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As discussed on a previous videocast, internet retailing’s growth is the most significant amongst all distribution channels for consumer appliances. According to Euromonitor International, 52% of households globally expect to have access to internet-enabled computers in 2016. Other than computers, various internet-connected devices, including smartphones and tablets, are also driving the growth of hyperconnected consumers. Consequently, it is not surprising to see shopping habits for appliances moving away from traditional channels to online channels and especially in emerging countries where there is accompanying fluid infrastructure development and sharp consumer price sensitivity. All said, there are still sceptics where consumer appliances’ internet retailing growth is concerned and I will discuss bright spots as well as some of the growth obstacles that need to be addressed.
Two markets worth mentioning are Vietnam and India within Asia Pacific. Amongst the top 10 markets leading internet retailing growth in 2015, Vietnam recorded the biggest growth. Its explosive growth comes mainly from internet retailers’ efforts in addressing online product ranges, logistics issues and payment concerns.
Initially focusing on small appliances, such as rice cookers, hair care appliances and vacuum cleaners, internet retailers such as Lazada, Tiki and Nguyenkim also started expanding online sales options to major appliances. As price competitiveness is considered the most important purchasing factor, internet retailers competitively supported online sales with discount vouchers or bundle promotions. Other than major cities, including Ho Chi Minh and Hanoi, delivery usually takes much longer than 3-4 days. In addition, those who living in rural area find online retailers that provide national delivery services a sharp improvement over previously localised ones. Lastly, internet retailers also partnered with established international financial card operators, namely MasterCard, Visa and American Express, to offer special discounts and cash back, which greatly help to foster online sales.
Source: http://www.lazada.vn/, http://www.nguyenkim.com/nha-bep/
A similar situation plays out in India where the online boom reflects the popularity of internet shopping, beyond just website browsing and information gathering. Online malls such as Snapdeal, Flipkart and Amazon are driving sales of appliances in India. Similar to Vietnam, consumers in India prefer purchasing appliances online, where prices are generally 15-20% cheaper than those of brick-and-mortar shops. Interestingly, where there has been an absence of regulations governing online retail thus far, the Indian government announced in March 2016 a set of rules that states that “e-commerce entities providing marketplaces will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field”, effectively prohibiting active price discounting. Further, the new rules also cap the total sales originating from a group company or one vendor, at 25%. This is rather shocking news for internet retailers as well as consumers who have collectively reaped competitive price benefits and the road ahead for online retailing for India can take various paths. Beyond, delivery and logistics improvements in India also mirror that of Vietnam, where major cities such as Bangalore or New Delhi see a delivery lead time of 3-5 working days. Sales through online stores also favour small appliances as major appliances retail at a higher absolute price and consumers still prefer buying them at the shops for assurance.
Opportunities aside, there are several obstacles that need to be resolved for heightened internet retailing success, including consumer confidence in trust and security. Consumers in both countries prefer cash on delivery than any other payment methods. Payment with credit card is not that popular yet and consumers are concerned with both payment security as well as internet stability in that online payments may not proceed successfully. This holds consumers back from buying major appliances that cost hundreds of dollars online, despite cheaper prices offered online. In the short term, credit card ownership is not expected to grow exponentially and an alternative way could be offering payments via mobile payment as smartphone ownership is growing so fast.
The other obstacle to online retailing growth is delivery lead time. Although the logistics and delivery time is improving at a fast pace, consumers still do not want to have to wait for several days or weeks to get their orders; especially those residing outside of the key cities where the national delivery system is less established. Many prefer to do “click and collect”, which is to make the purchase online to take advantage of lower prices and to pick the products up at retail stores in person. This holds true also for those looking to purchase big ticket and bulky items like washing machines or refrigerators; there are concerns of possible damage during delivery that result in consumers choosing to buy offline instead or to pick the product up by themselves.
For these two countries, I expect the forecast performance for internet retailing for consumer appliances to remain promising, despite the recent legislations rolled out in India. What internet retailers need to do next is to expand and offer mobile commerce (m-commerce) sales points. M-commerce in Vietnam accounts for an estimated 30% of internet retailing and has potential to be even larger. India’s m-commerce boom is also evident, where several internet retailers have their own shopping applications and internet retailers have been advertising their m-commerce platforms on TV to boost usage. Across both countries, m-commerce is more frequently used for small appliances purchases as consumers do not feel comfortable buying major appliances from such a small screen.
Source: Flipkart, Snapdeal
Consumers’ preference for online retailing will grow naturally, along with better logistics infrastructure and improvements in payment platforms. In a second part of this opinion, I will be discussing the rest of the top 10 countries that have the highest internet retailing growth for consumer appliances and how the omni channel specifically is currently evolving.