The Great Indian Retail Saga: Will Online and Offline Join Hands For Growth? The interlinking of online and offline will push forward the Indian e-commerce industry

In the recent times, the Indian e-commerce industry has grown and how. It has been at the forefront of the major events occurring in the start-up industry, while also innovating at every step to bring something new for the end consumer.

The Walmart-Flipkart deal stirred up the market further, being the biggest deal in the e-commerce industry across the world, had the world's attention. But it's not just Walmart. China's Alibaba has looked at marking its big foray into the Indian market, while Amazon has long been fighting homegrown Flipkart which got acquired by Walmart.

After the Walmart-Flipkart deal, all eyes were on Amazon to see what the e-retail giant would do next. While rumours were rife about many acquisitions, Amazon along with Samara Capital emerged to have taken over Kumar Mangalam Birla's retail chain More.

But in this recent bit of news, lay the more interesting fact. Walmart, a predominant player in offline retail which has failed to make a grand online entrance is now relying on Flipkart's already existent online base. Meanwhile, Amazon which does have a massive online consumer list is now looking at leveraging More's offline retail privileges. This interlinking of online and offline will push forward the Indian e-commerce industry.

We spoke to e-commerce experts and got their views on how the mix of offline and online will change the game and the consolidation of big names is affecting the smaller players.

The Blend of Online and Offline

The coming together of online and offline retail probably changes the e-commerce game for earlier, both the mediums looked at each other as competition that was only going to eat up their market. Now, with a mix of both the combined entity will be able to service its consumers better.

Mahesh Singhi , Founder and MD, Singhi Advisors said that as consumers are more attuned and comfortable to shopping online, we see vertical specialists (largest categories being fashion, second electronics) benefiting. High value, more discerning consumers who want differentiated choices and unique offers will seek out specialists to fulfil this need.

Meanwhile, it's a brand's need to reach out to the deepest corners of India that brings forward the need to collaborate with online or offline. Shivani Poddar, co-founder, FabAlley believes that all brands need to be present across all customer touch points. Talking about the fashion segment she said that at present, 96-97% fashion industry is still offline whereas online segment is still a smaller part. Hence, the need to service customers even in the offline segment is high.

"The future for all companies is omni-channel which is essentially to be present across all distribution channels. The main advantage is that brands will cater to and acquire new customers across all channels. Online and offline channels have historically felt threatened and competed with each other, however, all new age brands are treating these as complementary channels and understand that both need to grow together to build large, national brands," said Poddar.

And Singhi outlines this as the first phase of India's e-commerce journey which has now transitioned to start of the second phase. "The first phase was dominated by hyper-competition, extreme growth and the battle for gaining market share at any cost," he said.

It now rests on the government to create a level playing field for online and offline, believes Singhi. "The issue of discounting by e-commerce players has been overstated by offline players. In a market like groceries and food, which makes up half of India's retail spend, online players account for less than one per cent of the market. The share of online does get a little higher when you consider phones and large electronics, but that's still a very small share," he said.

Consolidation – The Only Way Ahead?

With mergers and acquisitions happening across the e-commerce sector, consolidation seems to be the only way forward. And the experts to agree. Poddar said that with Amazon, Alibaba and Walmart servicing the Indian market in an aggressive way, there will definitely be consolidation among the horizontals. Essentially, there will be one or two big players and there will be a lot of small players with specialization in multiple categories.

Poddar added that at the end of the day, consolidation will occur according to the horizontal and vertical domains of e-commerce. "There is a lot of potential for specialized players to come in and operate independently in vertical domains. For example, in the fashion category, there would be many brands which will continue to operate and grow in omni-channel format and have the potential to become large, independent players. For categories like lifestyle or say furniture, we see a lot of strong brands emerging and they can very well operate as independent players. However, on the horizontal side, definitely, there will be a lot more consolidation in the near future," she said.

But there is one problem here for the consumers that Singhi points out. "When markets consolidate, price competitiveness starts to reduce and end-consumers stop getting the value that they used to get earlier," he said.

Smaller Players Will Be The One to Crumble?

So far, the smaller e-commerce players are the ones to be gobbled up by bigger e-commerce players. With more and bigger names coming into the Indian market, does it mean that the only criteria of success for smaller players lie in being sold to a bigger player?

Poddar points out that the so-called smaller players do not compete with the big names but cater to a specific customer need in a more targeted manner. "Categories such as fashion, beauty and lifestyle have done a great job of understanding the requirements of their customers and building superior customer experiences through relevant products and distribution channels. There is a lot of potential for these players to become category leaders in the next 3-4 years," she said.