India’s new demonetization policy is disrupting e-commerce and impacting leading online businesses with a wide range of positive and negative effects. Today, we’ve got a roundup of news to provide a valuable perspective and a look at what’s ahead in e-commerce in India.
Coupon apps like Nearbuy and Little, which have off-line retailer customers, saw business grow with demonetization. Meanwhile e-commerce companies like CouponDunia and Cashkaro recorded a 10-20% drop in business as customers pulled back from buying as COD cash payments became more difficult. Estimates for GDP growth were reduced by Ambit Capital from 7.3% to 5.8% due to the impact of monetization.
Amazon, Flipkart and other e-commerce leaders are likely to see the biggest negative sales impact due to reduced COD payments for delivery of luxury products purchased online according to Forrester Research. As much as 6.6% of all e-commerce gross sales in 2016 were generated in just five days of Diwali festival sales in October says RedSeer Consulting. Morgan Stanley slashed value of its Flipkart shares by 38.2%, the ninth devaluation for company shares.
Industry experts are mixed in their opinions of whether Alibaba will acquire e-commerce company Snapdeal in which it now holds 3% of shares. By the end of fiscal 2016, Amazon losses are expected to reach $1 billion based on its $80 million a month costs to acquire new customers. Gartner research says profitability is still a distant dream for most e-commerce companies in India, despite the success of recent festival sales. Flipkart plans to develop its own “make-in-India” program to encourage sales of Indian-made products.
Some deals platforms gain, others lose in the churn
Deals discovery and coupon platforms that offer discounts and rewards on purchases are seeing a mixed impact from demonetization.While coupon apps like Nearbuy and Little that primarily deal with offline merchants are seeing an increase in sales, companies like CouponDunia and Cashkaro, which onboard only online retailers, saw a slump in the number of deals.
Mumbai-based CouponDunia, which has over 2,000 online merchants, has seen a 10% decrease in the number of transactions following demonetization, which founder and CEO Sameer Parwani attributes to the falling numbers of cash-on-delivery (CoD) orders. “It was anyway a down period after Diwali and now people have stopped using CoD to save on cash,” he said.
Cashkaro’s transactions have fallen by 20%. “There is general setback in spending,” said founder Swati Bhargava. But she added that many have started transacting online, which is leading to some ecommerce players offering discounts on prepaid deals. Via timesofindia.indiatimes.com
Demonetization Will Impact Amazon’s Growth In India
As Amazon invests heavily across the globe, India is one of the key growth countries for the company, with e-commerce in the region at a nascent stage and a huge potential for growth. However, economic policies in the country can impact this growth for Amazon. In a sudden and unprecedented move, on November 8, 2016, the Indian government announced that high value currency notes (Rs. 500 and Rs. 1000) will no longer be legal tender, eliminating nearly 86% of the currency in circulation, creating a huge cash crunch in the economy.
In a country where nearly 90% of transactions are carried out in cash, a bold move to transform the region into a “cashless” economy has created chaos. The move is intended both to reduce untaxed “black” money and rampant corruption in the country, and to bring more accountability in cash-based informal industries.
Experts believe that demonetization could impact the country’s economic growth significantly in the short-term. Ambit Capital, a reputed research company in India, has revised its FY18 GDP growth estimate to 5.8% as opposed to the 7.3% figure earlier. The cash crunch has impacted business of several industries and can have a significant impact on the “Cash on Delivery” model of e-commerce companies in India. About 70% of online shoppers in India, including those on Amazon’s platform, opt for cash while buying a product. Cash payments are more frequent for high value products where the unaccounted “black” money is spent on luxuries.
While online grocery companies have seen a surge in revenues with the demonetization move, as consumers look to buy essential commodities through digital payments, gross merchandize value of other high value commodities is likely to be affected negatively. According to Forrester Research, the cash crunch will bring the cash on delivery share of e-commerce sales down significantly and increase the online payments. Via forbes.com
What Flipkart’s devaluation mean for India’s e-commerce industry?
PM Modi’s demonetisation drive along with a devaluation may bring a double whammy on Flipkart. Sales of e-commerce companies have already gone down since the November 8 announcement. This could mean that Flipkart’s GMV may dip lower in the quarter ending December this year, against last year’s GMV in the same period.
While the potential of India’s e-commerce is bright in the coming years, ‘not so great’ business fundamentals will affect the company’s future funding round, as well. Rivals Snapdeal and Paytm do have a payments arm to flaunt to garner more funding; Flipkart which shut down its payments arm PayZippy in 2014, a year after its launch, stands to lose out in the mêlée.
Like Flipkart, smaller ‘mom and pop’ e-commerce companies which sell fashion and electronics will also suffer due to demonetization. Via moneycontrol.com
India’s e-commerce market heavily dependent on festive season sales
India’s online retail market is a lot more dependent on discount-driven festive season sales compared with the US and China, two of the biggest e-commerce markets in the world.
According to RedSeer Consulting, some 6.6% of all e-commerce gross sales in 2016 were generated in just five days in October. These five days are when Flipkart held its annual shopping festival Big Billion Days and rival Amazon India ran a competing event called the Great Indian Festival. Both firms spent hundreds of crores of rupees on advertising and deep discounts during these sales.
In comparison, the Singles Day sale by China’s Alibaba Group accounted for 2.4% of the country’s e-commerce market in 2015 and Cyber Monday in the US accounted for 0.8% of that country’s e-commerce sales last year. Big Billion Days, which has become synonymous with festive season sales, was inspired partly by Singles Day and Cyber Monday.
The numbers indicate that while the festive season sales bring in millions of new users and drive higher sales, e-commerce firms in India are overly dependent on this period compared with their peers in the US and China. Via livemint.com
Flipkart now worth just $6b, says Morgan Stanley
Flipkart, India’s poster child for all things startups and ecommerce, is now worth just US$6 billion, a huge fall from its once-vaulted status of being a US$15 billion company.
A mutual fund managed by Morgan Stanley slashed value of its Flipkart shares by 38.2 percent. The fund currently holds 1,969 shares in Flipkart that are collectively valued at $102,644. (H/t to The Economic Times for spotting this first.)
The latest cut in valuation is on top of the 27 percent cut in February. Flipkart says it’s not bothered.
This is Flipkart’s ninth markdown by its investors. Mutual funds by T. Rowe Price, Vanguard Group, Fidelity, and Valic have each lowered their valuations on the company in the past. Via techinasia.com
Alibaba And Snapdeal – Will The Hidden Dragon Meet The Falling Unicorn?
However, other sources close to the development have confirmed the acquisition news to Inc42. As per three people close to the development, Alibaba is in final stage talks with Snapdeal. The major point of discussion before finalising the deal is the valuation.
If sources are to be believed Alibaba has agreed to take up Snapdeal for about $2.2 Bn.
The buzz doing the rounds also suggests that the investors are looking for a new CEO for Snapdeal and if the acquisition comes through then, Snapdeal might witness the exit of Kunal Bahl and a change in its leadership too. Via inc42.com
Indian e-commerce industry’s losses may swell on Amazon’s $ 1 billion loss this year
Amazon’s losses in India are expected to swell to $1 billion by the end of the fiscal as the company burns money on expanding its service to beat market leader Flipkart.
The US retailer is spending up to $80 million a month to acquire customers and grow its market share, nearly a four-fold increase compared to last year ,according to a Business Line report.
In the three months that ended September, Amazon’s international losses swelled to $541 million, with the biggest sap on earnings being the company’s investments in India. Analysts said losses in the quarter spiked due to preparations for festive sales that took place in October.
“By far the biggest individual thing is the investment in India that we continue to make and very excited about it, the initial reaction in India from both the customers and also sellers,” said Brian T Olsavsky, Chief Financial Officer at Amazon, during a call with analysts last month. Via business-standard.com
India’s e-commerce platforms like Flipkart, Snapdeal see zero profit mainly due to the massive discounts offered; need to go back to basic to see sustainable growth: Gartner
Just when we were thinking that India’s e-commerce platforms are on a roll after the extremely successful festive ‘Diwali’ sales, Gartner says that none of the digital commerce companies in India are profitable. And the reason is mainly the massive discounts offered by the platforms. Gartner says that these companies typically earn between 5-15 percent commissions of product sales, but the massive discounts on top of the investment in order to expand to more geographies saw those companies losing money and how this can be a serious problem when the capital market tightens up.
“The problem is being neglected when there is plenty of funding, and companies can live off sufficient capital. Once the market tightens, it is a survival game that only those that watch the bottom line and cash flows will win in the end”, said Mr. Alvarez, managing vice president at Gartner “There is a need to go back to the basics, that is, to operate on a sustainable growth model. Of which, customer experience and data-driven incentives are two fundamental factors.”
The only way for these e-commerce platforms to see sustainable growth is to go low on the discounts and go back to the basics. Customer care and data driven incentives are the two factors that these companies need to ace in order to start making profit. According to Gartner, Customer Experience is the most important differentiator of a digital commerce service as price becomes transparent across sites. Discounts will only retain customers as long as the promotion lasts, while good customer experience will make people come back and purchase more even when there is no promotion. Via businessinsider.in
Flipkart to be reloaded with Indian goods
Homegrown online marketplace leader Flipkart is going to join the make-in-India bandwagon. Executive Chairman Sachin Bansal is building a team for the India-made private label initiative, which will be incubated under the Flipkart Group, according to three persons privy to the developments.
The move will help the ecommerce major not only to get favourable attention from a central government that supports local manufacturing but also to stand apart from American rival Amazon in one of the world’s fastest-growing markets for online retail.
“It’s a big potential business,” said one of the people aware of the matter. A second source confirmed the “nascent project” and said “the subsidies and tax benefits for make-in-India products and the favourable government attention make the opportunity exciting.” Via economictimes.indiatimes.com
India e-commerce remains challenging
Despite the huge market and its potential, profitability is still far in the future and it will take deep pockets like Amazon and Alibaba to survive in the competitive Indian market. We’ll keep you up-to-date on new developments and potential mergers and acquisitions in the months ahead.