Opinion

How the advent of e-commerce has reinvented the growth of traditional retail



Over the last few days, there has been extensive commentary on the findings of the Pahle India Foundation (PIF) report, ‘Assessing the Net Impact of E-Commerce on Employment and Consumer Welfare’ released on Wednesday. The report’s findings are principally based on a panIndia survey of 2,062 online vendors, 2,031 brick-and-mortar vendors, and 8,209 consumers of products from ecommerce websites. It was conducted across 35 cities in 20 states and UTs.

The survey itself was guided by a robust methodology and conducted by PRICE (People Research on India’s Consumer Economy). Given the veracity of the survey findings, it would be most useful for policymakers to take cognisance of these empirical findings.

One of the most striking takeaway is that the apocalypse narrative of large-scale destruction of kirana stores is rejected by brick-and-mortar vendors themselves. The survey asked vendors if they were aware of any physical stores that had shut down in their vicinity since 2020, and what they thought the contributing reasons were. Less than 20% reported a physical store closure in their neighbourhood since 2020 when the pandemic drove an ecommerce boom. Only 6% of offline vendors attributed these store closures to consumers shifting to online shopping. A slightly higher proportion — 8% — attributed physical store closures to the growth of large organised retail.

Indeed, the advent of ecommerce has reinvigorated the growth of traditional retail by introducing a competitive impetus to keep up with evolving retail trends. Physical retailers today are more engaged in digital adoption, customer satisfaction, advertisement, home delivery and after-sales service than ever before. Traditional retailers have shown resilience and a readiness to compete with, and even integrate into, modern retail.

One-fourth of brick-and-mortar vendors surveyed intend to expand by purchasing new stores, renovating or enlarging their existing stores, diversfying their product offerings, adopting more technology or listing their products on ecommerce platforms. Moreover, they have moved into a hybrid model by also adopting online services. This has enabled some to make an entry into export markets, thereby substantially expanding their demand base. With a growing domestic market, and future entry into export demand, the Indian retail sector offers sufficient space for a healthy growth of both online and offline retailers.

At present, ecommerce has an estimated 7.8% share in India’s retail trade. This is significantly smaller than in China (46%) and the US (16%). India Brand Equity Foundation (IBEF), under the commerce ministry, has estimated that CAGR of ecommerce is expected to be about 27% from 2018 to 2030. At this rate, ecommerce’s share will double every three years. Even at this exceptionally high CAGR, the share of ecommerce in total retail trade by 2030 will be no more than 32%, a third of the total retail trade. That certainly does not spell the demise of traditional kirana stores. Importantly, according to the most recent ‘Annual Survey of Unincorporated Sector Enterprises’ (ASUSE) 2022-23 released by the ministry of statistics and programme implementation (Mospi), the total estimated number of unincorporated retail traders in India is about 20 mn. Thus, the number bandied about by the Confederation of All India Traders (CAIT) and often quoted by some senior policymakers of there being ‘100 million offline retail traders’ in the country is a wild exaggeration.Of these 20 mn retailers, ecommerce has a share of nearly 8%. PIF’s survey found that on an average, an online vendor employs about 9 workers, which is higher than the 6 employed on average by offline vendors. These figures yield an estimate of 15 mn workers employed in the ecommerce sector. And, more impressively, female employment in online retail is appreciably higher than offline. Even more crucially, online retail has helped to raise consumption demand by offering greater choice and confidence to the consumer and lower prices. Lower prices do not directly imply lower returns to the producers, whether these are SMEs or farmers. Online retailers are able to offer lower prices by eliminating the multiple layers of intermediaries who inflate the price differential between producer and final consumer.Consumers from Tier-3 cities spend more time and money on ecommerce platforms than those in Tier-1 and -2 cities. The likely expansion of ecommerce to semi-urban and rural areas will also help raise currently flagging rural consumer demand. The PIF report also highlights a few areas of caution and, thereby, the need for government interventions. It cites CCI’s concerns around deep-discounting practices of large online platforms. The report emphasises the need for further examination of this important issue towards ensuring citizen-centric and inclusive ecommerce growth. With relevant policy interventions, ecommerce will contribute to the strengthening of private consumption, thereby becoming an important engine for the employment-intensive growth of the Indian economy.



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