Peermohamed, Business Standard
Bengaluru, 20 October 2016
in India has long been accused of being built on massive discounting
and catering mostly to well-to-do customers in large metros. While this
has been largely true for the past four years or so, today, large
e-tailers including Amazon, Snapdeal and Flipkart argue they are at an
inflection point where e-commerce becomes universal in the country.
inflection point came during the festive sales these players held at
the start of this month and has been in the making for at least the
past nine months. For the first time, more customers outside large
metros shopped for products online and were even willing to pay more
for convenience - a stark contrast to how the industry has been
Amit Agarwal, country manager at Amazon India, said:
"A week before the Great Indian Festival sale started, a popular
comment would have been that e-commerce in India is primarily limited
to well-off families in urban India. But more than 65 per cent of our
shipments go to Tier-II and below cities and during the festive sale,
it was higher - closer to 70 per cent."
One of the biggest
reasons for this has been the trust e-commerce companies have built in
consumers' mind. Cash payments, which allowed customers to pay for
goods only when delivered, are at an all-time low, indicating an
increase in trust. While not only making it much easier to accept
payments, e-commerce companies see this as a way to reduce returns.
the recent festive sales, which kicked off at the start of this month,
Flipkart said cash-on-delivery (COD) accounted for 60 per cent of goods
sold on its platform, down from 75 per cent a year ago. Rival Snapdeal
pulled off an even better show, claiming that for the first time, more
than 50 per cent of all its orders were prepaid.
season is an inflection point for the growth of e-commerce industry,"
Snapdeal said in response to a questionnaire sent by Business Standard.
"The increase in smartphone penetration and the explosion of choice at
the sub-Rs 10,000 price point shows the importance of digital access
Flipkart pegged the share of orders coming from
Tier-II and Tier-III cities at 65 per cent, saying it was nearly double
of last year's Big Billion Day sale. Snapdeal said 60 per cent of its
sales came from outside metros, while Amazon said the number of
shoppers from smaller cities grew 30 times during its sale.
penetration is growing, it's forcing e-commerce companies to change the
way they do business. Marketplaces, by definition, cannot stock their
own inventory, so they rely on sellers. But to get products shipped to
customers from smaller cities, they've now begun stocking their
sellers' inventories at their own warehouses strategically placed to
ensure quick deliveries.
"With 27 fulfilment centres across 10
states and among the strongest distribution and delivery network, it is
no surprise that this festive sale saw such a strong degree of
transactions from Tier-II & -III cities," said Amazon.
Executive of Flipkart Binny Bansal said in a recent interview more than
60 per cent of the 15.5 million orders the company processed during its
five-day Big Billion Day sale were fulfiled by the company itself. This
was in stark contrast to just 20 per cent during its sale last year,
which led to a massive pileup of deliveries and disgruntled customers
because deliveries were delayed.
however, argue the changes seen this festive season are part of growing
sensibilities at e-commerce companies to reduce cash burn. With the new
foreign direct investment norms for e-commerce marketplaces disallowing
such players from discounting products, it's gotten much harder to play
the price war.
Executive at consulting firm Third Eyesight, Devangshu Dutta, said:
"There is a pressure within the e-commerce businesses to discover more
margin. Discounting is less aggressive and the focus is as much on
building margin during the festive season as on gathering turnover.
Product mix and merchants are being reconsidered."
grew in India on the back of books, a model Jeff Bezos had perfected in
the US with Amazon years earlier. Books were cheap enough for customers
to trust relatively new e-commerce companies with, were easy to ship
and had an almost universal demand. In a decade, that story had
Indians are now buying everything from
smartphones, clothing, consumer durables to even vehicles and homes
online. The ticket prices for purchases are on the rise, too, and
experts credit this not just to growing income levels, but acceptance
by consumers to make larger purchases online. Out of the millions of
orders Flipkart got during its sale, for instance, over 100,000 had a
value higher than Rs 50,000.
For Amazon, an estimated two
million orders out of its 15 million during its sale were subscriptions
for its Prime membership. While the membership cost just Rs 499 a year,
Prime members in the US spend on an average $1,200 a year on the
platform, double what a non-Prime member spends.
who heads Amazon's India arm, said it was a huge win, indicating that
India's e-commerce market was evolving even faster than what was seen
in the US. It took a decade for Amazon to roll out Prime in the US and
another decade for it to become a norm - half of all households in the
US are estimated to have one Prime member. In India, it's taken just
three years and adoption is already off the charts.
e-commerce market has been built on an immense amount of capital being
pumped into offering discounts to hasten adoption. This could come back
to hurt e-commerce companies as all they're doing is pulling customers
away from offline channels with the lure of discounts, and once they
stop, people might just go back.
the industry insists on having e-commerce being seen as separate from
the rest of retail, it will be fighting a battle against itself in
which there are no real winners except for advertising media and the
last player left standing with money in the pockets," added Dutta.
in Business Standard)