The Hindu Business Line : What the mouse brought home

BANGALOREANS would not like this, but K. Vaitheeswaran, Chief Operating Officer (COO) of Fabmall.com, confesses that he loves the congested, pot-holed roads of the city.

"The more people stay indoors, the better it is for online trade," Vaitheeswaran said at the recently held Digital Summit 2006 in Mumbai. People would rather shop online than negotiate the terrible roads in Bangalore, was the logic behind the banter. But pot-holed roads or not, more and more Indians are finding online shopping a great convenience. They are buying airline and railway tickets, books, home appliances, electronic gadgets, movie tickets and more stuff by logging on to a Web site, than driving up to a store.

From a tentative beginning in the 1999-2000 period when all sorts of dotcoms selling all sorts of stuff — perhaps you could even buy peanuts online — sprouted and perished, e-commerce in India has come a long way.

It may be too early to do a comparison with the e-commerce scenes in countries such as the US where billions of dollars are spent online. But the business here is growing exponentially every year, albeit from a smaller base, and total revenues have now reached a respectful size, according to statistics provided by the Internet and Mobile Association of India (IAMAI).

IAMAI, a non-profit organisation founded in January 2004 by leading Indian Internet portals, projects that e-commerce revenues in the country will reach Rs 2,300 crore in the 2006-07 financial year, growing at 95 per cent over this year. This pertains to the business-to-consumer (B2C) segment.

The rapid growth of online shopping in the country is obvious when one looks at the tables accompanying the story. Over the next two years, the estimated year-on-year average growth is expected to be 95-100 per cent, the IAMAI forecasts. The number of Indians who are online will also surge to 100 million by 2007-08, from the present 38.5 million.

Drivers of growth

"Business started picking up from 2004 onwards," Vaitheeswaran says. Prior to that, e-commerce in the country was plagued by issues such as poor Internet penetration, slow speed of connectivity, security issues and fear of using a credit card online. Then in the dotcom meltdown, numerous online shops burst, leaving only a handful of players in the business. But over the last two years, those who tenaciously clung on to their beliefs and business plans have seen their fortunes brighten up.

One of the biggest drivers of growth for e-commerce has come, surprisingly, from the Government. A series of initiatives from the government side, such as public sector banks and Indian Railways embracing the Net, has helped boost the confidence of users to trade online.

Banks such as State Bank of India encouraged subscribers to log on and transact online, bringing a large number of new users online. The online ticket sales of Indian Railways proved to be such a big hit that today it is one of the largest players in Indian e-business.

"These moves removed a lot of concerns in the minds of people about online transactions," Vaitheeswaran acknowledges. A number of state governments also launched a host of services on the Net, allowing people to do transactions and electronic payments.

It was these initiatives by the Government, rather than legalising electronic signatures and bringing about cyber laws, that helped e-commerce in the country.

The proliferation of broadband Internet connections is another factor that helped e-commerce. Broadband not only provided a better experience online, but it also significantly reduced `dropped transactions,' thereby enthusing more users to buy on the Internet, says Preeti Desai, President of IAMAI.

The cost of computers coming down drastically, as well as falling rates for connectivity, also helped. Today, more people spend more time hanging out at cyber malls. Chances are that many among them will end up buying something.

"The shopping basket is continuing to diversify, and coupled with more offline players now value adding with an e-commerce offering, this will only further boost the growth of e-commerce in India," she says. The take-off of online stock trading is another catalyst for online shopping.

The arrival of global players such as eBay, MSN and Yahoo, and consolidation in the Indian B2C space, have also boosted buyer confidence. Prominent Indian portals such as Rediff and Indiatimes are aggressively pushing their online shopping business, even as they focus on content. Soon, existing brick-and-mortal shopping malls too could come up with their online presence, just like their counterparts in the US did.

Basketful of travel

Interestingly, a lot of Indians are spending time on the Net before they embark upon their journeys. IAMAI statistics reveal that airline and railway tickets constitute a bulky 57 per cent of the total value of online shopping revenues during 2005-06. Electronic gadgets (10.10 per cent) and home appliances (5.10) are the other two major items we buy online. Gifts, movies, apparels and jewellery are the other prominent items in the shopping list.

"The most popular items on Fabmall are books, electronics and jewellery. Apparels are now picking up," Vaitheeswaran says. Although the patterns of online shopping in India are quite similar to that in the US, a major difference is the rate of use of credit card.

"Credit card purchase is very high in the US, but here it is not so. We still use cheques and other modes of payment," he points out.

Pan-Indian phenomenon

And all those purchases are not happening in the metros alone. Nor are those buying online yuppies. True to the spirit of the Internet, online shopping is happening everywhere in India.

"During 1999-2001, online sales happened more in metros and to high-income people. But now, more sales is happening to smaller cities," Vaitheeswaran says. So if the top six cities accounted for 60-70 per cent of Fabmall's business in 2001, today their share has shrunk to just 20 per cent. Smaller towns contribute the rest of Fabmall's sales, which is expected to be about Rs 20 crore in the current fiscal, up from Rs 11-12 crore in the previous year.

IAMAI surveys reveal that cities such as Surat, Vadodara, Coimbatore, Nasik, Varanasi, Ludhiana, Patna, Jamshedpur, Agra, Bikaner, Srinagar, Jalandhar, Ludhiana, Faridabad, Belgaum, Kottur, Kochi, Kottayam, Hosur, Pondicherry, Kharagpur, Ankleshwar, Bharuch, Vapi, Jalgaon, Sholapur, and Bhopal are witnessing an increase in online shopping activities.

For instance, Lucknow has jumped to the fourth position among places that buy beauty products online. It also ranks fifth for sports goods, sixth for gifts, hotel tools and toys and seventh for books, electronic gadgets, apparels, etc.

Jaipur has moved to the eighth position for books, music, home tools and movie tickets, while Nasik has entered the list in apparel gift certificate and sporting goods.

Tiruchi has also started buying online health and fitness products, as it is the top eighth city in this category. "This highlights a dismissal of the norm that e-commerce shoppers originate from metro and urban cities," Preeti says.

As for business volumes, Mumbai is the hot spot for e-business with a 24 per cent share in India's e-commerce. Delhi-National Capital Region (NCR) with a 19 per cent share comes second. Chennai (7 per cent), Bangalore (6 per cent) and Hyderabad (4 per cent) are the other cities where significant amounts of online buying are happening, according to IAMAI.

The association also says that a great deal of online shopping has been happening at cyber cafes, which bring even those who don't have a PC at home into the ambit of cyber shopping. A survey by IAMAI found that over 47 per cent of cyber café visitors have shopped online more than once in the last six months. Thirty one per cent of the people in Maharashtra, 16 per cent in Tamil Nadu and 11 per cent in Delhi were using cyber cafes as shopping points while 1 per cent each from Bihar and Punjab were using the kiosks, the survey shows.

India is expected to be one among the top three Internet markets in the world in five years, says Vaitheeswaran. But in order to make it to that league, a great deal of work needs to be done. "Today we are at a stage where the US was 10 years ago," he says.

At that point of time, the US made all transactions on the Internet tax-free. However, in India, Internet transactions often attract a double tax, he says. This is because inter-state transactions attract a central sales tax, in addition to the value added tax an online retailer has to pay while sourcing products. "We are selling products at a loss when we do inter-State transactions," he says.

Issues relating to logistics also weigh heavily on the minds of potential buyers. Any delays in shipping or damages to the products mean that the buyer is unlikely to return.

Online retailers are trying out different ways to avoid these issues, although a permanent solution would be having one's own warehouses to stock products.

However, the present cost structure does not allow many players to resort to this measure.

Apart from this, portals will have to offer discounted prices, greater integration with content and instant product reviews and user experiences to lure more buyers.

Meeting customer expectations online is a tougher task than doing it offline, since checking out another shop is just a click away for the user.

vipin@thehindu.co.in

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