Online retailers face heat as buyers wait for deeper discounts

New Delhi: Their getting-a-better-deal instincts whetted by the hefty discounts offered on e-commerce websites, customers are staying away from online sales dangling 20-40% rebates, preferring to wait for the 50-80% sales that are inevitable as online retailers chase higher market share and revenue at any cost.

E-commerce sites Myntra.com, Jabong.com and Amazon.in have all seen some of their sales in recent months fall short of internal targets, according to six people familiar with the matter who spoke on condition of anonymity.

Myntra ran a three-day sale at the beginning of this month and hit only 50% of its target, two of the six said. They added that the company is now running a television commercial ahead of another sale this weekend to better its prospects.

“Some sale events have done reasonably well considering the company didn’t spend a lot of marketing money, but overall, it’s been a mixed bag. Consumer response to sales hasn’t been as good as expected since the January sale,” a third person, a Myntra executive, admitted.

Amazon denied that its sales have not been working.

“At Amazon, we have always believed that customers will continue to shop with us as long as they don’t find a better shopping experience elsewhere. Our focus has therefore always been on offering our customers a wide and unique range of products at low prices and provide a fast, reliable and trusted shopping experience. Price, we believe, is just one factor,” said an Amazon India spokesperson.

But most analysts and customers agree that in general, sales on e-commerce marketplaces are no longer as impactful as they once were.

Tanmay Sharma, 26, is an avid online shopper. He has skipped most sale events in last two months. “These sales did not offer steep discounts. A 20-45% discount can be fetched any time by using cashback vouchers and additional discounts on mobile wallets and credit cards,” he explained.

“Companies are seeing no movement in GMV (gross merchandise value, or value of the products sold on the site) if they offer a 30-40% discount,” added Paras Arora, vice-president at TargetingMantra, an e-commerce personalization and targeted marketing platform. “Deep discounting always works as consumers are largely deal chasers but companies need to focus on building loyalty and not customer acquisition alone.”

That’s bad news for companies that need to keep their GMV moving to retain and increase valuations. To do that, they pump money raised from venture capital funds into discounts and marketing activities. Their ultimate goal: to build market share, remain one of the last marketplaces standing and, hopefully, translate this share into profits at the time.

Discounts will work, said Sanjiv Kathuria, co-founder and chief executive at Dotzot, an e-commerce logistics arm of DTDC Courier and Cargo Ltd, but companies have to be intelligent about them.

Other experts and executives in logistics firms are still trying to understand the reasons behind the tepid customer response.

Sumchit Anand, founder and managing director at Acquisory Consulting India Pvt. Ltd, blames it on poor consumer sentiment arising from larger concerns related to the economy.

T.A. Krishnan, co-founder and chief executive of Ecom Express, a logistics firm, claimed February and March have always been slow months for the retail trade.

Interestingly, Flipkart and Snapdeal have stayed away from aggressively promoting their sales. Flipkart is expected to run one large sale event around Diwali just like the BigBillionDay it did in 2014.

Mihir Dalal in Bengaluru contributed to this story.

Flipkart has biggest piece of Indian e-tail pie.

The market share of e-commerce companies has so far been a confidential matter, but a new report by Morgan Stanley suggests a pecking order. While Flipkart, founded by Sachin Bansal and Binny Bansal as an online book retailer in 2007, tops with 44 per cent, younger rival Snapdeal is a close second at 32 per cent. US giant Amazon, which launched in India in 2013, is a distant third, at 15 per cent, according to the report. The remaining nine per cent is with the rest of the companies, whom the report does not name.

The report notes fashion as a segment constitutes 30 per cent of India's e-commerce market. In fact, Flipkart's fashion offering got stronger after it acquired Myntra in a $300-million deal last May. Snapdeal, chasing Flipkart, recently acquired luxury fashion portal Exclusively, indicating the significance of fashion in e-commerce. Snapdeal is expected to close half a dozen more acquisitions this year at an estimated $1 billion.

Before the Myntra deal, most of Flipkart's business came from consumer electronics and other categories. Consumer electronics is still a major play for Flipkart, but Myntra's fashion business has given a boost to India's highest valued e-commerce company's market share.

"For Flipkart, the key differentiator has been Myntra as it was a perfect acquisition target. Myntra is horizontal in the fashion space and a value-driven business,'' said Mohit Bahl of KPMG India. In the case of Snapdeal, the acquisition of Exclusively is just the beginning in that direction, Bahl added.

Fashion has been the highest margin segment for e-commerce companies. According to experts, bigger companies would have to acquire smaller ones in a segment as niche as fashion.

The e-commerce market is expected to be pegged at $100 billion by 2020 from about $3 billion in 2013, with a reach of less than a per cent.

Snapdeal aiming to race past Flipkart by year-end.

E-commerce company Snapdeal is aiming to surpass rival Flipkart's gross merchandise value (GMV) by the end of this year, said a senior in the company. The Delhi-based five-year-old e-tailer is targeting $10 billion (about Rs 62,000 crore) in GMV. Sources said last week the Bengaluru-based seven-year-old Flipkart planned to double GMV to $8 billion by December.

By December, Snapdeal's GMV will jump more than four times from about $2 billion now. "Electronics, one of the largest contributors to Snapdeal's sales, is estimated to become a $5-billion business, followed by fashion at $2 billion. The remaining will come from other categories put together," said the executive.

GMV in e-commerce means total sales value of the merchandise sold through the marketplace in a period. Most e-commerce companies refrain from sharing their revenues, owing to which the GMV run rate is often used to gauge their financial health. Revenues are a small proportion of GMV.

While Flipkart targets to ship a billion units a month and serve 100 million customers by 2018, Snapdeal is focusing more on its 40 million connected users, 70 per cent of which come from tier-II cities. Industry sources said Amazon India's GMV was about $1 billion.

"Focus on tier-II cities, rather than just metros, worked for Snapdeal very well. In tier-II cities, e-commerce is a 'need to have', while for the tier-I and metro cities, it is 'nice to have'," said the executive.

Flipkart, the poster boy of Indian e-commerce, has been on a fund-raising spree in the past year, with its total cash infusion at about $2 billion. In the same period, Kunal Bahl-led Snapdeal has decided to stay conservative, raising about $1 billion, most of which came from Japan's SoftBank ($627 million).

While Flipkart is reportedly going for its next round of funding, Bahl's Snapdeal, the executive claimed, was "comfortably" funded till the time when it would turn cash-positive. "Well, there may be fresh funding if the company decides to go for more strategic partnerships. However, the company is yet to zero in on a timeframe for turning it into operating cash-positive," pointed out the executive.

Snapdeal founders have preferred funding from strategic investors even at lower valuations, rather than from financial investors offering much higher valuations, said the executive.

Indian e-commerce sector is in a hyper-growth mode, mainly because of fast-growing numbers of smartphone users with internet access in the past year. On the other hand, 2014 was a major breakthrough for a handful of e-tailers, with investors infusing fresh cash at higher valuations.

Consulting firm Technopak estimates Indian e-tailing will be worth $32 billion by 2020, more than 10 times its value of $2.3 billion in October last year.

Lloyd says no to e-commerce platform.

While consumer durables companies take to the e-commerce platform for better sales, BSE-listed Lloyd Electric & Engineering is swimming against the tide.

Aiming at an 11 per cent market share, it's making sure its products are not on e-commerce websites, even as Korean competitors Samsung and LG are pushing their products through e-commerce more aggressively.

Lloyd is not in favour of online sales via platforms like Flipkart or Snapdeal because it is affecting dealers' business, it says. The company has a pan-India network of a little over 7,000 dealers, with 300 service centres.

Lloyd aims to sell around 400,000 units of home air conditioners this summer, to corner about 11 per cent share in the domestic AC market. The Indian AC market is limited to 3.75 million in annual sales, a penetration rate of three per cent.

Last year, room AC sales grew 10 per cent in volume terms. The price of power-efficient five-star ACs is one consideration for low adoption.

"We are not chasing market share. Our main focus is on quality and customer delight. E-commerce players are burning cash with heavy discounts. E-commerce players have made major inroads into the country's retailing business by offering unprecedented discounts, which impacted sales of brick-and-mortar retailers, even though they are also making huge losses. We are not allowing them to offer any discount on any Lloyd products. We are in discussion with Flipkart to resolve this issue," said Nipun Singhal, director.

Lloyds has also filed a case against Snapdeal; Singhal said he wouldn't comment on this, as the matter was in court. "We do not want our dealer network to suffer due to online sales," he said.

An email to Snapdeal did not elicit a response.

However, companies that used to discourage consumers from buying online, saying installation and after-sales services would be affected, are changing their stand. "As e-commerce is dominated by the metros and tier-I towns, and is growing at a rapid rate, companies can't afford staying away from it. The festive season is a good time to start afresh," said an executive at a top consumer durables maker.

E-commerce firms up in arms over bilateral pacts to liberalise sector

Homegrown e-commerce firms like Flipkart have strongly opposed what they perceive as the government’s willingness to employ bilateral pacts with some big trading partners to liberalise the sector while the policy stance outside such pacts, or in the most-favoured nation (MFN) space, is to tread warily on this front. Analysts see this as an attempt by these local firms to create a vast business space using their deep pockets to keep potential competition at bay.

Local e-tailers are learnt to have “strongly” opposed Japan’s pitch for the sector’s liberalisation through the mega regional pact called the Regional Comprehensive Economic Partnership (RECP) agreement, official sources said. India is participating in RCEP negotiations with 15 other countries.These players have also objected to something unnoticed so far — India agreeing for a separate e-commerce chapter in the Comprehensive Economic Cooperation Agreement (CECA) with Singapore without adequate stakeholder consultation.

These players have also objected to something unnoticed so far — India agreeing for a separate e-commerce chapter in the Comprehensive Economic Cooperation Agreement (CECA) with Singapore without adequate stakeholder consultation.

Currently, India allows 100 per cent FDI in B2B e-commerce activities (as in wholesale trade), but foreign investment is not allowed in such firms. Domestic e-commerce representatives, in RCEP stakeholder talks with the government last week, said the country should not commit to liberalise the sector through the ‘inventory model’ as it amounts to B2C (retail) e-commerce, in which FDI is prohibited in the country.

The ‘inventory model’, say domestic firms, leads to the creation of monopolies as big global players offer to buy products from sellers (largely MSME players) at an attractive price initially, but squeeze their margins later when these small sellers are entirely reliant on them. The big e-tailers then offer huge discounts to customers through the online portal and pocket profits in the long term. In the inventory model, the same entity has the ownership of goods and services.

However, domestic players say the ‘third-party exchange marketplace model’ adopted by them is more of a B2B model as they just create an online platform to help connect buyers and sellers. Local e-tailers say their revenues come mainly from the fees for providing the online platform, data analytics, generating brand awareness, rent for facilitation centres and commissions on sales. The sellers have full ownership over products and services and have freedom over pricing. Local firms say ‘marketplace model’ players do not directly compete with MSMEs and therefore do not hurt entrepreneurship.

The government, after a stakeholder discussion last week, had said it will hold talks with states on “the manner in which FDI is needed or not needed, and on whether allowing FDI will affect the level-playing field of brick-and-mortar stores”.