E-retailing may log in 2.5 times growth in three years : The Tribune India

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E-retailing may log in 2.5 times growth in three years

MUMBAI: The booming e-retail market is likely to surge over twofold over the next three years, as players will be forced to shift their focus from discounts to consolidation, geographical diversification, business realignment and enhancing customer stickiness, says a report.



Mumbai, February 19

The booming e-retail market is likely to surge over twofold over the next three years, as players will be forced to shift their focus from discounts to consolidation, geographical diversification, business realignment and enhancing customer stickiness, says a report.

According to Crisil, going by the 2016-17 data, the e-retail market represents about 1.5 per cent (Rs 70,000 crore) of the overall Rs 49 trillion retail sector in the country, indicating enormous growth potential.

The online shopping segment has trebled over the past three fiscal years on rising Internet penetration, awareness of online shopping as well as lucrative deals and discounts.

“E-retail market size is expected to surge 250 per cent in the next three years,” the report said without quantifying the industry size by that time.

“After the initial phase where e-retailers focused only on gaining market share through discounts, the next phase will be characterised by consolidation, geographical diversification, business realignment, as well as enhancing customer stickiness,” it added.

Interestingly, the report noted that “a frenzied search for unicorns in the past couple of years ended badly for many investors, who saw their equity wiped out” and resulted in about 26 prominent start-ups shutting shops in the past two years.

Crisil’s analysis of 11 major e-retail firms showed that almost 45 per cent of the over Rs 40,000 crore invested between FY14 and FY16 was wiped off due to losses at e-retailers.

“Chastened investors are now putting money into just a handful of players that are showing sustainability and enjoy a major market share,” the report said.

“While overall funding increased by over Rs 25,000 crore in the first nine months of the current fiscal year over the previous year, the number of players funded came down 30 per cent, underscoring the caution and sharper focus after the losses,” it added.

Crisil study on 30 companies found that funding for the top three players had increased from 40-45 per cent of overall investments in FY14 to 76-81 per cent in the first nine months of the current fiscal.

“The trend indicates cautious and focused investing by investors with an eye on profitability,” the report said.

“The industry is now 8-10 years old and is moving from the startup phase to more consolidated phase. Going forward, funding will only get more concentrated with big-ticket players getting the bulk of the pie. Niche players will get funding, but in bits and pieces,” it added.

Crisil also found that the e-grocery, which has lately seen an uptick in the number of players and investor interest, is likely to be the next big online segment after apparel, mobile phones.

Online grocery is to be the fastest growing segment with an average growth rate at 65-70 per cent between fiscals 2017 and 2020, while the revenues may quadruple over the next three years to Rs 100 billion.

The growth in the segment would be driven by investments in technology, new strategies adopted by players such as introducing private labels, same day and next day delivery as well as B2B food services.

“In the overall food retail industry, the penetration of online food and grocery stands at a miniscule 0.1 per cent, indicating significant growth potential,” the report said.

Investments in the high-volume, low-margin segment rose over seven times in the first nine months of FY18 to Rs 20 billion, as niche players like BigBasket and Grofers were forced to fight with biggies like Amazon and Flipkart, apart from brick-n-mortar players like D-Mart, and Reliance Retail sharpening focus.

Meanwhile, noting that online customer base remains largely concentrated in major cities, the report said faster growth would slow down in these regions as it is already highly penetrated and players would need to move into small towns to sustain growth. PTI

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