2014–15: The Wonder Years
Between 2014 and 2015 millions of Indian shoppers took a newfound shine to buying products on the Internet. Industry leader Flipkart, for example, was reported to have clocked 300–400% growth in this period. Put together, Indian online retailers sold over $8 Bn (Gross Merchandise Value) worth of products in 2015.
Things were looking good as investors poured billions of dollars of capital into these e-tailers with the expectation of 2016 sales of over $16 Bn and a market size of over $80–100 Bn by 2020. This appeared eminently achievable given that even at $100 Bn market size Internet retail would be <10% of total Indian consumption of over $1.2 Tn in 2020. There was nothing but headroom for growth.
2016: The Phantom Menace
All was not well though. A strange malaise struck the market by the end of 2015. Despite being a relatively small and massively under-penetrated Internet retail market, Indian ecommerce began to slow down rapidly by the last quarter of 2015. By the first half of 2016, this has become a full-blown crisis as sales came to a complete stall. Growth expectations hastily began to be reset.
The narrative shifted nearly overnight as well with the euphoria of the previous year sharply changing into unbridled pessimism and serious questions about the sustainability of any form of Internet retail in India. By mid-year, it was clear that new ecommerce user growth had essentially stalled, and the frequency of shopping and the average ticket sizes were not growing fast enough, especially given the small size of the base and the often stated large potential of the market.
The reasons for the sudden slowdown are too many and too complex to cover comprehensively in a single article — unclear regulation, a consumer base unfamiliar with online commerce, over-competition due to too many players being funded in the same industry, leading eventually to poor unit economics for all players and so on.