With multiple billion-dollar cash infusions this week, India’s Web-based retail sector is blazingly hot.
Last year, India became the world’s third biggest internet-using country with 74 million users, a 31% increase over 2012, according to market analysis company comScore.
With more people getting online, more people are doing their shopping online. India’s B2C (business to consumer) e-commerce market grew 66% in 2013 to a value of $16 billion. The global growth rate was only 18.3%, so it is spreading like wildfire. It’s expected to be worth $56 billion in ten years.
For the sake of comparison, the whole Middle East and Africa region was valued at $27 billion last year, so India is proving to be a region unto itself.
The Latest Action
This week, American e-commerce giant Amazon (NASDAQ: AMZN) announced it is ramping up its presence in India to the tune of two billion dollars.
Since launching in India last year, Amazon says it has introduced a new category of products approximately every two weeks. At the end of the most recent quarter, it had more than 17 million products available, making it India’s largest e-retailer in terms of product diversity.
This new cash infusion will “support its rapid growth and continue to enhance the customer and seller experience in India.”
It is also a strategic move to step up its competitiveness.
Amazon’s primary competition in India is a retailer called Flipkart, which was founded by two former Amazon executives back in 2007. Flipkart announced this week that it had raised $1 billion in venture funding of its own, propelling it into the ranks of the most valuable venture-backed startups in the world alongside Uber, Airbnb, Dropbox, and SpaceX.
Amazon’s increased focus on India is clearly an answer to Flipkart’s sudden capital growth.
The Competition
Flipkart is India’s biggest Web retailer.
With 22 million registered users, Flipkart ships 5 million products a month from 3,000 different merchants. It started exactly like Amazon, as an online book retailer, but has grown to be a comprehensive e-commerce solution worth more than $5 billion.
Depsite its top position, Flipkart hasn’t yet reached profitability and CEO Sachin Bansal says he doesn’t expect to at “any time in the near future.”
The billion dollars is going to be spent on beefing up the company’s delivery force and acquiring other tech companies. In 2013, Flipkart initiated the largest consolidation in India’s online retail space when it acquired Myntra.com, a fashion retailer.
That acquisition helped Flipkart grow its apparel business, and Bansal told reporters the company’s mission was nothing less than leadership in all sides of retail.
“We, at Flipkart, believe that we want to be leaders in every segment and fashion is a category of the future, this acquisition will help us become leaders in this category,” Bansal said.
The Investment
Even though the market is populous and growing rapidly, it’s still a mostly untapped opportunity.
Even though Flipkart is leading India’s e-commerce space, it has no plans to go public yet. Since it hasn’t yet reached profitability, this position should be expected.
“We are not thinking of an IPO at all,” Bansal said in a press conference. “We haven’t yet settled on a business model to take public.”
This means Amazon is currently the only real public company that stands a chance in the blossoming Indian retail market, and it had only a 1.6% market share.
However, there is another retailer who claims to be “eyeing an IPO within the next year or two.”
Snapdeal, a B2C site that connects retailers to consumers, raised another $133 million of venture capital earlier in 2014, bringing its total to $233 million. Nearly half of the most recent investment came from famous web auction company eBay.
The India Times recently said Snapdeal is on track to handle more than a billion dollars in sales this year for over 1000 sellers vending goods and services in more than 500 different categories. Snapdeal’s founders have set their target at 100,000 sellers on the site within the next year. As a response to this growth, it plans to double its number of fulfillment centers and expand its IT staff by the end of the year.
Based upon its funding totals, Snapdeal could easily be worth over a billion dollars. This valuation is almost the stamp of approval for a tech service. Even though it doesn’t guarantee success, it’s a symbolic milestone that means it’s a worthwhile investment for venture capitalists.
A splashy entry to the public arena is usually the next big milestone, and that’s what we’re looking for with Snapdeal.
India’s e-commerce space is largely untapped, and competition has been increasing for the last five years. An IPO in the space will be a big opportunity.
