E-commerce firms losing over 30 per cent of GMV due to cancellations/returns

Driven mainly by an increase in the number of shoppers from tier-II and lower category cities, the e-commerce sector in India touched a gross merchandise volume (GMV) close to $20 billion during 2017, according to a note by research firm RedSeer, which said that going ahead these new shoppers will continue to stick to online platforms and new users will adopt online shopping due to low data tariffs. However, of the $18.6 billion GMV clocked by the Indian e-commerce industry during the year, over 30 per cent was lost due to cancellations and returns of orders.

GMV is a term used in online retailing to indicate a total sales value for merchandise sold through a platform. It is considered to be a key metric by e-commerce players on the basis of which they measure their growth in the market and to also determine growth of online retail consumption. Experts have suggested time and again that e-commerce companies need to move away from their business model of raising funds from investors on the basis of GMV given that most of the companies have still not managed to break even due to high marketing costs incurred on account of heavy discounts.

Amazon’s India unit, after being in the third spot for a long time behind Flipkartand Snapdeal has clawed its way up to the top in terms of GMV and as per a recent note by Forrester Research, was only 1 per cent behind Flipkart in GMV market share during 2017. This is compared with a 5 per cent difference in market share between Flipkart and Amazon a year ago. However, as a group, which includes entities such as Jabong and Myntra, Flipkart had a clear leadership.

“After surpassing Flipkart in 2016 for the first time (in metropolitan user preference), Amazon has strengthened its position as metropolitan Indian consumers’ preferred online retail destination and is aggressively closing the gap with Flipkart to become the single-largest online retailer in India in terms of sales,” the Forrester report said.

According to RedSeer’s Associate General Manager Vaibhav Arora, the highest cancellations and returns were seen in the fashion category where 37-42 per cent of all orders in India end up being either cancelled or returned. This is followed by the large appliances category with 29-34 per cent, FMCG with cancellations at 28-33 per cent and mobiles at 22-27 per cent .

“We feel the industry needs to focus on ensuring the right products get delivered as 30 per cent is good amount of revenue to be lost,” RedSeer said.

“The reasons for cancellations is mainly change of mind which happens the most in fashion as the customer comes across something better and cancels an ordered item and orders the new one. Returns on the other hand is mainly due to incorrect product being delivered or the product delivered being very different from the one ordered,” Arora told The Indian Express.

As per the research firm, the e-tailing industry is currently witnessing the highest penetration from mobile and large appliances. This is driven by behaviour of users buying standardised products with reliable delivery experience.

FMCG which currently has the lowest penetration is a key growth category for the players and is expected to have a higher growth in 2018, it said.

SoftBank, Alibaba to invest $445 million in India's Paytm E-Commerce

SoftBank Group is investing $400 million in India’s Paytm E-Commerce Pvt. Ltd. in a funding round that will value the online retailer at roughly $1.9 billion, a regulatory filing showed on Monday.

FILE PHOTO: An advertisement of Paytm, a digital wallet company, is pictured at a road side stall in Kolkata, India, January 25, 2017. Picture taken January 25, 2017. REUTERS/Rupak De Chowdhuri

Alibaba, an existing investor in Paytm E-Commerce, is also putting in $45 million in the round, the filing showed.

SoftBank, which is among major investors in India’s fast-growing e-commerce sector and already owns a stake in Paytm’s parent, confirmed investing in Paytm Mall, the brand name under which Paytm E-Commerce operates an online market place.

FILE PHOTO: People walk behind the logo of SoftBank Corp in Tokyo December 18, 2014. REUTERS/Toru Hanai/File Photo

“We believe Paytm Mall’s offline-to-online operating model, combined with the strength of the Paytm ecosystem, is uniquely positioned to enable India’s 15 million offline retail shops to participate in India’s e-commerce boom,” SoftBank said in a statement on Monday.

In a separate statement, Amit Sinha, chief operating officer of Paytm Mall said the company would deploy the latest investment from SoftBank and Alibaba to beef up its technology and build superior logistics among other things.

A filing with India’s Registrar of Companies showed SoftBank units will get a 21.1 percent stake in Paytm E-Commerce after the investment which would come in four tranches.

FILE PHOTO: A sign of Alibaba Group is seen during the fourth World Internet Conference in Wuzhen, Zhejiang province, China, December 3, 2017. REUTERS/Aly Song/File Photo

Alibaba.Com Singapore E-Commerce Pvt. Ltd, which currently owns 36.3 percent of the Indian e-retailer, will remain the single-largest shareholder of Paytm E-Commerce but with a relatively smaller stake of just over 30 percent after its latest investment is completed in four tranches.

Paytm E-Commerce competes with Amazon.com Inc’s Indian unit and home-grown Flipkart. A group company of Paytm’s parent One97 Communications Ltd runs India’s biggest digital wallet services and also has a stake in a payments bank.

SoftBank's Vision Fund took roughly a here of Flipkart last year for $2.5 billion.

The Japanese group is also one of the biggest investors here in another Indian e-tailer Snapdeal.

E-commerce firms deeply engaged in predatory pricing, says CAIT

Traders' body CAIT today expressed apprehension over the commerce ministry not taking any action on the e-commerce issues and its detrimental impact on the country's retail trade. 

The Confederation of All India Traders (CAIT) took a strong view against e-commerce platforms for indulging in "deep discounting and loss funding thereby violating FDI Policy 2016 of the Union Government". 

The traders' body criticised Commerce & Industry Minister Suresh Prabhu for remaining silent on the issue despite drawing his attention to it several times. 

"It appears that instead of promoting Indian retail trade, the Government is more interested in helping and encouraging MNCs to control and dominate the retail trade through e-commerce and FDI which is highly deplorable," CAIT said. 

In a statement, CAIT Secretary General Praveen Khandelwal said that instead of taking action on complaints made against e-commerce companies, the government went one step ahead in allowing 100 per cent FDI in single brand retail and has made all arrangements to wreck the backbone of Indian retail trade. 

"It is more painful that even after specific assurance given to CAIT delegation by Prabhu himself, no step has been taken to draft a National Trade Policy for Retail Trade. 

Therefore, it looks sure that domestic trade is never on the priority of the government though Prime Minister is advocating policies for small businesses time & again but all goes in vain," the traders' body said. 

CAIT claimed that large number of e-commerce platforms are deeply engaged in predatory pricing and continuously offering deep discounts by funding the losses in contravention of the FDI policy which clearly make them responsible for maintaining the equal level playing field and debar them in influencing the prices. 

"These e-commerce companies claims to be a marketplace but mass scale public advertisements by them in the recent past is nothing but to solicit the consumers directly. If in reality these companies are B2B marketplace place, then where is the need of conducting big scale advertisement campaign directly addressing the consumers... ," said the traders' body.

How brick-and-mortar stores are joining hands with ecommerce biggies to target India’s 1.3-billion customers

One rainy day in January, Future Group’s Kishore Biyani spent nearly an hour with Amazon chief Jeff Bezos at his Seattle headquarters, surprisingly, not discussing retail. Instead, the founder of India’s largest retail firm spoke of how Alexander’s invasion of India had met with fierce resistance, leading the all-conquering Macedonian march to retreat, albeit temporarily. 

Biyani, who owns the Big Bazaar supermarket chain, was trying to draw a parallel — how Amazon could use an ally that controls nearly a third of the country’s organised food and grocery market. 

About the same time, but nearly 2,000 miles away at Bentonville, its arch rival Walmart wasn’t sitting pretty either. The world’s biggest retailer was planning its India counter-offensive despite being singed in its initial effort. 

Discussions with Flipkart had been on since 2016, much before Japan’s SoftBank and Microsoft wrote fat cheques for the $12-billion startup, also the largest etailer. However, two years and several Bengaluru trips down the line, picking up a larger, or possibly largest, chunk of Flipkart was becoming a strategic necessity. 

In retail, first consumers went to the product. Now, in the golden age of ecommerce, it’s the product that comes to consumers — anywhere, anytime. Technology has made it seamless. 



After China and the US, India’s 1.3-billion consumer base is becoming the next battleground for everyone from Alibaba to Amazon as they take on local competition from the likes of Biyani or Mukesh Ambani’s Reliance Retail. 

As yet, a larger proportion of sales are still offline and local companies rule the trade in both brick-and-mortar as well as online space. But most feel it’s a matter of time before the inevitable happens. 

“Nearly 10-15% customers are acquired online-to-offline (O2O) by Future Group. We expect it to go up to 35%, especially through online promotions,” says Biyani, adding that understanding India is not easy for a retailer. “A global retailer needs to adapt to the local style of retailing.” 

For one who has flirted with Carrefour and Walmart, and recently been invited by both Jack Ma and Bezos to their headquarters, Biyani, however, declined to comment about any possible alliances. 

Amazon has fired the first salvo. Last year, its investment arm bought 5% stake in Shoppers StopNSE -1.30 %, the country’s largest department chain operator. The retailer also entered into a commercial arrangement with Amazon India to sell its products on the latter’s marketplace and open experience centres for Amazon at its stores. 

“The biggest advantage of tying up with Amazon is their reach, with more than 400 million consumers go online every month for it,” says Govind Shrikhande, managing director, Shoppers Stop. “Our online reach is just about 6 million. Exposing our catalogue to their customers will drive penetration for us even in smaller cities, bring in those who don’t know Shoppers Stop and make it convenient for customers to compare us with other players.” 

Globally, such alliances have already been transformational. Alibaba and JD.com have been shopping for retailers in line with their comprehensive clickand-mortar strategy, scooping up stakes in retailers such as Suning Commerce Group Co, Lianhua Supermarket Holdings Co and Intime Retail Group Co. 

Amazon acquired grocery chain Whole Foods for almost $14 billion last year and has been aggressively moving into categories such as apparel. In 2017, it launched checkout-free Amazon Go store in Seattle. 

Rival Walmart has been on a similar shopping spree, acquiring 100% of Chinese ecommerce business Yihaodian in 2015, upping the 51% it picked up in 2012. Then came Jet.com in a $3.3-billion buyout, followed by a strategic alliance with JD.com in 2016. Last year, it kept going — adding Moosejaw, ModCloth, Bonobos and Parcel for online-offline consolidation. 

Already, Amazon and Walmart are fighting a patent war over drones in a classic American faceoff. But why is it key for online retailers to have feet on the street and vice versa? 

Ma calls it New Retail and Biyani, Retail 3.0. It’s an omnichannel shopping experiment where lines get blurred for an interactive and experiential bonanza. Instead of competing, it’s about collaboration. 

“Everyone in India knows the hybrid model will work. Burning loads of cash for market share just won’t work for online retailers. That’s at the core of Walmart-Flipkart discussions,” says an official privy to ongoing discussions. “That GMV (gross merchandise volume) party is over and you will have just three online players left — Flipkart, Amazon and Paytm Mall. Soon, you will see them pump in more investments in the ecosystem for supply chain, warehousing and logistics.” 

Bob van Dijk, Group CEO of Naspers that owns a strategic stake in Flipkart cannot agree more. “The blending of online and offline retail is a real trend. From our experiences in other markets, it can be very complimentary – local showrooms, pick up points. You really can’t tell if it’s an online or an off line business any more,” he says. 

What has changed in the past five years is the admission that online and offline will coexist, feels Abheek Singhi, senior partner and director, Boston Consulting Group. 

“Empirically, retail is a very local market. Winners in the US are different from those in the UK, which are di f ferent in France and Germany. It is going to be something similar to FMCG, where you have a few strong MNCs and a few domestic players. In retail, there will also be strong players on both sides of the fence,” he says. 

GST and Ecommerce Trigger 45,000Cr Investment in Storage and Warehousing Sector

According to JLL, a global and India's largest real estate services firm, it is estimated that close to Rs 45,000 crores (Cr) will be invested in creating storage facilities across India from 2018 to 2020. In these three years, different categories of warehousing will also create jobs to the tune of 200,000 at different levels of specifications and specialisations. Warehousing will witness the highest investment; over Rs 35,000 crore in the next three years, mostly in creating storage facilities for retail and consumer goods. Cold Storage and agricultural warehousing will see approximately Rs 7,500 crore. These two aspects of warehousing will lead the way in the future as they contribute greatly to regular living and lifestyle. Container storage may end up attracting approximately Rs 500 crore during the same period mostly to boost India's logistical prowess.

The report notes that the two prominent changes that have created significant growth prospects in warehousing are firstly the implementation of GST in India and creating a unified taxation, and the rapid growth of ecommerce necessitating building of large scale warehousing across various locations.

Ramesh Nair, CEO and country head, JLL India, said, "Warehouse and logistics is one of the biggest growth areas that has emerged in recent times. We have seen Rs 125,000 crore invested through private equity (PE) in warehousing space since 2014. While it made up approximately 10 percent of total PE investment in 2017, the share is expected to grow claiming larger share of investment. India's logistics and warehousing sector is rapidly transitioning through a revolutionary phase. There have been multiple initiatives associated with large investments (both domestic and international) within this segment, clearly underscoring the upcoming trend."

What has necessitated a sharp growth in warehousing in the country is the growth in ecommerce and a shortening turnaround time for delivery. Apart from ecommerce, the next big sectors of space are the electronic and white goods that command significant warehousing spaces in urban and semi-urban locations. These are also sectors that, despite their incremental requirements in warehousing, are averse to owning requisite space, therefore mostly reliant on third party warehousing facilities. It is estimated that Grade A and B warehousing stock will grow at a CAGR of 21 percent year-on-year taking the total tally of warehouse space in India to 247 million square feet by the end of 2020 almost doubling the current warehousing stock of 139.8 million square feet in 2017.

It is further estimated that the prime beneficiaries of the new wave of growth in warehousing will be the peripheral locations of tier 1 and tier 2 cities. This investment comes on the back of nearly Rs 10,000 crore invested in 2017 alone.

According to JLL’s analysis estimating the potential of various locations as strong warehousing centers in the future, aside from metropolitan and tier 1 locations are Surat, Kanpur/ Lucknow, Ranchi, Madurai, Coimbatore, Ludhiana/Ambala, Tiruchirapalli, Nasik, Madurai and Jaipur.

Amongst the tier 2 cities, these cities have shown potential for strong growth that will allow them to emerge as warehousing hubs in a hub and spoke model. These cities are strategically located to be in proximity to other major markets and allow transportation to happen to their feeder locations in less than six hours. These cities have the added benefit of favorable policies for setting up businesses and have high manufacturing potential.