India has become the hotspot for the global e-commerce industry. Forrester estimates that India's e-commerce industry can grow at about 57% annually through 2015, which is the fastest pace in the Asia-Pacific region. Its 143.2 million Internet users constitute one of the largest online populations, while its GDP of $1.83 trillion (nominal) is the tenth largest in the world.
Naturally, global online retailers are finding Indian growth prospects extremely attractive. While some e-retailers are expanding in the country, others are coming up with interesting strategies. But before betting on the success of the following retailers, it’s important to weigh their competitive strategies. This allows investors to gauge the probability of their success or failure.
An ingenious marketer
Groupon (NASDAQ:GRPN) entered the Indian market by acquiring SoSasta back in 2011. However, SoSasta was present in just 11 Indian cities and the American retailer failed to make an immediate mark in the country. Today -- after 2 years of its geographical expansions -- Groupon India covers 78 major Indian cities. And its ingenious marketing campaigns have positioned it as a formidable competitor in the Indian e-commerce space.
Groupon India recently launched a promotional campaign wherein it sold about 3 tonnes of onions every day, for 7 seven days straight. The price of its onions was kept at just 9 rupees per kg while the market price was soaring at about 60-70 rupees per kg. The deal went viral and its onions were sold within minutes of launching the offer. But more importantly, Groupon India received nationwide attention and attracted more online shoppers.
Last week, Groupon India launched another campaign. This time it sold a mystery package with undisclosed contents for 199 rupees. The retailer just mentioned that the value of its contents was more than 199 rupees. The deal was launched at an odd time of 1pm, but was completely sold within 4 hours of its launch. The campaign was successful again.
But more importantly, the success of this campaign demonstrates that Indian consumers have begun trusting Groupon's credibility. Shopper's trust is one of the most important determinants of whether an online retailer will succeed or not. Consumers shop from an online store, only after they are sure that the delivered product will be exactly as described. And in this case, customers were confident that Groupon will deliver high quality products worth more than 199 rupees. Naturally, with the trust of Indian shoppers on its side, Groupon India seems well poised to grow rapidly.
A tactical player
Amazon (NASDAQ:AMZN) has also adopted a brilliant strategy for India. The company launched Junglee.com back in 2012 -- a product aggregator. It allows consumers to compare the prices of products sold by several online retailers. And web-traffic estimates from Comscore suggest that Junglee.com has become the most visited shopping aggregator in India. But it’s not limited to just product aggregation.
On the back end, Amazon is using Junglee to collect user trends, keywords, and price trends. These metrics are important because online retail stores have to optimize their inventory based on market demand. These trends change with time and e-retailers have to frequently buy these databases at hefty price-tags. But Amazon has real-time and unaltered access to these databases, at no cost.
Making use of these databases, the global retailer launched its marketplace in India earlier this year. And within a few months, Amazon.in consisted over 140,000 products and over 1.9 million ebooks. The retailer allows merchants and traders to list their products on Amazon.in. And it has also setup its own warehouses across India to function as a merchant -- making its marketplace more competitive.
With this tactical approach, Amazon has become one of the fastest growth stories in the Indian e-commerce industry. And with a huge product catalogue, it seems well poised to capture a significant market share in India.
And a dud!
J.C. Penney (NYSE:JCP) is another online retailer operating in India. However, I doubt if its management is even serious about the country.
J.C. Penney hasn't setup any warehouses in the country and operates with just an online store. All of its orders are furnished from international warehouses, which are delivered by international couriers. The retailer charge extra for international couriers and the usual time of delivery – 8 to 16 days – is pretty long. Furthermore, Indian customers have to bear the import duties levied by the Indian government.
Indians are very cost conscious and value-driven customers, and are always looking for a better deal. And all the mentioned factors are currently working against J.C. Penney. The company needs to setup warehouses in India, to minimize import duty and courier costs, and cut its delivery duration. It is only after addressing these issues that J.C. Penney can look to grow in the Indian e-commerce space.
E-commerce is a capital intensive industry. ROIs are usually low and breakeven periods are generally longer than conventional businesses. So, investors looking to invest in the online retail segment of India, should not expect their companies to be immediately profitable. However, over the long run, companies developing top-notch processes should thrive.
Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.