Should Flipkart And Amazon Fear The Rising Wave Of Social Commerce In India?

In 2017, Wooplr, a fashion discovery platform founded in 2013, pivoted to a social commerce model. Within one year, it partnered with more than 300 brands and clocked a growth rate of 20% month on month. But by May 2019, the company had to shut shop after negotiations for a merger reportedly fell through.

The shutdown did not come as a surprise. The growth in the social commerce sector, which leverages social media to sell products, had not come through as predicted by investors and analysts in 2015 when the ecommerce era took off in India.

Cut to the chase in 2021, and social commerce seems to have arrived, with the pandemic pushing it to the fore. According to a recent report by Sequoia Capital India and Bain and Company, the next biggest driver for Indian ecommerce will be social commerce, which could scale at a compound annual growth rate (CAGR) of 55-60% to $16-20 Bn gross merchandise value (GMV) by 2025. According to the report, the startups in this space clocked a GMV of $500-700 Mn in FY2019-20. While traditional ecommerce will continue to grow, social-led models will help redefine the landscape over the next 5-10 years, it says.

“I feel the real number is much, much larger. It is really difficult to estimate this market size, given there is a lot of unstructured commerce happening across social platforms like Facebook and WhatsApp,” says Akarsh Shrivastava, vice-president of Elevation Capital, a venture fund that has invested in WMall, CityMall and Meesho.

Impelling Forces Behind The Social Commerce Boom

As of 2020, the number of internet users in India reached 700 Mn+. Also, WhatsApp has more than 400 Mn users across the country while Facebook had about 250 Mn users in India in 2017. But in spite of growing internet penetration, the ecommerce segment in India accounts for 3.4% of the overall retail market with 100-110 Mn users.

“The major hypothesis behind the social commerce boom is that the next 300 Mn internet users, living in smaller cities, towns and villages, have fundamentally different behaviours than the 100 Mn users hailing from urban India. These users primarily needed some form of assisted commerce to help them shop online,” says Angad Kikla, cofounder, CityMall.

The social commerce venture has a strong network of 5,000 community leaders (partner entrepreneurs) who serve more than 100K customers in their communities.

Overall, India’s ecommerce sector grew by 117% between February and June 2020, according to a report by Unicommerce. With the Covid-19 pandemic pushing digital adoption and ecommerce, growth in social commerce witnessed a ripple effect. The increased social media adoption, driven by the pandemic, further paved the path for social commerce growth. Digitally connected Indians now spend more than two hours on messaging, social media networking and video watching, out of the three hours or so they spend online.

For instance, CityMall clocked 30x growth in revenue in the past 10 months and established its presence in smaller cities and towns such as Rewari, Dharuhera, Pataudi, Sonipat, Bahadurgarh, Jhajjar, Rohtak and Panipat, to name a few. Bengaluru-based Meesho claims its existing entrepreneurs have been more active on the platform. All of them are currently doing 20-25% more business a month compared to the pre-Covid level as they have attracted new customers.

“The pandemic had probably accelerated the adoption of these platforms and the willingness to transact online. For the majority of these new internet users, who had not transacted online earlier, social commerce platforms were probably able to inspire a lot more trust and comfort for their early transactions,” says Shrivastava of Elevation Capital.

Reselling also became a source of income for many during the pandemic. “Since alternative opportunities to earn were quite few during this period, social commerce has become the perfect means to earn money from home and without any investment,” says Abhinav Jain, founder and CEO of Shop101. The Mumbai-based social commerce company serves 27K+ pin codes across India.

Besides, the steady growth of the social media user base, the rise of vernacular social networks such as ShareChat and Roposo, and the huge popularity of short video platforms like Instagram, Snapchat and Trell are shaping the growth of social commerce.

It is also a preferred way of shopping for people hailing from Tier 2 and Tier 3 locations due to less expensive, non-branded options. Efficient supply chains and smart logistics solutions, which can deliver goods to any pin code, happen to be another key enabler. Besides, the country’s huge SME market is readily adopting the digital format even after the pandemic to ensure strong growth. According to the BAIN-Sequoia report, social commerce has the potential to empower more than 40 Mn small entrepreneurs across India.

Moreover, economic and lifestyle disparities make end customers an extremely non-homogenous group, notes Shekhar Sahu, cofounder of GlowRoad. “This group is better served by personalised price points and products. Also, there is a huge unorganised base of wholesalers and small manufacturers who can benefit from a simple and cost-effective distribution network,” he says.

Additionally, people looking for extra incomes and holding key positions in well-knit communities are the pillars of this industry. Their recommendations or personal referrals weigh a lot within their respective communities and groups. These micro-influencers enjoy trust, and that is what is bringing more people online every day.

Resellers, The Backbone Of Social Commerce

There are several business models in the social commerce terrain. But the reseller model, adopted by Meesho, GlowRoad, Shop101 and a few others, is the most accepted so far. In fact, this model accounted for $400-500 Mn GMV in FY20. Then there are other models such as conversation-led or chat-led commerce, video commerce and group buying, enabled by the likes of DealShare and Mall91, which accounted for $100 Mn – $200 Mn in FY20.

To understand how the reseller model works, let us look at Bengaluru-based GlowRoad. The company, set up in 2017, claims to have more than 10 Mn registered users. The startup onboards verified suppliers and makes their digital catalogues (with wholesale prices) live on its app. Using the GlowRoad app, resellers select products, add their desired margins and create their curated shops on the platform, thus becoming business owners at zero investment. Next, they share their selected products with potential end customers on WhatsApp, Facebook and other social media platforms.

When an end customer places an order, GlowRoad gets the order shipped from the supplier to the end customer, collects the cash and pays the supplier and the reseller their dues.

Most startups with a reseller-based model have a similar setup. Interestingly, most of these resellers are women from different age groups and backgrounds. These resellers, or community leaders, as some startups like CityMall call them, charge 8-15% commission on the products sold and can earn up to INR 50K per month. Each of them stays in touch with several customers, and some of them have as many as 4,000 customers in their respective communities.

“India always had these resellers. We have seen home boutique owners across small towns for a very long time. Culturally speaking, Indian women are extremely social, and they mostly accept the recommendations of their first-degree contacts/networks in the offline world,” says Vidit Aatrye, founder and CEO of Meesho.

He adds that with the advent of Jio (it offers easy and affordable mobile access), a lot of them are now seeking ways to become boutique owners or earn online

According to him, this market is massive, and the penetration of the internet and WhatsApp, in particular, is further increasing the market size that is estimated to reach $70 Bn by 2025.

Meanwhile, social networking giants Facebook and Instagram have also come up with features like the Facebook Marketplace and Instagram Business to enable online commerce for buyers and sellers. Together, these platforms clock a GMV of $1,200-1,300 Mn for social commerce in India.

Why Social Commerce Holds The Edge Over Flipkart, Amazon And Other Ecommerce Giants

For social commerce, cheaper customer acquisition costs (CAC) is probably the biggest advantage over ecommerce giants. For instance, Bengaluru-based DealShare has a CAC of less than $1. In a traditional ecommerce business, user acquisition, retention and marketing form a substantial portion of the cost. But in social commerce, this cost is borne by resellers who use word-of-mouth marketing, offer improved discovery and ensure assisted shopping.

In certain models, as in CityMall, resellers or community leaders also help with hassle-free returns and replacements and provide credit to end consumers. They also help in sorting and order fulfilment, thus reducing the cost of fulfilment.

Existing ecommerce giants, with high CAC and supply chain costs, also find it difficult to service these customers due to low average order value (AOV), at times less than INR 250. According to experts who spoke to Inc42, the last-mile delivery cost of an order worth INR 200 is a minimum of INR 50. Hence, lower AOV results in losses.

Moreover, by their very nature, Amazon and Flipkart are search-led platforms and resolve queries well for structured categories. “Non-structured categories, those featuring several unbranded items such as apparels or footwear minus MRPs (or where MRPs don’t have much value), are discovery-led, and hence, search-based platforms do not work well there. Plus, these categories require varying degrees of curation and traditional ecommerce models fail there,” says Shrivastava of Elevation Capital.

For instance, when a consumer visits an online marketplace like Amazon or Flipkart, he or she typically searches for a brand or a stock-keeping unit (SKU) and gets around 100 options with product details. But in the case of a non-branded dress or a kurta, not much information is available beyond the size and the price, and buyers do not know who the vendor is, he notes. This is because the curation of non-branded items is difficult.

The ease of use, offered by social commerce, is another critical driving factor.

Unlike the search-driven way of buying by India 1 and 2 customers, India 3 and 4 need a simplified shopping experience that leverages new-age social features like videos, vernacular apps and gamified features, says Ankur Arora, cofounder of Bengaluru-based ShopG. The social commerce platform has more than 1,000 community leaders who serve more than 100K customers in Tumakuru, Karnataka.

For consumers in this space, direct interactions with sellers just like offline shopping offer a familiar experience and, therefore, more trust, a factor missed by ecommerce giants. Suppliers, too, hugely benefit from this model. Social commerce has created an opportunity to empower more than 40 Mn small businesses and entrepreneurs to leapfrog into online commerce. According to the BAIN-Sequoia report, 85% of sellers are small retailers who primarily sell products offline, with up to 35% of their revenue coming from social commerce.

“Current online marketplaces are not built for Bharat. These are just make-do copies of western models where people are accustomed to browsing on computers. But the Indian middle-class population from Tier 2 and Tier 3 cities is not comfortable with these models as they are mobile-first internet consumers, ” says Sourjyendu Medda, founder, chief business officer and chief financial officer of DealShare. The startup was set up in 2018 and raised $32 Mn in funding.

Can Social Commerce Grab A Piece Of The Urban Market Pie?

As of now, social commerce mostly exists in Tier 2-4 cities. But it is bound to make foray among the top-gear urban population, say experts. “It is quickly becoming the next big thing for brands to tap into to widen their reach, expand their customer base and facilitate the enhancement of shopping experience. Social commerce has the potential to become equal to conventional e-commerce in urban areas,” says Roma Priya, founder of Burgeon Law, a Delhi-NCR-based law firm catering to startups, incubators and accelerators, among others.

However, it will not be easy to wrest wallet shares from the likes of Amazon, Flipkart and BigBasket, thinks Shrivastava of Elevation Capital. Also, urban customers are accustomed to same-day/next-day deliveries. And the ‘Amazon’ experience, unique in many ways as it unlocks new categories, wider range and novel assortments, will hold the key here. So, instead of locking horns with these industry behemoths, some startups like Meesho are trying to add more resellers in new geographies, especially in the remotest parts of the country.

Unlike ecommerce, micro-influencers from social media platforms often dominate the social commerce domain. These influencers tend to have significant engagement with their followers, and through them, brands are more likely to attract customers, build lasting relationships and boost sales. Startups like GlowRoad have also seen growing interest from male resellers and onboarded them recently.

Also, several community platforms are adding social commerce layers for better outreach and revenue. The social commerce interface on SHEROES, a community platform for women, has gained significant momentum in pandemic times. “We have seen major interest from women, across contexts and backgrounds, from a young girl in a metro city to a mother of two in a village in South India. We believe this opportunity can and will permeate boundaries in the time to come. That said, Tiers 2, 3 and 4 are the fastest-growing audience for this,” says Sairee Chahal, founder and CEO of SHEROES.

Countering Counterfeits, Hyperlocal Logistics And Unorganised Resellers

One reason why social commerce has found favour with non-metro consumers is the availability of non-branded inexpensive options. But with this format comes a major problem: Identifying reliable suppliers who can provide high-quality goods at reasonable prices.

“Looking for the right suppliers is a challenge as Tier 2 and Tier 3 customers, who constitute the majority of our user base, are very discerning when it comes to value for money,” says Sahu of GlowRoad. However, its suppliers are verified and have to fulfil several eligibility criteria. So, counterfeits are avoided, and quality control is in place, he adds.

Counterfeit and low-quality products had been a big issue in the initial days when CityMall was dealing in electronics. But it is not much of a threat when one is dealing in food and groceries, says Kikla of CityMall.

However, there is a need for super-apps or social networking platforms with easy-to-interact ecommerce features. In China, where social commerce accounts for 11.6% of retail ecommerce sales, totalling $186.04 Bn in 2019, an app-within-an-app model offered by WeChat has removed the complexities of ecommerce. This allows a customer to interact directly with a brand representative and make the purchase then and there.

“These platforms were not created for commerce per se. For example, WhatsApp, which has the most engagement, is experimenting with stores. But by itself, it is not a great platform for cataloguing and discovery. Platforms, which help sellers with discovery in a scalable manner and enable trust markers (chatbots, videos and so on) have great potential,” says Elevation Capital’s Shrivastava.

Another key challenge is the rise of independent resellers who act as a bridge between wholesalers/retailers and customers without using a startup’s tech platform. Richa Singh, a Pune-based reseller, details it further. “I get a margin of nearly 30%, and I can manage logistics on my own with the help of service providers. Why would I go to startups who will take a cut?”

Anup Jain, managing partner of Orios Venture Partners, which has invested in ShopG, agrees to some extent. According to him, independent resellers with proprietary networks to sell to, can survive and deal in exclusive, niche and premium products. But there is a catch.

Consumers will increasingly prefer to keep one or two platforms on their phones, entering their details and payment data once and using those platforms for best access to product variety, good pricing and fastest delivery.
“But it is unlikely that independent resellers will be able to grow their businesses beyond a certain scale. Scaling up will require a tech-based social platform providing a shop-like or a marketplace-like experience where customers beyond their existing networks are already present,” he says.

Although the unorganised sector is not a threat to social commerce startups, they may have to focus on innovations throughout their journey to stay ahead of the race and look at well-thought-out logistics to enable positive unit economics. The inherent nature of the model mandates this as social commerce is built on low-margin categories and lower ticket sizes. Additionally, they must build and retain buyers’ trust to keep the CAC low and stay ahead of the game.

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