India's retail landscape - offline and online

Retail in India

In this section we take a short look at the overall retail landscape in India, before moving on to focus in more detail on specifically online retail later in this section and for the remainder of this report.

General retail landscape

Unlike almost any other country in the world, India retailing is dominated by small stores and street stands, known as the “unorganised” sector: 92% of all retailing by value falls into this sector. A secondary distinction is made between single-brand and multi-brand retailing, and until 2012 overseas investment was not permitted in multi-brand retailers. The result has historically been fragmentation. Organised retailing is currently growing at around double the rate of unorganised (30% compared to 16%), but that still leaves it with a long way to go.

Total retail sales were approximately USD $463bn by the end of 2015 (Figure 7):

India retail by category

The overall category split of retailing in India is shown in Figure 8.

However it should be remembered that this includes the dominant unorganised sector. It may well be more realistic to consider data for the organised sector only, as this probably more realistically defines the accessible market for an overseas retailer. This organised retail category breakdown is shown in Figure 9.

In practice, the organised retail sector targets exactly those consumers most relevant as targets for ecommerce: the wealthiest 6-10% of the population, typically living in the biggest cities which are also most accessible for home-delivery (see our page on Logistics). When considering India as an ecommerce target, therefore, it generally makes sense to consider only the organised retail sector as representing a real opportunity. So, for example, if you are a non-Indian retailer or brand considering selling fashion in India, the total size of the addressable fashion sector is currently 28% (according to Figure 9) of the 8% of retail which is organised i.e. 28% x 8% x 463$Bn = approximately 10$Bn.

Top local retailers

A fragmented market, which has historically been restricted for foreign investment, has resulted in a very unfamiliar (to non-Indians) landscape of top retailers (Figure 10):

Conspicuously, and reflecting the current maturity and limitations of ecommerce in India, many of these top retailers do not yet operate an online store.

Offline retail in India

FDI Restrictions

If you are reading this in a developed ecommerce market you will surely be aware that, prior to the current maturity-curve phase of competing on ever more convenient delivery or collection, the initial biggest impact of ecommerce on retailing was price transparency. Even now, Amazon makes no bones about aiming to have “lowest possible prices”, and it is well known that it (along with many competitors) continuously price-scrapes competitor websites to maintain its price advantage. Given that retailing employs around 8% of the Indian workforce – and voters – in a mostly unorganised mom-and-pop-store sector, this is not a maturity trajectory that the India government has found attractive.

Moreover, unlike in China, where the advent of ecommerce has enabled millions of consumers to access goods previously unavailable due to the communist-legacy of generally poor retail coverage, there is extensive retail coverage in India, albeit small local retail “outdated” as seen through western eyes. The Indian government has preferred to put restrictions in place, aimed at preventing the likely ferocious competition with all these small local retailers by large price-driven ecommerce sites offering broader choice of products.

The mechanism that India has chosen to manage the impact of ecommerce has been restrictions on Foreign Direct Investment in ecommerce sites in India, built on a previous legacy of restricting FDI in traditional retail, partly lifted in 2012. The key rules can be extracted (from a morass of complexity) as:

• FDI is not permitted in multi-branded B2C ecommerce websites (although it is permitted up to 100% in B2B sites)

• FDI is not permitted in single brand B2C ecommerce websites except that:

   »» FDI is permitted in single-brand B2C ecommerce websites associated with a brick-and-mortar store which sources at least 30% of its goods in India

   »» In theory, single-brand cross-border ecommerce is subject to the same restriction: you can sell into India from a non-Indian website provided 30% of what you sell is sourced in India. In actual practice, this is rather difficult to enforce

• FDI is now – the rules changed again in March 2016 – permitted up to 100% in C2C Marketplaces; in practice this simply regularised a situation that previously existed anyway

   »» Nevertheless, to be a seller on an Indian marketplace, you will need a registered legal entity in India, or use the services of a third party who has such an entity and can use it to facilitate selling

Key marketplace sites in India

Given these restrictions, unsurprisingly retail ecommerce in India has been dominated by the marketplace model. The leading marketplaces, and associated approximate percentage of overall Indian ecommerce sales by GMV, are (15%), Flipkart (44%), Snapdeal (32%). In addition to its main site, Flipkart also operates additional specialist marketplaces Myntra and Jabong in the fashion category, which may be preferred by brands because they are more respectful of the brand itself. At the time of writing, there appear to be questionmarks over the long-term future of Snapdeal, and it is likely to see its market share reduce. General consensus appears to be that the future lies in a straight fight: Amazon vs Flipkart + its subsidiaries.

These sites were powering ahead, based heavily on a model of offering significant discounts compared to the general market, when the Indian government stepped in and changed the rules again, to heavily restrict the use of promotional discounting. Given that low pricing has traditionally been the engine of growth for ecommerce in every country, this has put a short-term damper on overall ecommerce growth in India, but this is expected to recover strongly once the market is reoriented to absorb these changes. (Moreover the secondary driver of growth in markets such as India – the use of ecommerce by consumers to access to a broader range of brands and goods still remains strong.)

It is particularly good news for brands and retailers considering using these marketplaces as channels to enter India, the same change in regulations also restricted any marketplace to making no more than 25% of its sales from a single seller. It is believed that both Amazon and Flipkart were previously relying heavily on a large seller that they in practice owned to “work-around” the FDI rules.

The effect of this change is to make them hungry for additional, larger, marketplace participants. If you are a brand with strong international pedigree or significant potential appeal to (especially younger) India consumers, then your negotiating position is strong. It is also likely that you can expect to see the active development of features and functionality on the leading marketplaces designed to make them more attractive as places to present your brand, and indeed this is already starting happen. Myntra, for example, already provide some basic shop-in-shop/brand-shop features, with more in the pipeline.

Size of ecommerce in India

The overall size of retail ecommerce in India was estimated to be approximately USD $23bn in 2015 (Figure 11):

Recent growth has been strong at over 20% p.a. (considerably ahead of growth most more developed markets), and there are some spectacular forecasts for future growth – an estimate of a trillion dollars per year by 2030 was published by Amazon for example – but given the history of government intervention to inhibit some of the drivers which have fuelled spectacular growth in markets such as China, then it is probably wise to take a prudent view: growth is likely to be attractively solid but unlikely to be miraculous.

Online retail category split

Category level data for online retail is somewhat elusive for India, but high level estimates are for the break-down are shown in (Figure 12):


• Indian retail is very fragmented. Over 90% is unorganised, although the organised sector is now growing almost twice as quickly

• Local retailers often do not have very active ecommerce sites

• The ecommerce space is dominated by Marketplaces, especially Flipkart, (and its fashion-focussed satellites Myntra and Jabong), Amazon and Snapdeal

   »» Changing regulations may mean these marketplaces become hungrier for retailers and brands to participate as sellers

   »» There are questionmarks over the sustainability of Snapdeal. The future may lie in a straight battle between Amazon India and Flipkart + subsidiaries

• There are extensive – and changing – restrictions imposed by the Indian government to try to ensure a level playing field for small local unorganised retailers competing against potential internet giants. These include

   »» Restrictions on foreign ownership of B2C sites

   »» Restrictions on the use of promotions and discounts

• Retail ecommerce in India was estimated to have sale of approximately USD $23bn in 2016. The largest categories are consumer electronics and fashion/apparel

• Growth is attractively solid (20%+ YoY) but given the existing restrictions and history of government intervention, seems unlikely to follow the spectacular path of China




India's demographics

Connectivity and internet usage in India

Marketing in India

India's legal framework

Payment methods in India

Logistics in India