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Bernstein sees Reliance as the ultimate leader in India’s e-commerce


Indian conglomerate Reliance is on the verge of surpassing Amazon and Walmart-backed Flipkart in the race for the country’s $150 billion e-commerce market, Bernstein analysts predicted this week in a damning report to clients, outlining the challenge prevailing attitudes in the industry that the established global powerhouses.

Bernstein’s projection hinges on four compelling advantages that they believe will propel Reliance to the top: a robust retail network, an extensive mobile network, a holistic digital ecosystem and a “home advantage” in a notoriously challenging regulatory landscape. These factors should help Reliance capture most of the huge e-commerce market over the longer term, the asset manager said.

Reliance Retail, a subsidiary of Reliance Industries, is already a dominant force, operating the country’s largest retail chain, with more than 18,000 stores. Bernstein sees the conglomerate’s expanded physical presence, bolstered by numerous recent acquisitions of retail companies with a focus on e-commerce, and a partnership with Meta to develop a small business communications platform through WhatsApp Business, as a formidable “competitive moat” for the Indian powerhouse. E-commerce still accounts for less than 10% of total retail sales in India.

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Reliance Retail ecosystem. (Image and analysis: Bernstein)

Flipkart, on the other hand, which relies heavily on the wireless and mobile category – accounting for half of India’s e-commerce sales – is facing concerns as smartphone shipments slow down in the country. Additionally, the nature of the lower-margin smartphone category necessitates both Flipkart and Amazon growing their high-margin categories.

For Amazon, the recently committed $12.7 billion investment in Amazon Web Services in India suggests a shift in focus to cloud services in the South Asian market. Bernstein’s report shows that while Amazon’s cloud business is only losing $500,000 to $1 million, its e-commerce division in India has lost up to $500 million.

In addition, Amazon is losing ground in high-profit categories such as fashion. While Flipkart claims an impressive 60% market share in this sector, Amazon only captures 20%. AJio of Reliance is right behind them and, according to Bernstein, already has more than 15% of the fashion market.

Bernstein values ​​Reliance Retail’s e-commerce business at $36.4 billion, surpassing Flipkart’s $33 billion adjusted valuation following the PhonePe spinoff. The asset management company values ​​Reliance Retail at $110.9 billion.

Perhaps the most daunting obstacle Amazon and Flipkart face is the complex regulatory environment in India. Local laws prevent these marketplace model companies from owning, selling, and pricing goods directly. Reliance’s inventory-driven model, on the other hand, enables it to overcome these challenges with inventory management, price autonomy, and an enhanced customer experience.

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E-commerce business practices and regulations in India (Image and analysis: Bernstein)

Bernstein also argues that India’s relatively undeveloped seller ecosystem hinders the implementation of a pure marketplace model, one that accounts for more than 80% of China’s gross e-commerce trade value. Despite this, they note that the third-party model prevails in terms of SKU depth and is simpler in China due to merchants’ typical responsibility for fulfillment via courier services.

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