Shop hopping – pavement to e-commerce

After a long spell of flat or negative growth rates, the U.S. online retails sales finally has seen a stroke of luck. Comscore recently released the U.S. retail e-commerce sales report for Q2 2010. The estimates reflect that e-commerce spending is showing upward trends and has increased to $32.9 billion which is 9% more than the previous year. This has been the third consecutive quarter of positive growth rates, which is fueling a lot of hope amongst the retailers. Unemployment and potential stock market upsets could limit the growth of growth in e-commerce.

Other key findings:

• Upper-income households (those earning at least $100,000 annually) has seen a growth of 17%
• The top-performing online product categories are: Consumer Electronics (excluding PC peripherals), Computer Software (excluding PC games), Computers/Peripherals/PDAs, and Books/Magazines.
• After five consecutive quarters of declining market share, finally the multi-channel retailers have regained activity vs online pure-play retailers
• American Express recently indicated that its card members’ spending has crawled up by 16% in comparison to last year.

Shopping online has become highly prevalent in western countries owing to the unpredictable working hours, busy lifestyles and higher disposable incomes. However, unfortunately in India, it is still in a nascent stage and is grappling with issues. People are not comfortable with the idea of shopping online. Few of the deterrents in the growth of e-commerce are:

Credit card insecurities:

• The relatively small credit card population and lack of uniform credit agencies create a variety of payment challenges.
• In United States, the responsibility of the credit card being misused lies with the credit card companies while in India, the responsibility solely lies with the consumer himself.

Personal touch:

• Indians consumers still feel the need to touch and feel the product before feeling assured and confident about making the purchase. Indian consumers prefer cash transactions and personal contact with suppliers.

Digital Infrastructure and user online behaviour:

• PC penetration is as low as 7%. Despite being the hub of technology and outsourcing, India’s use of internet is very low.
• Lack of a strong broadband infrastructure. Lack of quick, easy and secure connections acts as major challenge.
• Currently social networking, email, accessing news and sports sites remain to be the most common use of the computers.  Majority uses computers for only functional purposes.
• Ratio of people who come and actively make bookings is quite low to the number of people who come and visit these sites passively.
• User interface and experience provided by various e-commerce websites. Most of the people do not get desired results in the first attempt. Finding the right site, site navigation and alignment in itself is a huge challenge for the online customers

However, it is not a lost battle as yet. Major retailers such as Big Bazaar, Pantaloons have their shopping portals and smaller retailers in metros and bigger cities are following suit. Online auction sites like ebay.in have 2.5 million registered users in nearly 2,500 locations across the country, which is a very encouraging number. The new-age economic system shows some interesting developments and facts:

• Government is working towards extending broadband access into 250,000 villages as well.
• An increasingly competitive Internet Service Provider (ISP) market will help fuel e-commerce growth.
• Of the estimated 60 million Internet users, about six million shop online. The market has been expanding at the rate of 30% every year.  [Figures taken from The Economic Times]
• India’s mobile phone subscribers are beginning to drive the sector’s expansion.
• 3G licensing would enable high-speed data access.
• E-commerce has offered unprecedented opportunities in the travel sector. The travel industry has benefited hugely through the growth surge in e-commerce. According to IDC, online sales of airline tickets, car rentals, and hotel reservations make the travel industry one of the strongest e-commerce markets in existence today. 26% of the air tickets are sold on web in 2009. Airlines are quickly turning to e-commerce and e-distribution channels. Quite surprisingly, IRCTC has been the biggest contributor to e-commerce in India. Comscore in fact, published a report citing a sharp increase in the number of visitations to the travel portals which accounts to 14 million in April this year leading to a 50% increase as compared to last year.

While a few technical and behavioural challenges continue to pose a problem, many retailers and companies are beginning to take advantage of the potential of e-commerce and seeding new opportunities in the market.