Lower discounts, economic slump take toll: Click-wait for ecommerce as consumers put off buys

BENGALURU | MUMBAI: Consumer spending on online shopping sites is estimated to be down by about a fifth in the first half of the year to June as etailers have cut discounts and the growth slump has hit buying sentiment across sectors, according to a report by market research firm Kantar.

To be sure, the company expects a “bounce back” in the second half, which is marked by the festive season when ecommerce players typically register a significant spike in sales.

While the average ticket size has fallen 27% in the first six months compared with the same period last year, average spending is down 21%, according to the report that’s exclusive to ET.

“The overall economic slowdown is reflecting in consumer sentiment with respect to online shopping,” said Hemant Mehta, MD (insights division), Kantar. “Consumers seem to be cautious and taking their time before making purchases.”


Mobile Phones, Fashion See Steep Fall
The number of buyers dropped across several key categories with mobile phones clocking a 17% decline, while fashion saw a 16% drop, Kantar said.

As per estimates by IT industry body Nasscom, the Indian ecommerce market was worth $38.5 billion in 2018-19, compared with $33 billion in 2017-18. Amazon and Flipkart comprise the bulk of India’s online retail market.

ET reported last month that online marketplaces are expected to register 25-27% sales growth during the crucial festive season, slower than last year’s 35%, owing to sluggish consumer sentiment and a slowing economy.

“Once considered recession-proof, online shopping has experienced a dip in H1 2019, in terms of buyers and spends,” according to the report. These changes were influenced in part by a reduction in discounts — which nearly halved between 2018 and 2019, the report added. Kantar analysed the online purchase behaviour of 50,000 urban consumers to derive its findings.

Some of this was bound to happen, said Paula Mariwala, founder of Stanford Angels, which invests in startups.

“Banks and NBFCs (nonbanking finance companies) have been reluctant to give credit and you’re seeing that here as well,” she said. “A major portion of customers in India had found access to premium phones and fashion through EMIs (equated monthly installments), and now that layer has been peeled away.” NBFCs have been gripped by a liquidity squeeze for about a year now, following the IL&FS default.

Absence of discounts
Another reason is the absence of discounts.

“Earlier, there was a lot of competition in fashion, for instance. We have seen a consolidation there and ecommerce companies don’t need to discount anymore to get customers,” Mariwala said. She said these companies are focussing on unit economics, which is why deep discounts have been withdrawn.

“However, we are heading into the peak season as far as shopping is concerned, and are optimistic that the sector will bounce back in the second half,” said Kantar’s Mehta.

As ET had reported earlier, Flipkart and Amazon India are maintaining aggressive targets, and hope to clock combined gross merchandise value (GMV) — or sales — of about $5 billion in October.

Walmart-owned Flipkart said it hadn’t seen a downturn.

“At Flipkart, we’ve been seeing good growth. As a value player in ecommerce marketplace, we continue to bring lakhs of sellers across the country to over 150 million consumers pan India,” a company spokesperson said. “We continue to remain very excited with the growth that we are seeing, especially in the upcoming festive season.”

An Amazon spokesperson said the contribution of phones above Rs 15,000 had increased significantly in the past two quarters. “Our customers continue to show a strong response to the great offers from our brand and seller partners, including those for premium smartphones,” the company said.

India introduced clarifications to its foreign direct investment (FDI) norms for online retail through Press Note 2 in December last year. The rules, which affected the working of large ecommerce marketplaces such as Amazon and Flipkart, barred online marketplaces and their group companies from owning vendors and prohibited them from controlling the inventory sold on their platforms.

FMCG, Groceries: Resilient but under pressure
Fastmoving consumer goods, the third-largest category in terms of buyers, weathered the impact better than most, the report indicated. The number of online shoppers in the segment saw a 17% increase over 2018 with spending increasing 91% during this period. Discounting in the space also more than halved over the past year in line with other categories.

“However, the fact remains that consumers consider FMCG purchases to be more essential to daily living than non-essentials like new electronics, fashion items or mobile phones,” the report said.

Customers may buy smaller sizes of products, but will buy essentials, said K Ganesh, cofounder, Growth Story, which has had invested in companies like grocery company BigBasket.

“Also, one must remember that online shopping constitutes a very small part of the overall market, so you will see growth because people will continue to shop and buy more,” he said. “The new economy is usually decoupled from the macro trends, especially in the FMCG and grocery sector.”

Ecommerce companies have generally been able to buck slowdown trends primarily due to their ability to guarantee better prices than offline retailers. According to a Forrester report, despite a steady slowing of Brazil’s GDP, which can be compared with India in size and user behaviour, ecommerce grew by about 18% in 2017-18, while the economy grew 2.4%.