Durba Ghosh | Dec 16, 2019 | 8 min read
The battle for supremacy in the Indian e-commerce space is not restricted to the Flipkarts and Myntras of India anymore. Chinese online and mobile shopping apps such as ROMWE, Shein, and Club Factory, among others are quickly seizing a chunk of the market away from these homegrown players.
How are they winning against the homegrown e-commerce favourites? Pricing.
Several home-grown e-commerce companies in India such as Voonik, Shopclues, Snapdeal, and Roposo have pivoted their business model in the face of a challenging pricing market. Only a handful, Myntra being the foremost, have managed to sail through it for over a decade when it was founded back in 2007. Even so, the company, like its peers has struggled with high cash burn in user acquisition that doesn’t match revenue generation.
Chinese online fashion apps, on the other hand, have been around in India for just over a year, but have already captured close to 30% of the market away from Myntra, according to Satish Meena, a senior forecast analyst at Forrester Research.
Club Factory’s app comes at a close second to Flipkart’s Myntra in India’s e-commerce space ranking. Club Factory’s mobile app was installed on 12.18%, while Myntra’s app was installed on 15% of the 1.5 million surveyed in November 2018, according to data analytics firm Kalagato.
Club Factory, which entered India in 2016, is the leading Chinese e-commerce brand for shopping in India now. While Club Factory holds over 31% of the market share among fashion e-commerce apps, Myntra holds over 33%, according to Kalagato. Club Factory has been able to close in on India’s top online fashion retailer in less than two years even though Myntra has raised over $340 million in total 11 funding rounds, while Club Factory raised just about $120 million since its inception.
Even after repeated attempts, Myntra declined to comment on the story.
With India accounting for 40 million of total 70 million Club Factory users, the China-based company has zoomed past other popular Indian brands also such as Jabong, Limeroad, and Reliance-owned Ajio, in terms of the number of smartphones it is installed on.
The e-commerce industry in India is expected to cross $100 billion in sales to reach a market size of $150 billion by March 2020, from $38.5 billion currently, according to CARE Ratings. Chinese companies will have a significant contribution to the growing share of fashion e-commerce.
Club Factory already lists over a million products across eight categories, adds 10,000 new products every day, and fulfils 25,000 orders daily. Myntra, on the other hand, fulfils nearly 100,000 orders a day, while smaller e-commerce platforms such as Voonik and Limeroad process about 25,000 orders a day. Shein's mobile app is also making inroads into India’s fashion scene with over five million downloads in India. Shein handles over 10,000 orders from India daily. AliExpress and ROMWE too have similar daily order fulfilment capacity.
“Club Factory’s listings are trendy and has a fast fashion line of products at reasonable prices. This allows new users to experiment with the brand. Moreover, the focus of retailers like Myntra is on high-spending customers leaves a huge opportunity for players like Club Factory to target users who are looking for cheap products,” said forecast analyst Meena.
The affordability of products also makes them relevant for the aspirational needs of tier-2 cities, according to Kartik Hosanagar, a professor of technology and digital business at the University of Pennsylvania’s Wharton School. No wonder that 40% of sales for Club Factory and Shein came from the smaller towns, according to the respective company spokespeople. Both the companies, however, did not officially respond to our queries.
There are several other free shopping apps on the Google PlayStore’s top 20 rankings, including Zaful, AliExpress, ROMWE, and JollyChic. India’s top list consists of Flipkart, Myntra, Amazon, ShopClues and Snapdeal.
“Going forward, the continued success of these Chinese players will depend on how they improve the fulfilment of orders and the quality of products,” said Vidhya Shankar, executive director at advisory firm Grant Thornton. The Chinese players are not ignorant of it either. Club Factory, for instance, has already brought its shipment timelines down to under 12 days on average compared to the few weeks rival Chinese apps take to deliver. The company has started to use the AI-based algorithm to recommend products to its users.
The geopolitical tensions between India and China notwithstanding, the communist country has been instrumental in the rise of startups in India. While Chinese startups see India as a lucrative market for the next level of growth, the Indian startup ecosystem is also being colonised by Chinese investors simultaneously. More than 30 startups and fast-growing ventures have raised capital from investors like Tencent and Alibaba since 2017. Tencent has exposure across the top Indian startups in various categories, including Ola, Swiggy, Practo, Byju’s and Gaana. Alibaba, on the other hand, has investments in BigBasket, Paytm, Paytm Mall, Xpressbees, and Zomato.
“Indian ecosystem needs this global pool of capital because the kind of demand we have for capital today cannot be fulfilled domestically. There are several pain points in the trade relations between India and China, but neither they can ignore a market like India, nor can India wish away the capital flowing in from China,” Karan Sharma, executive director and co-head of Avendus Capital’s digital and technology investment banking told the Nikkei Asian Review.
However, Indian vendors allege that the Chinese sites may be flouting the country’s regulations of foreign direct investment in multi-brand retail. The All India Online Vendors Association (AIOVA), which represents 3,500 Indian sellers has written multiple letters to the commerce ministry to investigate the operations of Chinese e-commerce websites, with the first being in May 2018.
In March this year, Indian traders burned Chinese goods to urge the government to raise taxes on imports from China. “We will do it again if our voices are not heard. The Chinese goods coming into India at 50-60% less price than Indian sellers. They are hurting small manufacturers and costing millions of jobs,” an AIOVA spokesperson told the Nikkei Asian Review.
The traders alleged that Chinese e-commerce platforms including Club Factory, Shein and AliExpress are sending goods to India labelled as ‘gifts’ to circumvent import duties. They also allege a non-level playing field saying the Chinese companies also bypass Goods and Services Tax that Indian sellers must comply with, causing huge losses to the exchequer. According to Indian import rules, gifts of up to Rs 5,000 (around $72) for personal use are exempted from the customs duties.
Taking cognizance of multiple complaints, the Indian government released a draft policy for the e-commerce sector in February that mandates all foreign e-commerce companies to first register in India to conduct business, essentially impacting the Chinese players who exploited the loophole to sell in India without having any point of presence in the country.
“We also plan to impose some restrictions on online Chinese e-commerce apps. The department had suggested imposing a cap on how many things one buyer can purchase in one year from the Chinese websites. But the customs authorities must weigh-in,” an official from the Department for Promotion of Industry and Internal Trade (DPIIT) the Nikkei Asian Review on the condition of anonymity.
The government may also create export hubs across the nation to collect duty on such imported goods.
Meanwhile, the Indian government has already started cracking down on the "gift" imports from the Chinese players. In June, the Indian customs seized 500 Shein parcels in Mumbai. Following the crackdown, Shein went into a partial shutdown, cancelling and refunding all pending orders from India, reported English daily The Economic Times.
However, the problem persists. “LocalCircles through its research has found out that commercial shipments coming as gifts at the Mumbai port have now reduced by almost 60% but are still entering India through various other ports like Delhi, Bengaluru, Kochi, Chennai etc. and through the Indian postal channel,” Sachin Taparia, founder of online community platform LocalCircles wrote in a letter to DPIIT in April this year.
However, industry experts say that restricting capital and business from China isn’t the right answer to the concern of Chinese money flooding the Indian market. There is a call to create and improve globalised policies to track and monitor these investments instead.
“India’s trade push with China is limited to a few sectors such as IT and pharma. Investments in tech seldom attract any discussion in country-level delegations because the main aim to collaborate with China is to improve greenfield manufacturing capabilities. Therefore, investments from China in India have flourished unchecked, while Indian companies have made no inroads into China,” Santosh Pai, partner at Link Legal India Law Services, told the Nikkei Asian Review.
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