Online retail is increasingly gaining favor in both developed and developing countries, as it offers wide range of branded products under a single website, has attractive discounts, and offers free delivery. According to a worldwide e-commerce association, the Ecommerce Foundation, online retail sales accounted for 7% of total retail sales worldwide in 2015 and is expected to reach 17% by 2021. The online retail market was valued at US$ 2,171.22 billion in 2016 and is expected to expand at a CAGR of 18.28% to reach US$ 9,572.96 billion by 2025.
Asia Pacific stands to be the largest market for online retail and is also projected to be the fastest growing market. Countries such as China, India and the ASEAN bloc is playing a key factor driving demand for online sales in the region. In addition to this, rising middle class population with growing purchasing power is further boosting market growth in the region. According to Chinese government sources, the middle class in China is expected to expand from 430 million in 2017 to 780 million by 2025. This segment is among the largest contributors towards online sales, and thus, rapid growth of this segment is projected to fuel growth of the online retail market.
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According to the industry trade association Associated Chambers of Commerce and Industry in India (ASSOCHAM), the online retail market in India was valued at US$ 38.5 billion in 2017 and is expected to reach US$ 50 billion by 2025. This is due to increasing internet penetration in the country. According to the Internet and Mobile Association of India (IAMAI), the number of internet users in the country is expected to surpass 500 million by June, 2018. This coupled with strong GDP growth and increasing purchasing power of consumers will result in India being the fastest growing market for online retail in the world. In 2016, Flipkart—a major e-tailer in the country—reported that up to two-thirds of the company’s sales were from tier-2 and tier-3 cities in India.
North America and Europe are particularly developed in terms of internet and smartphone penetration. According to World Bank statistics, North America and Europe had average internet penetration rates of 78% and 75%. The market in these regions will be driven by shifting consumer preference from offline to online retail.
The food & beverages segment is a major opportunity area for market players. So far, growth of online retail of food & beverages has been slack due to concerns over quality and freshness of products. Amazon Fresh is a service from Amazon Inc. which offers same day delivery of grocery items. Similar services have emerged in countries such as India, China and U.K. albeit by local players such as iFresh, Grofers and Sainsbury. All these services offered by these players at discounted offerings and free delivery services have the potential to boost the food & beverages segment. The electronics segment is one of the key segments that has been driving the growth of the online retail market. Electronics industry players have tied up with online retailers for the marketing and sale of their products. For example, in China, Alibaba Group picked up a 20% stake in electronics retailer Suning Group. The synergy achieved by the stake acquisition will drive up electronic sales of the company.
The global online retail market is marked by intense competition from major players operating in this market. Strategic mergers and acquisitions, innovative marketing, are among the key strategies adopted by companies to ensure long-term sustenance in the market. In India, Flipkart acquired competitors Myntra and Jabong in 2014 and 2016 respectively. This allowed Flipkart to expand into the fashion online retail segment. U.S. based Amazon Inc., has developed innovative ancillary services which include Amazon Prime which includes entertainment and delivery options for the subscribers. eBay Inc. in 2017 acquired Terapeak Inc. to bring improvements to its online platform.
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Some of the major players operating in the market are Amazon Inc., Alibaba Group, eBay Inc., Otto GmbH & Co KG, JD.com Inc., Groupon Inc., Shopify Inc., Flipkart, Rakuten Inc., and Zalando S.E.
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