is attracting
millions of dollars in funding, is going the same way and is being
fuelled by the so-called tier II and III cities (other than major
cities like Delhi, Mumbai, Kolkata, Chennai and Bangalore). This is
despite challenges that range from low broadband penetration (which
forms the backbone for e-commerce) to lack of adequate logistical
facilities to ensure that goods can be delivered to far-flung areas
of the country.
E-tailers
and industry experts state that while customers in these non-metro
cities have purchasing power and aspiration, lack of access to
contemporary offerings by international brands makes online shopping
an attractive option. And what lacks in terms of broadband
penetration is being compensated through the proliferation of
low-cost smartphones, mobile internet penetration, and a plethora of
shopping apps.
For
instance, Jabong.com, the online marketplace for clothes, fashion and
lifestyle accessories, is witnessing 65% of its sales coming from
tier II and III cities, according to its founder and chief executive
Arun Chandra Mohan. Jabong sold good with a gross merchandise value
of $35 million in July and sales have been growing 10-12%
month-on-month over the last six months.
While
many of the Indian brands that Jabong sells through its website and
mobile apps will be available to Indian customers in smaller cities
through physical stores, it is the introduction of international
fashion brands like River Island and Selfridges, exclusively on its
platform, that are likely to attract customers in those regions of
India that don’t have access to such high street fashion.
The
proportion of turnover coming from these tier II and III cities is
sizeable for other retailers as well. Jabong’s competitor Myntra,
which was acquired by Flipkart in May, sees 45% of its revenues
coming from these smaller Indian cities and towns, and expects the
contribution of these regions to its topline to keep growing.
“With
mobile evolution, the smaller cities will grow faster. Mobile will
transform demand from these cities,” says Myntra’s chief
executive officer Ganesh Subramanian. He also brushes aside the
popular perception that customers from smaller centres scout for only
value products that are available online at great discounts, and not
higher-end premium merchandise.
“It’s
all about the customers’ aspirations and access to products that
they didn’t have before,” says Arvind Singhal, chairman and
managing director of Technopak, a retail-focused management
consulting firm. “The same television shows and films that are used
to advertise products reach the Indians in small and large cities
alike. But earlier people in the smaller cities didn’t have access
to these products and that gap is being addressed by online retail.”
A
study by international audit and consulting firm KPMG states that the
share of online buying from tier II and III cities and rural areas
stood at 50% of overall transactions. “Industry players estimate
that as the reach of e-commerce increases, a large portion of online
shoppers (more than 60-70%) would come from beyond the top eight
metros,” the report said. “We believe that the non-metro markets
are where the new phase of growth lies for the Indian e-commerce
industry,” says Shoumyan Biswas, senior director of marketing at
Flipkart. “It would be interesting to highlight that not only
customers, even our new sellers are concentrated across the smaller
markets.”
Biswas
says that Flipkart’s product categories like books and mobile
phones (a whole host of affordable smartphones ate being launched in
India) see great traction in these smaller cities.
Nitin
Bawankule, director for e-commerce and online classifieds at Google
India, corroborates the trend of smaller towns and cities
progressively generating a greater proportion of the online traffic
towards e-commerce websites.
Since
2012, Google has been organising the Great Online Shopping Festival
(GOSF) in India through which it brings leading e-commerce players on
a common platform to provide customers the best deals available
online.
Bawankule
says that during GOSF 2012, around 70% of the online traffic came
from the tier 1 metros. In 2013, the share of traffic from tier II
and III cities rose to over 50%, and at present more than 60% of the
online traffic towards retail sites comes from the smaller centres.
By December, when GOSF 2014 would be organised, Bawankule expects
this percentage to go up even further.
Online
retailers are acutely aware that they have only managed to tap into a
fraction of the demand that exists outside the big Indian metros.
Indian retail is expected to be $520 billion at present, growing 13%
annually and on target to reach about $1 trillion by 2018. Online
retail constitutes roughly 1% of that. But this demand can only be
catered to if issues like internet connectivity and logistics are
sorted out.
“E-commerce
companies have to reject 10-15% of orders daily because they
originate from destinations where they cannot reach,” Bawankule
says. “That is one of the worst ways to lose customers.”
E-tailers
like Jabong have begun exploring tie-ups with India Post, coffee
shops, and petrol pump outlets to cover a larger number of pin codes
for service delivery in India, while Amazon may launch drone delivery
services in India.
With
inputs from Sayan Chakraborty in Bangalore
Window
to world
*
Introduction of international brands like River Island and
Selfridges, exclusively on Jabong’s platform, is likely to attract
customers from regions lacking access to high street fashion
*
The proportion of turnover coming from tier II and III cities is
sizeable for other retailers as well
*
A study by international audit and consulting firm KPMG states that
the share of online buying from tier II and III cities and rural
areas stood at 50% of overall transactions
Aveek
Datta
FE Sep 15 2014, 12:03 IST
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