2016 was mellow year for online retailers; will private labels bring profitability in 2017?
The year 2016 would be remembered as the year when the inflated valuations of ecommerce unicorns and start-ups came crashing down. Amidst series ofdevaluationsandfunds drying up, etailers realized that only positive results would attract investors and help them to sustain in the ecommerce industry.
Experts also blamedemonetizationfor the sluggish ecommerce sales ($14-14.5 billion) in 2016, though it came into effect only in the last two months of the year.
Rahul Chowdhri, partner at Stellaris Venture Partners put the entire blame of ecommerce slowdown on the government’s move to ban high denomination notes bysaying,
“The overall e-commerce and retail market did grow during the first half and till the October-December quarter—but demonetization has hit businesses very hard. And that is resulting in lower-than-expected numbers and is a big reason why (the market) has remained flat.”
IOSreportedhow ecommerce projections went down post-demonetization. Industry watchers and research firms have predicted that the impact would last till April-May 2017. So 2016 will not only end on a mellow note for the online retail industry, but the beginning of 2017 would be slow too, according to analysts.
But ecommerce giant Amazon India holds a different opinion. The marketplace’s head Amit Agarwalsaid,
“I feel when you have 97% of pin codes place at least one order (Amazon saw people from 97% of all pin codes in India place at least one order in its October sale), I haven’t seen any other industry have that kind of penetration in such a short time. I see 1,500 new sellers breach the Rs1 crore club, it shows that the growth is prevalent on the platform and not just limited to a few people.”
Can private labels come to the rescue of troubled etailers?
Another prediction for 2017 is that private brands of online marketplaces and niche players would transform into a$5 billion empire in 2017.
Both the top players Amazon and Flipkart have launched a range of its own labels as it is theirnext battleground. Beauty etailer Nykaa too iscountingon private label to increase FY 2017-18’s revenue. Fashion etailers Jabong and Myntra has long relied on their own brands to become profitable because of the high profit margins. Big Basket and Urban Ladder also follow the same route.
Devangshu Dutta, chief executive at Third Eyesight reiterated the high-profit margins factor as hestated,
“Given how the market is at the moment, where there is pressure from investors who have been asking about profitability or a route to profitability, products that earn additional margins are going to be a focus.”
This is why ecommerce players are focusing on this strategy. However, would it be enough to increase the sales in 2017? Would the demonetizationeffectstretch till the first and second quarter of 2017? And if the experts are right, then what does it say about the ecommerce industry where 2 months of drop in sales overpowered the 10 months of growth that includes the festive big fatfestive season?