The booming e-retail market is likely to surge over twofold over the next three years, as players will be forced to shift their focus from discounts to consolidation, geographical diversification, business realignment and enhancing customer stickiness, says a report.
According to Crisil, going by the 2016-17 data, the e-retail market represents about 1.5 per cent (Rs 70,000 crore) of the overall Rs 49 trillion retail sector in the country, indicating enormous growth potential.
The online shopping segment has trebled over the past three fiscal years on rising Internet penetration, awareness of online shopping as well as lucrative deals and discounts.
“E-retail market size is expected to surge 250 per cent in the next three years,” the report said without quantifying the industry siz by that time.
“After the initial phase where e-retailers focused only on gaining market share through discounts, the next phase will be characterised by consolidation, geographical diversification, business realignment, as well as enhancing customer stickiness,” it added.
Interestingly, the report noted that “a frenzied search for unicorns in the past couple of years ended badly for many investors, who saw their equity wiped out” and resulted in about 26 prominent start-ups shutting shops in the past two years.
Crisils analysis of 11 major e-retail firms showed that almost 45 per cent of the over Rs 40,000 crore invested between FY14 and FY16 was wiped off due to losses at e- retailers.
“Chastened investors are now putting money into just a handful of players that are showing sustainability and enjoy a major market share,” the report said.
“While overall funding increased by over Rs 25,000 crore in the first nine months of the current fiscal year over the previous year, the number of players funded came down 30 per cent, underscoring the caution and sharper focus after the losses,” it added.
Crisil study on 30 companies found that funding for the top three players has increased from 40-45 per cent of overall investments in FY14 to 76-81 per cent in the first nine months of the current fiscal.
“The trend indicates cautious and focused investing by investors with an eye on profitability,” the report said.