How E-Commerce is Transforming Retail in India

Manish Tiwary, Country Manager, Amazon India, on what drives the company to provide the same access to every customer, seller, and product owner.  And how technology is making entrepreneurship completely secular.

(The Third V Narayanan (Pond’s) Memorial Endowment Lecture)

I started working in 1996. I have spent close to two and a half decades now. I am very privileged to get a chance to work with consumers across markets and across various channels. I started my career in traditional trade or the Kirana, as it is called. I was also fortunate that someone gave me the responsibility of setting up organized trade for Hindustan Lever. For the past eight years, I am part of Amazon, the e-commerce company and I am also on the board of a few companies like ‘More’. It’s a practitioner’s outlook into how this market will evolve and the role e-commerce will play. 

It’s important to go back to the basics. How do we fulfill consumer demand in a sustainable manner and continue to delight the customer? That’s what business is all about. India, as a country, has never been short of aspirations. There are thousands of influencers who take consumer needs, wrap them in a very compelling story and share it. With rising incomes and penetration of technology, a huge demand is being created. 

In my first job as a trainee, as part of a group, I was asked to launch a new brand of shampoo and that was big news.  99% of households in India used to have one shampoo. The same shampoo was used by dad, mom and children.  That was the era back then.  At max, you could walk into a store and probably get ten brands if you were lucky. We were so excited five years later when conditioner started coming into the country. Fast forward 25 years. Open your Amazon app and type on the search bar ‘shampoos,’ you will have close to 1100 brands in 48,000 SKUs. Very importantly, we get consumers to select easily. 

Filters and refinement

When you log on to the app, you will see something called filters and refinement which help you shop. How are these filters decided? If all of you decided to buy an air conditioner and you search for air conditioner with remote and when x number of people search, we realize that people are looking for a specific air conditioner with a remote. So we put a filter called ‘Remote.’ Next time when you search for an air conditioner, it’s easier. You click on ‘remote’ and it will shortlist the choice.

You might have experienced ingredient free shampoos—sulphate free, phosphate free, etc. We have 26 filters for ingredient free shampoos on Amazon. It is a real life shopping app created backwards. That gives you a clearer idea of how aspirations and consumption habits are changing in this country. All this obviously leads to a number. If you google, there are enough predictions which say that from 800 billion dollars, we will probably hit $2 trillion in the next 10 years in terms of consumption.   

Supply-side stakeholders

While the demand is moving forward, you also need a supply side. There are two important stakeholders in the supply side—brand owners and manufacturers.  How do you reach them? Rewind ten years back. Distribution was a big barrier. You had to physically go and distribute to lakhs and lakhs of stores. To get people to know about your brand, you had to advertise. The smallest unit of advertising would be a local language channel. Even that would be really expensive. 

People had good ideas but they could not get it into the market. Therefore if you wanted a sulphate-free shampoo, where would you go? Every city has its own place where you can buy some of these imported goods like Palika Bazar in Delhi. Half the time, you came across expired stocks, so you would not get the good experience.  

Second, how would you reach the brand? Traditionally, we have 13 million stores which do CPG/FMCG. We have an awesome set of retailers who can do the best CRM without having technology. They know every consumer. They can give great service but have limited assortment. It was a challenge for them to organize fresh stocks. Then modern trade moved in. Organized trade in India has seen a success but in limited pockets.

Given the context in this country, it would be challenging for organised trade to expand beyond a point because three costs are critical in organized trade—people, land and utilities. There is a common perception that India is a very cheap market. People costs are not very high but utilities and land are probably as expensive as the most expensive real estate, including things like electricity. Even in the retail trade, you will see most of them are coming up in state where utility bills are low like Andhra and Telangana. So the financial model, if you are going to sell with the MRP, is not very robust in India. Add to that the lack of availability of clean real estate. Bulk of the real estate in India is heavily litigated. It’s done wonderfully. But it has a limited role.  

Where e-commerce scores

That’s where, e-commerce comes in. It’s a little bit like mobility. Today everyone has mobile phones. People were looking for things and there were aspirations. E-commerce gives visibility; of course, both from the brand side and market side, there were some challenges. People get used to technology very fast in this country. When relatives come back from the US, no one can believe that they can walk out without their wallet in India. They get completely zapped.  We have 280 million digital transactions every day in India.  We have more people using the Internet than the population of the entire Europe.

Now put all of these together—a consumer base, the middle class earnings going up and aspirational people wanting to try more products, the retail environment in the country between the small kirana store and organized trade and the penetration of technology. That is where Amazon comes in.  

Journey from selling books

We entered this country nine-and-a-half years back to be precise. We celebrate our first 10 years in July. We started as small warehouse in Mumbai with 100 sellers and we used to sell books. At the start, the ecosystem was quite underdeveloped. The digital sophistication wasn’t there and people needed a catalogue. Many sellers never moved from a kirana to organized e-commerce. They just moved from kirana store to commerce.  

We took it as an article of faith that the customers in India, just like anywhere in the world, would love selection, good prices and convenience. Therefore, we started investing well ahead of what we thought was the customer demand. Our approach was quite clear. It was to use technology to enable all kinds of sellers to get access to the consumer base across the country and use technology to cut down costs in the value chain, so that we could provide the best prices to the consumer.

At the start, we realized that even as a company, there were lots of areas which we never knew how to handle. For example, cash on delivery was a unique India phenomena. Ten years ago, there were some companies doing e-commerce like Flipkart and rediff.com. But they were largely restricted to a few categories and urban centers. We wanted to use technology to remove the privilege of just the urban population who had access to all these, in a sustainable manner. We always start with the customer first. 

Keep it short & simple

If you want to be a seller on Amazon, you’re supposed to write one page, which is called the press release. It is focused on the customer need that you are addressing, how you will leverage technology to address it in a sustainable manner and the customer delight which differentiates you from current offerings. If you get the consumer model right, the financial model is easier. A lot of companies get the financial model right but the consumer model is not right and therefore the offering fails. 

Our model is very unique. In the beginning, a flywheel is difficult to move. But once it starts moving, it takes its own momentum. Our strategy is to get more selection from sellers and get them to offer better value and better convenience. We get more selection, more consumers and we deliver it faster. The flywheel keeps on moving. It’s a very unique philosophy in the management world. And in its own small way, it has served the company well over the last 26 to 27 years globally, and now in India. 

Amazing things in Amazon

There are a lot of peculiar things we do when we want to achieve this. We don’t do presentations. The annual strategic review happens in six pages. Even the font is decided—Calibri 11. We free the salesperson from the paper. We get the idea sharp and are focused on data.  

In most companies, if you went for a meeting and the big person said, ‘I like the idea,’ everyone says, “We like the idea.” In Amazon, it’s called social cohesion and is banned.  Whenever we measure a P&L, we just don’t look at the transactional P&L. We have instrumentation to measure the downstream impact of a customer. When people shop on Amazon, we know, using data, if they get the shipment in six hours and what is the likely chance of how much more would they shop. That’s what machine learning does for us. It’s a very fine-tuned science. 

From one warehouse &100 sellers

When we started, we had one warehouse. Today, we occupy 43 million cubic feet of space. Wherever you are, whether it’s Ladakh, Andaman, Majuli islands, Assam or Lakshadweep, we deliver to every pin code in this country. If you are sitting in Chennai or Bangalore, the chances are that 30% of your deliveries will happen within two days. We’ve created a massive infrastructure of warehousing and transportation to enable this. 

When we started with 100 sellers, we went to the shops and mundis and begged people to start selling online. Today, if any of you want to sell, it takes exactly six minutes to become a seller. That’s it. Anyone who has a good idea can come online and sell nationally. You just have to focus on your product and your design and leave distribution and advertising to us. Every time a consumer clicks, you pay. Otherwise, you don’t even have to pay for advertising.  More than 11 lakh sellers work on amazon.in and that includes all kinds of people from startups to current unicorns to women entrepreneurs. We keep on adding close to three lakh sellers every year.

The flywheel gains momentum

Anyone with a good product should be able to sell anywhere.  We have 100 million plus customers. We feel good about the kind of traction we are getting. We have Amazon Prime, which is, in my opinion, India’s largest loyalty program. Our thought process is very simple. The prime offering is so good that it would almost be irrepressible for you to say no. We offer reading content on Kindle, music on Amazon Music, video content on Prime Video, shopping on Amazon.in, games and many more to come. The flywheel keeps on moving faster. We sell over 20 crore products. We love selection in that sense. 

We want to ensure that we digitize close to 2 million small businesses by 2025. We’re almost halfway there. We’re also really big on exports because every seller who joins us can export to 188 countries. They have to do nothing. We take care of all the complexity, the shipping and the paper work. We plan to export $20 billion of goods by 2025. In a year, we are now crossing 3 to 4 billion already. We are a pretty large employer in India. 1.30 lakh people work for us. We could hit 20 lakh sellers by 2025. In this journey of 9.5 years, we believe that our initial thought that customers would love selection, pricing and convenience seems to be playing well. Most of the unicorns in India in the CPG and technology space were born on Amazon.  

It’s still day one

Within the company, we keep saying it’s still day one for us. What is day two? When a company becomes large and bureaucratic, when you have eight layers between you and the person who runs the company, that is day two and it is a sign that the company is in chaos. That’s a reality, because a lot of large corporations don’t exist after 40 to 50 years. Similarly, for e-commerce, I believe it is still day one. It’s still a very small percentage of the market, though people talk a lot about it.

We want to drive that every customer in India should have the same access and that every seller, every product owner who has a good idea, should get the same chance as a large industrial house, in order to succeed.  This is what technology is doing to India. It is making entrepreneurship completely secular. Anyone can succeed at any age, and become an entrepreneur. And that’s where technologies like E-commerce, digitization, the cloud and artificial intelligence are helping us.    

Q&A

What is the penetration of E-commerce in rural India? Will E-commerce expansion be at the cost of the kirana stores? Can we sustain the growth of E-commerce that was achieved during the pandemic?

It is probably 2% penetration. People choose different channels to shop depending on what they need. There are very few people who will say, ‘I’ll only shop online or I’ll only shop offline.’ During pandemic, there were lockdowns and restrictions but the government allowed e-commerce to operate. A lot of people started becoming sellers online. We have close to 2.5 lakh small stores which sell online. This accelerated during the pandemic. For a small retailer, working capital is very important. During the pandemic, we reimbursed their money every day, so that the cycle was faster. Most of our sellers operate online and offline. The ability of the Indian entrepreneur to adopt technology is mind boggling. If we continue to delight our customers and sellers, we would go continue to grow.

The expectation of large discounts from customers on e-commerce is growing. How do you manage this?

If the seller finds it efficient to sell online, he or she will offer you a better discount. Our job as a marketplace is to create the infrastructure and having the ability to serve every pin code and to put together physical warehouses, trucking companies, etc. so that the sellers can reach any customer they want quickly and make the marketplace experience seamless. We keep on getting more sellers and they keep offering better prices. The use of technology has removed unnecessary costs from the supply chain for our sellers. 

In the influencer marketing trend, the review plays a vital role in creating customer perception. How do you handle this?

The good thing about social media is that you can always find the right person. It’s not that you have to go to a film star to start with. Nowadays, youngsters have started doing reviews. They can become popular, depending on the quality of their content. The ability of an influencer to be awesome depends on how truthful and neutral his or her review is.   

What is your take on ONDC (Open Network Digital Commerce)?

The team which is doing ONDC is also the team which created UPI, the national payment interface. We work quite closely with ONDC. The thought is awesome. It’s about creating a pipeline where any seller can come in. Consumers can choose which seller they want, who will be the payment provider or the logistics provider and so on. This is how UPI works in some ways. It’s early days yet. We are partnering to make sure that we can execute it.  

When someone starts selling, which is better—online or offline presence? How can people be protected against online e-commerce scams?

If you’re starting new and small, I would always encourage you to go the digital way. It’s far more cost effective. It lets you focus on what you’re good at. Offline is very challenging. We leverage technology to weed out false reviews and scams. We are pretty good in machine learning and AI. We can never say we’ve got rid of scams but we keep on getting better. The key thing is to protect the customer and the seller, who are our main constituents.

What about Amazon getting into offline model, like Reliance does? How do you balance your large supply chain? 

Online model itself is so nascent right now. So I wouldn’t worry about offline. Of course, Amazon is experimenting in North America and in other parts. We should not get obsessed with the physical market. We should be obsess with the consumer. Every time ask yourself, what can you offer better: Offline or online mode? Amazon warehouses have millions of products. We insource our technology and it is a strength area for Amazon. How we manage to handle the supply chain of 20 crore products and still get them to you with probably 99.8% efficiency is almost a trade secret. Our backbone is technology and nothing else.  

How will 5G impact e-commerce?

Any technology upgrade is good for us. Faster speed of data is critical for our business and so 5G will be good for us.

With the purchasing power of consumers increasing in India, who do you think will be the mainstay of Amazon’s revenues—Indian market or global markets?

I think we have the best of both worlds. I have spent 25 years in India and I get technology from North America. We have spent a lot of time understanding consumers. Our ability to read signals on what is good or bad is much faster in online than offline. A lot of people tend to think of Amazon as an American company, which legally it is, but it’s exactly like Hindustan Lever. We appoint people who work here and who have a great amount of expertise and knowledge.  

In Amazon, which is important—customer or employee?

The customer always comes first, the seller comes second and then the employee. That is our philosophy and I’m saying it in a very serious note. We don’t have fancy offices. They are bare bones. Everyone in the company, including the owner, has to fly economy, even if it’s a 20 hour flight, because we believe every rupee or dollar we save, we can put it back so that it helps a customer. The seller comes second. If a seller does something which impacts a customer, we will always protect the customer first. Obviously, we need great quality of employees. If we’ve not taken care of our employees, we can’t take care of our customers.  

What’s your word of advice to entrepreneurs waiting on the fence to launch startups? We see that only a few succeed.

If I am younger, I would want to do something on my own. It depends on what stage of lifecycle you are in. If you have a good idea and if you’re focused on the customer, give it a shot. Some would succeed and some wouldn’t. You have to be innovative to succeed.

In creating a work culture, how do you ensure that it is embraced at all levels of the organization, especially since you have a global model? 

People think of us as a technology company. The strongest thing in Amazon is people practices. Let me give you an example. The first day I joined the company, I came in early and the door was locked. There was a guard walking outside who said that if I wanted him to open the door, I must raise a TT. It means a Trouble Ticket. It is a digital company. You don’t have secretaries who look at your mail. Your room size is identical. You don’t have a permanent seating space. It is genuinely mobile. The culture is extremely strong and there is no hierarchy. We keep on saying, work hard, play hard and make history. Amazonians want to do something which can create a difference in this world. People think we are an e-commerce company. But then, we are an entertainment company, a cloud company. There is no better place for people to innovate than Amazon.  

By and large, who do you think transact fairly in e-commerce—Indian customers or international customers?

I don’t know what it means by fair. Our philosophy is that 99% of customers are always right. We don’t put systems in place which penalize a good customer because we have a bad customer. That Indian customers return more in online than international customers is a myth. Consumers in India behave exactly the way consumers behave elsewhere. They love the ability to return anything in seven days, if required.  

Does not digitization lead to loss of employment?

I completely disagree. What has changed the most in India? The sheer number of people working for technology. May be 30- 40 years back, the thought of employment was a government job. Right now and I’m not talking about Amazon-  think of Swiggy, Zomato or Flipkart- I can say it with confidence that anyone who’s past class 12 and has a driving license in this country, can get a job worth 30,000 rupees. After Seattle, we have the best brains in artificial intelligence and machine learning, working in India. We have Amazon’s second largest office in the world. Technology, in my opinion, is what will take India far beyond the 5 trillion mark.