In 2016, 95 percent of transactions in India were done in cash and there were approximately 60 million online shoppers, representing about 14 percent of the nation's internet-using base, according to a late 2017 report by Morgan Stanley.
But the landscape has changed rather radically since then.
Cash is still king, but its use has fallen off by 15 percent in the 18 months since Prime Minister Narendra Modi announced a rapidly implemented demonetization plan, which saw 86 percent of the rupees in circulation disappear out of the economy nearly overnight.
These days, there are 800 million bank accounts linked to the Aadhaar, the national identity digital database, according to reports in The Economist – and those accounts are all connected to the Unified Payments Interface (UPI), which allows for easy transfers between bank accounts. By March of 2018, the system was handling around 178 million transactions, worth about $3.6 billion.
Pushed by the relative success of the UPI, digital payments platforms are expanding. Home-grown (and Alibaba-backed) Paytm has over 300 million active users, and Google's Tez has signed on 14 million since launching in September of last year. Then there is WhatsApp Pay, which already has 200 million active users on its chat platform and a nationwide mobile payments play set to launch within a few days that some experts think could be a game changer.
In short, Indian consumers are getting more digital by the day, as access to the web is expanding hand in hand with access to digital payment methods. And expectations for eCommerce are swelling accordingly.
But how to harness and tap into those great expectations profitably? The consensus is evolving, and in an interesting way.
Great Expectations and Big Buy-Ins
According to Morgan Stanley, India’s eCommerce market will be worth $200 billion by 2026, with participation from 50 percent of India’s internet user base. Euromonitor reports that online sales in India are currently growing about 35 percent a year, fueled by a rising middle class, demonetization and an increasing push toward urbanization.
Hence, the race is on – and the last six weeks saw the latest in a string of big plays in that arena, with Walmart’s $16 billion deal to acquire a majority stake in Flipkart.
But Walmart’s move is just one of many that have played out over the last several months. It’s been over a year since Amazon announced its intention to invest $5 billion in its own eCommerce efforts; the eCommerce giant has already brought its Prime video and music services to India, as well as its annual Prime Day blockbuster sale. Having been largely shut out of eCommerce in China by Alibaba, Amazon has made no secret of its intention to double down on India.
And speaking of Alibaba, they’ve also been on the move in India’s eCommerce marketplace. Apart from their stake in Paytm, in February Alibaba invested $200 million in Indian online grocery start-up bigbasket.com, while its payments affiliate, Ant Financial, poured $200 million into mobile food delivery platform Zomato.
Everyone wants into India, as it increasingly looks like the next great expansion hope on the global horizon. But profiting on the experience has proven to be a challenging task – according to recent reporting in Reuters, the battle to win the love and loyalty of the Indian online shopper has been waged with flash sales and deep discounting, particularly on apparel and electronics.
Although that strategy may be effective at bringing in customers, it can also result in losses that are largely unsustainable. Among investors' concerns about Walmart's big acquisition was whether the American retail giant could flip Flipkart to become not merely a prominent part of the Indian eCommerce landscape, but a profitable one as well.
“It’s typical of a business like this that, as you scale up, you will have losses. We expect those losses to continue for a little while,” Walmart’s chief financial officer, Brett Biggs, said in a phone interview at the time of the acquisition.
A while, perhaps, but not forever – which means eCommerce players in India are looking for ways to make those sales prevalent and profitable.
Flipkart reported a net loss of 87.71 billion Indian rupees for the year as of March 2017. Amazon’s international operating loss grew by 29 percent to $622 million in the first quarter, partly due to its expansion push in India.
And, according to analysts, private-label brands might just be the right entry point to start reversing that trend.
The Powerful Punch Private Labels Pack in India
Flipkart has been aggressively pushing its private-label goods for about a year – ever since the launch of Billion, its private brand known for selling a wide range of goods. Flipkart also has its own electronics brand, MarQ; a furniture label, Perfect Homes; and 13 different brands under its clothing portal, Myntra – which, Flipkart reports, is profitable.
The appeal for savings-motivated Indian consumers is pretty obvious. A pair of Roadster jeans – Myntra’s private denim label – starts at 389 rupees ($5.73), as opposed to a pair of Levis, which will run a shopper 1,999 rupees ($29.47).
“The fit is perfect and price is just about right. It’s a value-for-money brand,” 32-year-old government worker Lalit Bisht told Reuters shortly after purchasing a Roadster jeans and T-shirt combination from Myntra’s site. Bisht noted at that price point, the buy was a “no-brainer.”
And now, after the deal, Reuters reports that internal sources say Walmart could both expedite Flipkart’s push into private brands and help the firm build out new brands. Walmart could also provide an opportunity for Indian private-label goods to expand into global markets.
Following the deal, Flipkart co-founder Binny Bansal noted that many of the private brands it has created could be very popular with the Indian diaspora in the countries where Walmart operates. “That’s something we’ll be looking at,” he said.
And the exchange works both ways, as Walmart's fashion brands (priced between $5 and $30 on average) could have traction with Indian shoppers.
Flipkart/Walmart isn't the only firm pushing private labels – Amazon has also been expanding the global reach of its AmazonBasics brand, which includes everything from bed sheets to batteries to clothing and beyond.
“The role of private brands for us is to fill in specific need gaps that are not being serviced,” Amazon India head Amit Agarwal told Reuters in an interview last month. “We’ll keep looking for these opportunities.”
Amazon does not anticipate profitability in its Indian businesses in the near future – it could be years before any profit is realized. But Amazon Prime is growing faster in India than in any other region on Earth, according to recent reports, and Arun Sirdeshmukh, the head of its fashion business in India, noted that its current push into private brands will help it embark on an “overall long-term profitability journey."
And those efforts are also expanding: Amazon India's vice president, Manish Tiwary, told Livemint that the firm is hoping to launch new product categories in the very near future, though he would not name specific items.
“We have selection gaps in every category … our large vendors on the private labels side, we’ll keep on filling the gaps using them,” Tiwary said.
Two Amazon executives, who spoke with Livemint anonymously, said the new categories could include large and small appliances.
One supplier told Reuters that on average, retailers sell the shoes he makes for three or four times the factory cost – meaning that players like Flipkart and Amazon have a fair amount of room to sell cheaply, but profitably, with their own brands.
But, of course, it seems likely that the biggest brands in the world will not be willing to go down to the likes of Amazon and Flipkart without a fight, as those big global brands want a shot at the emerging $200 billion Indian eCommerce marketplace as well.
Nestle, for example, in partnership with General Mills, has just announced its plans to push a greater variety of lower-cost breakfast cereals in the nation.
Samsung, stung by low-cost competition from China's private-label efforts, last week launched four new Galaxy smartphones designed specifically for the Indian market, priced between $140 and $200. And the electronics company has since announced its plans to double its phone production in India, partially so it can manufacture more phones specific to the market.
And it seems more brands will be poised to follow, particularly as the already heating up competition actually starts boiling.
We’ll keep you posted on how many more competitors decide they want to get into the pot.