BENGALURU: Another wave of consolidation has hit the Indian ecommerce industryas smaller etailers struggle to stay afloat. After collectively racking up around $400 million in investor capital, in the past few months a clutch of smaller online marketplaces such as Shop-Clues, Craftsvilla, Voonik, Wooplr and Elanic are shutting shop, pivoting their business model or opting for outright sale. Most of these web retailers were targeting non-metro shoppers and selling wares from smaller merchants. But with the growth of the Indian ecommerce market slowing and Amazon and Walmart-owned Flipkart dominating the industry, the second tier of etailers is now faced with an existential crisis.
Financial backers of these companies have either written off their investments or aren’t ready to plough more capital into businesses that won’t be able to fight bigger rivals.
‘Trust Factor Missing’
Investors and executives ET spoke to indicated that these businesses have struggled as they sold inferior products and had a weak supply chain and inventory, leading to high returns and close to zero customer repeats, making them unviable.
“After you tap a customer base of 20 million users, it is important to drive repeat purchases and cut down on returns,” said an investor who has backed one of the companies that’s struggling to keep afloat. “But across all these companies, we realised that the trust factor with the brand was missing for both customers and sellers.”
Estimates by logistics companies and industry sources say returns from most of these marketplaces and social commerce platforms stood at 35-40% for the apparel category while for Flipkart’s Myntra or Amazon Fashion, the number is close to 20%. Logistics companies said returns to origin — when a package is not accepted by a customer — were as high as 10-15% for these businesses.
The All India Online Vendors Association, a lobby group that represents small online merchants, said shipping costs are Rs 65 on average and reverse shipping costs another Rs 75. “A lot of the time, damaged products come in return shipments, for which sellers are unable to penalise consumers due to marketplace policies,” said a spokesperson for the grouping.
Among the best funded in the group, ShopClues, which built its business as a long-tail marketplace, is in the final stages of closing an all-stock sale to rival Snapdeal, as ET reported last week. ShopClues has in all raised $250 million from Tiger Global and Nexus Venture Partners among others but has not been able to shore up equity capital since 2016.
Others like ethnic-wear marketplace Craftsvilla, which mopped up more than $50 million from investors including Sequoia Capital, Nexus Venture Partners and Lightspeed Venture Partners, is also on the block, as reported by Entrackr. Regulatory filings show that the company’s topline has been stagnant at Rs 31.5 crore in 2018, little changed from Rs 30.4 crore in 2017. “We are currently looking for a merger or an acquisition to lower customer acquisition costs in order to become profitable and grow faster,” Craftsvilla cofounder and CEO Manoj Gupta told ET.
Sujayath Ali, founder of Voonik, which recently pivoted to only selling private labels, said maintaining quality and consistency in the marketplace model in apparel is difficult. “We have failed a number of times,” he said. Earlier this month, ET reported that Voonik was looking to build a full-stack private label business as it believes this will lead to better quality control and margins. Voonik counts Sequoia Capital, Beenext and Times Internet among its investors. Times Internet is a part of the Times Group, which publishes ET.
While Ali declined to provide numbers, two investors told ET that Voonik and Craftsvilla were averaging 13,000 -16,000 orders a day with an average value of Rs 700. Reseller platform Wooplr's orders are estimated to have been close to 4,000-6,000 before it shuttered.
Having started as an Instagram account that showcased women’s fashion, Wooplr evolved into an influencer-led ecommerce platform before shutting a few weeks ago. Late last year, Tiger Global-backed Roposo, which started off as a fashion-focused social network offering curated apparel, footwear and accessories, pivoted to becoming a video entertainment platform.
“With users’ engagement growing on the app, we realised that people were interested in different topics and felt restricted with content on fashion alone,” Roposo CEO Mayank Bhangadia said in an email.
Investors had backed these businesses in the belief that smaller towns and cities would boast of at least a 100 millionstrong market where shoppers aspired for a wider selection and lower prices. However, with Flipkart and Amazon raising the standard for customer service and subsidising products for first-time buyers, customers have shifted to these marketplaces.
A wholesaler from Surat who makes private label clothing for online sellers including Voonik and Craftsvilla told ET he often gets requests to list sarees for Rs 200-600. “With a Rs 299-399 saree, which includes commission, cost of manufacturing and logistics, there is no margin to bring in high quality,” he pointed out.
Ankur Pahwa, partner and national leader, ecommerce and consumer internet at EY India, said that with high online customer acquisition costs, the smaller players have limited offerings on their marketplaces, which is a key reason why customers tend to incline toward Amazon or Flipkart.
A Forrester Research report said that Snapdeal, ShopClues and Paytm Mall, which focus on the low-price category, are finding it difficult to retain customers and increase average ticket size. With the acquisition of Flipkart by Walmart and Amazon’s focus on shifting beyond metropolitan areas and tier II cities, these players will find it difficult to grow in 2019 and to raise funds to subsidise that expansion, the report stated.
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