Which of the following statements is correct in the Indian context?
- E-commerce is a behemoth that will destroy offline retail and SMEs in India
- E-commerce is an overhyped trend that is sustained through billions of VC dollars
If there is a version of truth that exists amidst pink unicorns and black unicorpses, it lies somewhere between (a) and (b). A cross between mirage, myth and reality, India’s e-commerce market glistens in the distance, beckoning players with its mystical riches and tales of untold disruption. But ask anyone how big it really is, and you’ll be surprised at how many different numbers you get.
Just a few years ago, analysts had predicted a $50 billion market size by 2020 (source: UBS India Internet Report, Apr 2015). Or 7% of India’s $700 billion retail market.
But according to our analysis, the actual figure comes close to $11 billion. Not 7% of India’s overall retail market. Closer to 2% now, with little hope of getting close to the target. Shocking, but there’s a way to understand this—an analytical, numbers-driven approach, using data from as many sources as we could tap into.
Akin to going through the balance sheet of an organisation, this approach will look at India’s e-commerce sector through FY18. At the end of this exercise, we’ll revisit our central question and see where it stands.
Let’s begin with a term that e-commerce players absolutely love to trumpet…
Hotel California: Gross-to-Net Reprise
GMV, or Gross Merchandise Value, is the holy grail of e-commerce. In common parlance, it is the value of goods sold on the platform in a given period of time. It is not revenue. Not even close.
Revenue for e-commerce platforms like Flipkart, Amazon, Snapdeal, Paytm*, etc. is, as per accounting principles, the commission or assorted fees that they charge third-party sellers. Revenues can typically be found in the annual filings with the Registrar of Companies and are much lower than GMV. As low as 5% to as high as 30% of their corresponding transaction values.
Of course, no one talks about revenues. But there’s an entire art form dedicated to inflating GMV in e-commerce companies. When you realise this, you also realise just how blatant it really is.
Here’s the rub. If a customer merely books (or “checks out” in online lingo) a smartphone but cancels it right after the order is confirmed, or the order fails because there is a payment failure, the order is still counted as part of GMV.