Flipkart’s E-retail Success in India

According to retail consultant Technopak Advisors, India’s online market is projected to grow to $70 billion by the year 2020.  Another researcher pegged the e-commerce market in the country to grow 50% this year from $1.2 billion in 2012 to $1.8 billion. The industry is prompting international giants like Amazon and eBay to experiment with their offerings in the market. As the Indian government still struggles to finalize the norms for foreign investment in retail, domestic players are making big strides in the market.

Flipkart’s Offerings
Bangalore-based Flipkart was founded in 2007 by engineers Sachin Bansal and Binny Bansal. Both founders had worked together at Amazon in India and were intrigued by the idea of building great technologies for the Indian market. The idea led to the development of India’s leading e-commerce site, Flipkart. You can read my interview with Bansal here.

Flipkart began by selling books online. Today the company has a large online market of products across more than 17 retail categories from leading brands. The goal is competitive prices and a hassle-free shopping experience. Tailored with the Indian consumer in mind, the site offers features such as free home delivery for some products, a 30-day replacement policy and additional payment options besides credit cards. Buyers can choose to pay cash on delivery, use their debit cards, or use net banking accounts for payment processing and also decide to pay through interest-free EMI options.

Flipkart’s flexibility has helped it to add nearly 10 million registered users out of the 50 million active Internet users in the country. An estimated 100,000 unique visitors access the site daily to buy products from more than 500 sellers on the platform. They are now the largest online book seller in India with more than 80% market share.

Flipkart’s Financials
Flipkart does not disclose its financials, but analysts estimate it earned $83 million in revenues for the year ended March 2012. However, it is still suffering losses and ended last year with a loss of an estimated $12 million.

The company is largely venture funded and has raised $380 million to date from investors that include Tiger Global Management, Naspers, Accel Partners, Iconiq Capital. Earlier in July, it raised $200 million from existing investors, its biggest round of funding so far, at a valuation of $1.5 billion. The company plans to use these funds to invest in technology, build its supply chain and add to its talent base.

Flipkart’s Digital Expansion
Last year, Flipkart ventured into the digital media segment to diversify from pure retail sales. It launched their digital music store, Flyte, which allows users to legally download music albums from the site at a charge. The service enabled users to download a purchased song on as many as four devices. But, earlier this month, Flyte was shut down. The digital media download market is nascent in India, and it failed to attract the buying volume that Flipkart was hoping for. In India, not only is digital piracy a big concern, but most users also prefer to listen to music for free on several other music apps that are available.

Flipkart also did not have very lucrative arrangements with record labels: It paid labels an aggregate minimum guarantee of $1 million, a number it was not able to sustain at the very low download rates. Flipkart will have to wait for the Indian market to mature to make this space more lucrative. Most importantly, it will need to wait for piracy to be checked, and the legal system to become enforceable. Otherwise, the digital media business is India is simply not worth anybody’s time.

In recent months, there has been plenty of interest from e-retail giants Amazon and eBay to enter India. Amazon entered the country in a limited way through Junglee.com. Visitors on Junglee.com can find and discover products from both online and offline retailers in India and from Amazon.com. eBay also has a portal dedicated to Indian sellers and buyers. But most players are taking their time making a full-fledged entry into India. At present the government micromanages the complicated process of investing, making foreign investors delay their plans. Flipkart is thus not worried about foreign investment in the country for the time being.

Conclusion

Relatively speaking, Indian e-commerce has grown at a slow pace. Compared to India’s 2013 forecast of $1.8 billion, the Chinese market will be $300 billion, surpassing the US as the world’s largest e-commerce market. Many factors stand of the way of India’s online shopping adoption. For one thing, Indian consumers do not like to pay with credit cards for merchandise they shop for online. Remember 1993 America? Consumers were slowly getting comfortable with putting in their credit cards on online shopping sites. India’s situation is not so different from the 1993-95 America. Whereas China has made a gigantic, concerted leap into the 21st century, India is still muddling along with a low-trust society that prevents high velocity business growth, a terrible infrastructure with poor logistics and supply chain capabilities, and an overall lack of reforms that can accelerate growth.

While the current policy malaise in the retail sector works in Flipkart’s favor, giving them a strong competitive position, I happen to be of the opinion that if major foreign retailers were allowed to come and do business in India, they would make solid investments in improving the logistics, supply chain, as well as increase the overall TAM for e-commerce.

Ultimately, Flipkart and other Indian retailers would benefit tremendously if India’s consumers got more used to buying products online, without the need for sand in the gear like cash-on-delivery, having to build their own delivery service, etc. If, for example, hundred of e-commerce businesses were doing billions of dollars of business, strong logistics companies would also get built with robust financing and growth.

And finally, Internet adoption itself has been slow. China’s Internet population has surged to 564 million (75% on mobile). India is at less than 1/10th the number. The e-commerce number can only grow fast if the internet penetration grows sufficiently fast.

Flipkart’s success is wonderful to see.

India’s leaves much to be desired.