Big Billions

Big Billion Days’, screamed full page newspaper advertisements of India’s number one e-tailer Flipkart in October. ‘India’s Greatest Sale’ was even louder by Amazon India. Snapdeal was appealing to festival sentiments ‘Diwali Dil Ki Deal Wali’ and so the e-tail charade continues. There is no stopping the juggernaut of online shopping.

The just concluded five-day ‘Big Billion Days’ sale of Flipkart saw a business turnover of over $300 million in gross merchandise volume (GMV). In terms of categories, the fashion segment churned out the largest volume while in terms of value, the mobile category raked in close to $200 million GMV. Snapdeal in a statement said that “The trends indicate a 10x growth in orders, 17x rise in sales with 5x growth in customers who shopped in today’s (October 13) sale.”

The online sales figures are phenomenal. The GMV of ecommerce platforms in 2014-15 was estimated at $10.5 billion, according to KPMG. According to industry estimates, e-tailers will spend 2,000 crore on marketing and promotional schemes this year to lure consumers during the festive season.

Big Wave in E-Commerce

In the last couple of years, almost every other day, e-tailers have been aggressively advertising on television and print medium with one sale or the other. Thanks to e-commerce, the others laughing their way to the banks indeed are the logistics players, airlines and not to forget the television and print media. The big wave of e-commerce is just about making its moves. And this is mostly metro-centric movement and one can imagine when other cities also come into play in this online tidal wave.

The e-tailers have started perfecting their business models, having gone many hiccups of server breakdown; last-mile delivery issues; tying up with multi-modal transportation systems, etc. These are still early days. But one can say, it is still early days and both the e-tailer and the end-customer are coming to terms with the new trend of shopping. In all this, the air cargo sector, among other multi-modal transportation, is benefiting. When e-tailers guarantee ‘one-day delivery’ then air cargo certainly is the driver. Domestic air cargo has started soaring on e-commerce wings and several of the airlines have started talking to e-commerce companies.

Domestic Air Cargo Growth

The e-commerce wave is becoming bigger and bigger. It is boosting India’s domestic air cargo traffic since May 2014, growing at an unprecedented 21 to 25 per cent in six of the past 14 months, with double-digit growth in virtually every month. Airports in Bengaluru, Hyderabad and New Delhi which are home to some of the major warehousing hubs of the big e-commerce players, have started investing in expansion. Amazon has a huge warehouse in Kothur in Telangana, spread over 2,80,000 square feet, 20-odd km from the Rajiv Gandhi International Airport, Hyderabad. In September Amazon announced that it has invested in seven new Fulfilment Centres (FCs) to meet the growing needs of its fast-growing seller base in the country. The new FCs are in Ahmedabad, Delhi, Kolkata, Nagpur, Gurgaon, Pune and Mumbai. With the launch of these new FCs, Amazon now has 20 FCs operational across 10 states in India covering a total area of over 1.6 million square feet with a storage capacity of nearly four million cubic feet.

Thanks to this shopping trend, airlines have started looking at this sector. SpiceJet has initiated talks with several of the e-commerce firms for tie-ups, while Jet Airways has been contemplating having dedicated freighter planes. India’s largest express and courier company, Blue Dart has now Sunday deliveries and logistics player Gati is eyeing additional cargo space in bellies of passenger aircraft. Gati expects e-commerce business to account for 30 per cent of its air freight traffic this year. In fact, Gati has strengthened its manpower and has over a 1,000-strong team dedicated to e-commerce business and it has secured cargo space on 32 airline routes. India’s largest low-cost carrier IndiGo reported that in the first nine months of 2014-15, it had cargo revenue of nearly $72 million, compared with $74 million for the entire 2013-14. Jet Airways cargo income grew at 6 per cent touching $213 million in 2014-15. However, air cargo as a proportion of India’s total freight and aviation business is still low and the country’s overall spend on logistics and transportation is said to be 14.4 per cent of its GDP.

Freight Transport Market to Touch $300 Billion

Overall the Indian freight transport market is forecast to touch $308 billion by 2020, growing at 13.35 CAGR (compounded annual growth rate) by 2020 driven by manufacturing, retail, FMCG and e-commerce sectors.

Digital India to Push Trade

Of the total freight movement, road constitutes about 63 per cent, rail freight about 27 per cent, sea freight about 9 per cent and air freight is just 1 per cent and Novonous Report estimates that Indian air freight market will grow at an impressive rate of around 12.5 per cent CAGR over the next five years, addressing needs of the manufacturing, FMCG and e-commerce sectors. Helping the e-commerce sector grow has been the revolution in smartphone technology, 3G and 4G connectivity are making things happen at a faster pace. Though there are still wide gaps in Internet penetration in urban areas itself, there is hope in the light of the vision of the Prime Minister to transform India into a ‘Digital India’ project which will positively impact all walks of life.

Sandeep Ladda Leader, Technology Sector Practice, PwC India, in a foreword to a report by PwC has said that the ‘Digital India’ programme will give a strong boost to the e-commerce market as bringing the internet and broadband to remote corners of the country will give rise to an increase in trade and efficient warehousing and will also present a potentially huge market for goods to be sold. For India Post, the government is keen to develop its distribution channel and other e-commerce related services as a major revenue model going ahead, especially when India Post transacted business worth $42 million in the cash-on-delivery (CoD) segment for firms such as Flipkart, Snapdeal and Amazon. Both these projects will have significant impact on increasing the reach of e-commerce players to generally non-serviceable areas, thereby boosting growth. India’s overall retail opportunity is substantial, and coupled with a demographic dividend (young population, rising standards of living and upwardly mobile middle class) and rising internet penetration, strong growth in e-commerce is expected.

Around 75 per cent of Indian Internet users are in the age group of 15 to 34 years. This category-shops more than the remaining population. Peer pressure, rising aspirations with career growth, fashion and trends encourage this segment to shop more than any other category and India, therefore, clearly enjoys a demographic dividend that favours the growth of e-commerce. By 2020, e-tail in India is expected to account for 3 per cent of total retail. Further, orders per million are expected to more than double from five million in 2013 to 12 million by 2016, which will mean more opportunities for both consumers and e-tail companies. And, of course, the logistics sector will be up there.

India’s Internet Penetration Long Way To Go

According to Ecommerce Europe, country-wise, the US, UK and China together accounted for 57 per cent of the world’s total B2C e-commerce sales in 2013, with China having total sales of $328.4 billion. As against this, India had sales of only $10.7 billion, 3.3 per cent of that of China in 2013 with fifth position in Asia-Pacific. This is despite the fact that India enjoys high demographic dividends just like China. India’s Internet penetration with total e-households at 46 million against China’s 207 million is one of the reasons behind India’s poor B2C sales growth.

A report by Forrester Research states that only 16 per cent of India’s total population was online in 2013 and of the online users only 14 per cent or 28 million were online buyers. India, therefore, is still in a nascent stage of evolution of online retail spending. China is in ascending stage at 50 per cent, whereas Japan (69 per cent), Australia (57 per cent) and South Korea (70 per cent) are in mature stage. Since the e-commerce industry is fast rising, changes can be seen over a year. The sector in India has grown by 34 per cent (CAGR) since 2009 to touch $16.4 billion in 2014. The sector is expected to be in the range of $22 billion in 2015. Good times ahead for different verticals.