Why Amazon & Walmart are Investing Heavily in India

Photo of the Taj Mahal
 

By Tricia McKinnon and Lesley Zheng

Take it from Jeff Bezos himself when he said: “I predict that [the] 21st century is going to be the Indian century.” “The dynamism, the energy … the growth. This country has something special.” His optimism is due not only to the sheer size of India’s population with more than 1.3 billion people (of potential customers) but also due to the country’s fledging eCommerce market.

eCommerce sales as a percentage of total retail sales in India are low at 3% of total retail sales vs. 11.4% in the United States and 36.6% in China. This is due to lower internet penetration rates, a lower income population and a lack of infrastructure to enable digital payments and delivery of orders. But more than half a billion people went online in India in the past decade alone and 700 million more people are still expected to go online in India for the first time in coming years. 

The potential for eCommerce in India is clear. In 2019 India had the second highest eCommerce growth rate in the world at 31.9%, behind Mexico but ahead of the Philippines and China. By 2027 it expected that eCommerce sales in India will increase from $46 billion in 2019 to $200 billion

 
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The potential size of the market as well the fact that India has 1.3 billion consumers and more than half of India’s population is under the age of 25 presents a lucrative opportunity for future growth.

 
eCommece penetration in India, China, Brazil and Indonesia
 

The size of the prize has prompted both Amazon and Walmart to make significant investments in India. Amazon has invested over $5 billion in India while Walmart bought Indian eCommerce leader Flipkart in 2018 for $16 billion, Walmart’s largest acquisition ever. 

But investment in India is not without its challenges. Unlike China where mobile payments are common, 60% to 65% of eCommerce orders in India are COD – cash on demand. Many consumers do not trust digital payments and they like to touch and feel products in advance of buying. “In a world where two-factor authentication (for online payments) is required, nothing can beat the convenience of COD. “Then, (some of the) consumers coming online are new and interacting with e-commerce for the first time. It will be some time before this behaviour is changed” said Sanjay Sethi, CEO of online marketplace Shopclues. 

Local merchants in New Delhi, India are protesting against Amazon's and Flipkart's (owned by Walmart) presence in their market. They are arguing that the two eCommerce companies have predatory pricing which is against laws protecting local businesses. Small merchants generate 90% of retail sales in India and the country’s slowing economy has only increased tensions. The Secretary General of the Confederation of All India Traders (CAIT) Praveen Khandelwal has said: "both Amazon and Flipkart have left no stone unturned in destroying and devastating the e-commerce and retail trade market by indulging in all kinds of malpractices." Despite the controversy it looks like the two retail giants will leave their mark on the country.


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