Assocham bets big on prospects of ecommerce market

A recent Assocham study says, the Indian ecommerce industry is expected to see a 72 percent increase in average annual spending on online purchases per individual in 2016 up from the current level of 65 percent. While the impact of low consumer demand and slow economy is visible at physical stores across the globe, ecommerce segment in India continues to attract consumers with their discounting strategies and customer friendly services.

Low consumer sentiment impacts physical retail

A slowdown in consumer sentiment, coupled with online shopping that provides of door step delivery, has led to shopping malls suffering 20-25 percent vacancy rates and 30 percent drop in rentals in the last one year, says Assocham’s findings. The Indian trend is in line with the declining number of footfalls in retail space in over 200 shopping malls across the United States, UK and other countries. In the US, the malls are facing 46 percent vacancy rates whereas malls in United Kingdom (UK) got impacted by 32 percent, reveals the latest findings.

On the other hand, Indian ecommerce industry appears to be unaffected by the demand slowdown and is likely to clock a compounded annual growth rate (CAGR) of 35 percent and cross the 100-billion dollars (over Rs six lakh crores) mark in value over the next five years, the Assocham- PricewaterhouseCoopers (PWC) study said. It valued the e-commerce industry in India presently at 17 billion dollars (over Rs 1,13,000 crores).

Physical retailers bear the brunt

“It is true that online shopping has shown some growth while the brick and mortar malls are witnessing a slowdown. It looks that the growth in ecommerce is impressive because of quite a low base and increasing penetration of the internet”, Assocham Secretary General Mr D S Rawat said while releasing the report.

Globally, in the US and UK, internet retailing has taken 48 percent and 39 percent of industry growth since 2005 which is mainly driven by the different structural market factors such as high population density, high rental costs and long working hours, adds the paper. The brick and mortar outlets on high streets and inside malls are trying to hold on through lower prices and deals. “In India, sales in shopping malls have dipped by 25-30 percent and footfalls by 15 to 20 percent compared to the same period last year”, says the study.

There were around 50 operational malls in 2005, a number that rose to 610 in 2015 in top ten cities. Additionally, with improvement in infrastructure such as logistics, broadband and internet-ready devices, there is likely to be a significant increase in the number of consumers making purchases online, the study said. It estimates around 65 million consumers in India to buy online in 2015, as against around 40 million in 2014.

Mobile technology also has a huge impact on brick and mortar retail. Amazon recently reported that roughly 8-10 percent percent of their total sales are being generated by mobile devices, and expect this trend to continue upwards, highlights the study. About 45 percent of malls in India are expected to be converted into non-retail space within next 15 years and replace them with movie theatres, restaurants, discount retailers etc, adds the paper.