With the onslaught of online shopping traditional markets are evolving to stay in demand
In the last few years, e-commerce or online shopping has taken over the Indian market with a bang. Market experts feel that it will grow to US$ 200 billion by 2026, which is happening mostly because of the increased penetration of internet and smartphones in India. The digital transformation has made the people ponder on the relevance of the malls and how long can it survive. The question being asked is whether traditional markets can withstand the online onslaught on shopping.
The fact of the matter is that digital transformation is unstoppable and it is expected that India’s total internet user base will rise to 829 million by 2021 from 560.01 million in September 2018. With this, the revenue of the e-commerce industry in India is expected to jump to US$ 120 billion in 2020 with the annual growth rate of 51 per cent, which is the highest in the world.
Last year, electronics was the biggest contributor to online retail sales in India with a share of 48 per cent, followed closely by apparel at 29 per cent. This shows that more and more Indians are embracing online shopping when it comes to electronics and apparel. Earlier the perception was that for clothes, Indians preferred traditional markets where they can touch, feel and try on a product. However, with increased penetration of online shopping, the graphs seem to tilt towards online shopping due to easy returns and refunds.
The incumbent government has also played its role in the digital world when it announced initiatives such as Digital India, Start-up India, and Make in India. At that point, the government also announced some initiatives that helped in the promotion of e-commerce sector in India. To increase the participation of foreign players in e-commerce, the government hiked the limit of FDI in the E-commerce marketplace model for up to 100 per cent (in B2B models).
However, all is not gloomy for the traditional retail sector as it is emerging as one of the most vibrant and fast-paced real estate sectors in India in 2018. Some policies also helped the retail sector such as liberalisation of FDI policies early in 2018. These policy interventions helped the retail sector to attract global retailers into India and fuelled the growth of organised retail. Then government allowed 51% FDI in multi-brand retail and 100% FDI in single-brand retail under the automatic route, which attracted retail giants like Walmart. It is now reported that the government is planning to further work on norms for retail trade – similar to SEZs – and enact a 365-day working policy to help improve India’s ‘ease of doing business’ index.
Various projections say that the retail sector will grow from USD 672 billion in 2017 to USD 1.3 trillion in 2020. The growth is not restricted to the metros but many tier 2 & 3 cities are part of this growth. Tier 2 and tier 3 cities that continued to flourish in 2018 included Bhubaneshwar, Chandigarh, Ahmedabad, Indore, Jaipur, Coimbatore, Lucknow, Nagpur, Kochi, Thiruvananthapuram and Vadodara. Domestic and international brands have also started penetrating these largely untapped markets via online and offline presence.
However, the coming up of malls in tier 2 and 3 cities are an indication that there is huge scope for traditional market. It was noticed that nearly 50-60 per cent business of e-commerce was generated from these cities because of the lack of infrastructure in these cities. Indian retail activity has been tremendous in cities such as MMR, Delhi, Noida, Gurgaon, Bengaluru and Kolkata. Not only metros but tier II&III cities like Bhubaneshwar, Vizag, Lucknow and Gorakhpur also contributed to Indian retail activity. Areas such as NCR, MMR, Bengaluru, Kolkata, Ahmedabad and Lucknow will outshine others when it comes to brand expansion and new mall supply. Around 32 new malls (13.5 million sq. ft. area) are expected to be operational in 2019-20 across the major cities and several tier II&III cities.
Going forward brands will utilise both online and offline routes to reach out to the larger audiences. Traditional markets have to come up with innovative marketing techniques such as social kiosks, buy-online-pick-up-offline facilities to stay relevant. They have to strive to offer a superior shopping experience to customers to remain in business.
This article is written by Mr. Pankaj Jain, MD, Realistic Realtors.