Wednesday 17 June 2015

Big Online Discounts Could Shrink in 2-3 Years: Jabong

The e-commerce sector has grabbed headlines by attracting billions of dollars from big investors. The discount war being waged by the e-tailers has also been in the spotlight. But Praveen Sinha, founder & managing director of fashion e-tailer Jabong, says the sector could see a pricing stability in the next two to three years as the big investors demand their share of the pie

In the next two to three years, "we could see a stability phase when people start asking when will profit come. And the listing pressure could come in companies where private equity and professional money has been pumped in," he said in an interview with NDTV.

But for now it is exciting times for the e-commerce industry in terms of growth and the money being attracted from big investors, he said.

The Discount Game

Mr Sinha says apart from the convenience, price plays an important role in attracting customers for shopping online. Despite an internet user base of around 30 crore in India, only an estimated 3 crore transact online, he said. According to a recent PwC survey, almost half the shoppers buy online because of better deals.

The pricing strategy of e-tailers have helped the industry to grow exponentially, with PwC estimating that e-tailing has grown at an annual rate of 56 per cent between 2009-2014. But the combined losses faced by e-tailing companies as a result of their discounting strategies now stands at almost Rs 1,000 crore, PwC says.

Giving a peek into the financials of the industry, Mr Sinha said "Not only Jabong, I think none of the big e-commerce players are making money today. Many of them are operationally profitable but the marketing and costs are not breaking even today. "

On its part, the sales of Jabong have doubled to $600 million in 2014 from $300 million in 2013. For this year, the overall e-commerce growth rates are also expected to be even stronger. Mr Sinha expects the overall e-commerce sector, excluding ticketing and travel, to grow about 68 per cent this year and the fashion segment at 170 per cent. And according to estimates, the Indian e-commerce sector, excluding travel and ticketing, is expected to grow from $4 billion to 40 billion in 4-5 years, he added.

This fast-paced growth and strong potential of e-commerce sector have helped to attract big money from investors. In the last 10 months, investors have poured $5.5 billion into the Indian ecommerce sector, he says.

But the pricing strategy followed by many e-commerce players has come under scrutiny. "There are many elements in terms of investment and discounting which we keep hearing. Because the way this sector is growing, when the overall market was zero or negative, seeing a three-digit growth is unheard of. So it generated a lot of investor interest," he said.

But Mr Sinha says the e-commerce model offers some cost advantage which the players are able to pass on to customers.

On its part, Jabong is preparing for the new reality by aiming to grow in a balanced way by paring down the losses, Mr Sinha says.

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