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Online commerce will compliment physical retail stores

New Delhi: Does a new paradigm of digital consumerism in India, which has a market share of $15 billion today, spell doom for the brick and mortar retail shops? Realignment in industry, yes, but physical
IANS August 10, 2014 23:49 IST
New Delhi: Does a new paradigm of digital consumerism in India, which has a market share of $15 billion today, spell doom for the brick and mortar retail shops? Realignment in industry, yes, but physical retail stores are here to stay, experts feel.

"Extremes will not happen. It won't happen like one channel will take away the share of the other channel completely," said Ashvin Vellody, partner, management consulting with KPMG, comparing the physical and e-retail formats serving a similar market segment.

"There may come some tweaking and changes to the existing system. But at a macro level, these changes will only be substantial for a few segments," Ashvin told IANS. "There will be some re-alignment, but shops will not be obliterated completely."

Vellody said there were two aspects to e-retailing -- consumer choice and convenience. "These are the two very important drivers in a relatively free market economy."

Analysts IANS spoke to said the e-commerce industry, thanks to some 243 million internet users in India, is worth $15 billion today. Logging a 30 percent year-on-year growth, it is expected to touch $100 billion in five years, with new players and consolidation.

Also, the e-commerce market in the country has proliferated mainly in books, gadgets of various kinds, electronics and apparel. There are also new entrants in new segments --like real estate companies trying to sell houses online.

"There has been some effect of e-commerce on the physical retail industry," said Nasir Jamal, secretary general of the e-Commerce Association of India, that has around 300 members in this industry segment and related space.

"But in many cases, e-commerce is also complementing the retail industry by allowing it to have access to more customers beyond the boundaries of their shops," Jamal told IANS.

Industry veteran Ratan Tata, chairman emeritus of Tata Sons, which was among the early movers in the e-commerce space, recently said he saw "good potential" in this area and was personally looking at investing in online retailing.

Even Reliance Retail, the retail chain of Reliance Industries, is planning to go online and so is the Aditya Vikram Birla Group which is in the midst of identifying opportunities in e-commerce.

"A model will evolve and I don't think brick and mortar stores will go away in a hurry. You need some kind of a physical structure," said Rachna Nath, head of retail space, in PriceWaterhouseCoopers India.

"There are a few industries like mobile, apparel and books that got impacted by the e-commerce business. Book stores also changed their merchandise categories after they started selling big-time via online sites," Nath told IANS.

Recently, Flipkart, India's largest e-tailer, got a $1 billion funding, which took its valuation to a whopping $7 billion - a news that made global headlines. Soon after, the US-based Amazon said it was investing $2 billion in India's e-commerce space.

All these are bound to have an effect, giving e-commerce a larger share of the consumer goods market. According to a joint report of KPMG and Internet and Mobile Association of India, e-commerce industry is expected to contribute four percent to the GDP by 2020.

The report also said favourable regulatory environment will be the key to unleash the potential of e-commerce, even as the implementation and roll-out of goods and services tax would simplify the tax and jurisdictional laws for e-commerce.

This apart, an inventory based consumer e-Commerce model, where e-retailers also stock merchandise and enter into exclusive tie-ups for distribution, is estimated to create some one million direct and another 0.5 million indirect jobs by 2020.

There are also demands to allow foreign direct investment in inventory-based e-commerce. But the government is not yet taking a call on this. Once that happens, analysts like Nath believe it will bring more capital and improve e-tailing infrastructure.

Again, this will prove good news for the overall growth of India's trade industry, the fifth largest globally, forecast to grow from $490 billion now to $790 billion by 2017. The verdict: The two formats in question, physical stores or e-tailing, will co-exist.