Ecommerce companies drop discount rates hoping for profitability

Ecommerce companies are slowly heading towards evolving a sustainable model of business. Leading online retail companies are shifting gears from the highly competitive and unrealistic discounts offered due to staggering losses and pressure from investors.

Discounts for women’s apparel and footwear have come down to 30 to 35% from the earlier 50%. Likewise, the discount rate on smartphones has come down to 20-25% and 10-15% for furniture items.

Investors getting worked up and even leaving

Leading online marketplaces including Flipkart, Amazon and Snapdeal havereported losses for the last financial year. This has unsettled their investors and rightly so. It will not be possible to continue to pump funds into a loss making enterprise if there is no respite in sight. Many companies are claiming to turn profitable in short time, but the proof of the pudding is only in the eating.

Snapdeal is dealing with a situation where its investors are bidding goodbye to the company. The company is not alone, as others are having difficulties in raising funds.

Sanjay Gupta, CMO of Urban Ladder, says, “From the launch itself, our focus was on profitability. We believe in honest pricing and we try not to sell products below the cost price, while trying to remain competitive at the same time.”

What can be done?

Experts recommend dropping discounts further.

“While margins of e-tailers are expected to improve with this, it is still a long way for them to become profitable, as cost of infrastructure and delivery continues to remain high. To become profitable, they will have to bring down discounts further and focus on profitability,” says Anurag Mathur, partner, Pricewaterhouse Cooper.

Gupta says, “We have seen discounts dropping in the past one year as online retailers have realised it is impossible to run businesses on loss for too long.”