India has been going through a phase of digital revolution during last five years which is transforming the consumer shopping experience at a different level. The evolving consumer preferences, rising disposable incomes, increasing smartphone usage and extensive exposure to digital media are significantly impacting the Indian retail market dynamics. It is expected that e-commerce in India will surpass INR 2,000 billion by 2025, mainly driven by categories such as apparel and consumer electronics.

India’s demographic profile has undergone characteristic evolution. GenY, the working-age population, working women, and the great Indian middle class have evolved to be the most influential segments of the population triggering new social, technological, and economic trends. Urbanization will also affect the market such that 64% of the total Indian population will be urbanized by 2025, and cities will account for 70% of India’s GDP in 2030. Urban planning initiatives such as development of mega cities and mega regions, development of mega corridors and the more recent smart cities initiatives are all considered as enablers for a higher rate of urbanization.

Consumer electronics and appliances market in India is expected to reach approximately $30 billion by 2020. The penetration of online retail in electronics and appliances sales was around 3-5% in 2016 and it is expected to reach around 20-25% by 2020. This translates to the online retailing in electronics increasing at a compound annual growth rate of approximately 75% during 2016 to 2020.

With the ever expanding Internet access and greater preference to shop online, it is expected that the landscape of Indian consumer electronics will transform in the next five years. It is extremely important that the consumer electronics and appliances companies acknowledge this change and start redefining their retail strategies to benefit in the long run.

Key Influencers Driving Shift

Consumer electronics and appliances companies have been pushing products in the market in the past through several initiatives such as bundled offers, discounts, and aggressive pricing. However, it is time to reinvent the wheel as the consumer buying behavior evolves where now they are open to buying a high involvement consumer electronics product online. This transition has happened over the last 2-3 years, as there are multiple e-commerce platforms available combined with the growing preference for convenience offered by online shopping over traditional retail stores.

Consumers are also becoming extremely intelligent these days where they survey models in a brick-and-mortar retail outlet and compare the prices with the online portals. In our country, price is still the top most factor driving purchase and the consumer would buy it from the medium that offers it at the lowest price. In case of consumer electronics companies who plan and run promotional campaigns around the festive seasons, online e-commerce players run these on a monthly basis as they have can easily play with the extra margins that they have due to elimination of stakeholders in the value chain.

In addition to factors such as comparison of multiple products, online marketplaces have a lot of schemes using multiple payment channels that provide additional cashbacks and discounts. Growth of mobile Internet users will be one the key reasons for driving growth in this channel as it is touted to touch 300 million users in India by end of 2017. With increasing network infrastructure development and usage of wireless technologies such as 3G and 4G, overall Internet user base in India is expected to be 600 million users in 2020, which accounts for 27% penetration.

Challenges in Online Retailing

Even though the online retailing channel is booming, there are various reasons why India is still in nascency phase of development specially with respect to large home appliances. Lack of logistics providers with skillset of handling large appliances is one of the main constraints which is already been targeted by the online marketplaces with significant investments being planned into building supply chain, delivery, and installation capabilities for selling large appliances online. Flipkart has plans to build a network of ten delivery centres spread over 6 lakh square feet while its rival Amazon in setting up nine fulfilment centres across nine states to cater requirments of large appliances.

Online marketplaces provide a seamless experience to its customers with the option of easy returns in case of quality issues. In case of some returns, the price at which it was sold may not be relevant for a dealer after a month has passed. At the same time, certain marketplaces expect the dealers to bear the logistics cost in case of product returns even if the dealers have done extensive quality checks before shipping products. These return orders eat into the margins of dealers and some consumers also tend to misuse the policy adding to the woes.

There is extensive competiton in online marketplaces where the same product can be provided by multiple dealers who might provide additional discounts to fulfill their targets. Certain dealers might feel that the consumer electronic companies are shifting focus toward online retailing and there are not enough efforts being done to push products through physical stores. Some consumer electronics companies also track the consumer enquiries into branded retail stores by customers and then try to track whether the specific customer later placed the order from any online marketplace. Hence it is imperative that the personnel in the brick-and-mortar stores are trained well to provide a strong pitch on product features such that it eventually translates to an online retail sale. However, it is important to ensure there are some tangible benefits for a physical retailer from such a transaction.

Transforming Competitor Strategies

Consumer electronics and appliances companies have been strategizing for last three years to reap the benefits of the online retailing channel. Dedicated digital sales and marketing teams have been set up by certain leading consumer appliance players, while some others are tieing up with ecommerce players to push their products.

Companies also focus on hyperlocal strategies of partnership with the leading ecommerce marketplaces such as Flipkart and Amazon, where they are able to directly provide the product to the customer through the nearest dealer or branded stores in the vicinity. This helps them in ensuring that the competitive pricing is maintained while the dealers are also able to push their products through alternate channels.

Online marketplaces provide additional services to their partners to track and push products online. They provide solutions that help sellers in case of inventory and order management as well as conduct in-depth analysis of sales trends. This enables sellers to strategize on how to improve their product line as well as their marketing strategy.

During festive season in 2016, it was observed that approximately 25% of LED televisions sales, 8-10% of washing machines, refrigerators and airconditioners, and 30% of microwaves sales were contributed through the online channel. The e-commerce retailers offer most products at discounted rates which none of the physical stores can match. There is also the additional benefit of the retailers providing services in more than 100 cities in India, which helps customers to ease of access to their preferred brands.

Players such as Samsung and Whirlpool have created additional options for consumers to buy the products through their own branded online portal. Additionally, their products are also available through other established online retailers. Large organized retailers such as Croma have also started focusing on grabbing higher sales through its online platform. In categories such as kitchen appliances, even traditional retailers such as Shoppers Stop, Lifestyle are focusing on omni-channel presence by increasing their e-commerce presence.

On the contrary, Amazon is speculated to set up physical shops , primarily to cater to grocery needs but eventually will expand in appliances. So even though traditional stores are trying to move online, the online retailers could be still eyeing the space of physical stores as even in 2020, we expect that 75-80% of the sales would be through the brick-and-mortar stores.

The Road Ahead

China became the largest e-commerce market globally in 2014.India is being pegged as the next big market and players such as Amazon are investing extensively in the country while competing with existing indigenous players. Even though brick-and-mortar stores will continue to contribute the dominant share, it is still important that the consumer electronic companies build online presence to garner higher sales. Hence it is extremely important the consumer electronics companies realize the potential and impact of online retailing and start strategizing in this domain.

Consumer electronic companies need to start thinking beyond the obvious. It would be worthwhile to channelize efforts in buy back offers to generate consumer interest. In order to change the market dynamics, it is necessary that the customers get additional after sales service benefits while buying products online. Consumer electronics companies need to get into strategic tie-ups with online marketplaces to enable product delivery and logistics support beyond metro cities to penetrate the semi-urban markets. These factors could be the key differentiators for the companies to create a niche for themselves in the online retailing space and also lead to reinventing the complete ecosystem.

About Frost & Sullivan

Frost & Sullivan is a Global Growth Partnership Company dedicated toward facilitating the growth aspirations of our clients across the world for more than 55 years now. This is achieved by providing CXO level teams with disciplined research and best practices models to drive the generation, evaluation, and implementation of powerful growth strategies.

With over 40 offices across 30 countries, Frost & Sullivan is uniquely placed to provide companies with a global perspective by leveraging our functionally varied and geographically diverse talent pool.

Our key differentiation comes from the fact that we have played thought leadership role in helping Government, Industry associations, industry –academic to establish sectorial policy and we have 15 years of tracking and advising clients in the electronics industry in India.

About Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

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