 "Amazon boxes are seen stacked for delivery")
This festive season might leave e-commerce vendors disappointed, compared to last year. Fearing the worst, they are shying from taking loans to augment their stocks for the crucial business period.
The festive season, beginning in late September and going on to the end of the year, is a crucial period for retailers in the country.
This period, traditionally, contributed the most to their revenues. However, this year, a combination of factors has dampened expectations.
Some of these are consolidation of the vendor base by bigger firms such as Flipkart and Snapdeal, shift in business models from cash inflows to profitability, and reduced discounts from April, when new norms for foreign direct investment (FDI) in e-commerce marketplaces set in. The tighter business norms and inability to raise fresh funds has already resulted in online e-commerce platform Askmebazaar shutting its business.
Demand for credit is often a proxy measure to indicate how a sector performs. Vendors reducing the quantum of loans for their business reflected the sagging sales of these marketplaces.
“Typically, vendors plan and take loans to book stocks from manufacturers and suppliers of goods in anticipation of bumper sales during the festive season that begins in September. But this year, there has been a slump in vendors taking loans since April. The trend is expected to continue over the next six months,” said Hinduja.
He did not provide any figures. Vendors however corroborated his claim. In the first six months this year, sales of e-commerce firms fell significantly.
In the January-March period, there was a 19-per cent drop; and in the April-June period, it fell by five to 10 per cent.
These figures were provided by RedSeer Consulting, a Bengaluru-based research firm that tracks the performance of e-commerce firms, on August 24.
The most visible effect has been in smartphone sales. Smartphones contribute three out of four goods sold by large e-commerce firms
The festive season, beginning in late September and going on to the end of the year, is a crucial period for retailers in the country.
This period, traditionally, contributed the most to their revenues. However, this year, a combination of factors has dampened expectations.
Some of these are consolidation of the vendor base by bigger firms such as Flipkart and Snapdeal, shift in business models from cash inflows to profitability, and reduced discounts from April, when new norms for foreign direct investment (FDI) in e-commerce marketplaces set in. The tighter business norms and inability to raise fresh funds has already resulted in online e-commerce platform Askmebazaar shutting its business.
Demand for credit is often a proxy measure to indicate how a sector performs. Vendors reducing the quantum of loans for their business reflected the sagging sales of these marketplaces.
“Typically, vendors plan and take loans to book stocks from manufacturers and suppliers of goods in anticipation of bumper sales during the festive season that begins in September. But this year, there has been a slump in vendors taking loans since April. The trend is expected to continue over the next six months,” said Hinduja.
He did not provide any figures. Vendors however corroborated his claim. In the first six months this year, sales of e-commerce firms fell significantly.
In the January-March period, there was a 19-per cent drop; and in the April-June period, it fell by five to 10 per cent.
These figures were provided by RedSeer Consulting, a Bengaluru-based research firm that tracks the performance of e-commerce firms, on August 24.
The most visible effect has been in smartphone sales. Smartphones contribute three out of four goods sold by large e-commerce firms
According to technology researcher International Data Corporation’s 19 August data, in the June quarter, it fell by seven percentage points.
Offline sellers claimed the new FDI norms actually helped level the field against deep discounts from e-commerce players.
“There is definitely been a slowdown in B2C e-commerce. We have observed growth of vendors has reduced,” said Gaurav Hinduja, co-founder, Capital Float, an online lending platform that provides working capital to vendors of large e-commerce players.
He added, “Not many vendors in the sector want to leave. However, few new vendors are coming in right now.”
According to the eSeller Suraksha Forum, an online community of vendors who sell goods on e-commerce marketplaces, many sellers have seen sales drop by as much as 50 per cent because of lack of discounts, reduced incentives and tighter refund policies.
“Slower sales means reduced requirement of working capital,” said Sanjay Thakur, the president of the forum, which has about 5,000 members.
Thakur said there were three main reasons for the drop in revenues and volume for sellers. “The first is the rule on discounting, the second is geo tagging that has restricted sales for a seller to a region and the third is lesser loan amounts.”
E-commerce portals use geo-tagging to identify a customer’s location and route the transaction to the vendor whose is closer for faster delivery.
LendingKart, another online lending platform, whose customer base is small enterprises that include vendors of e-commerce firms, says the slow sales have affected largely the bigger vendors whose annual sales is upwards of Rs 1 crore.
“We are aware of the fact that bigger vendors have lost out revenue. It is estimated to about 20 to 30 per cent. However, in the smaller vendor segment we see players entering the market and are very positive about the space,” said, Harshvardhan Lunia, co-founder and CEO of Lending Kart which is lending partners for Flipkart, Snapdeal and Jabong.
There is a big battle looming ahead.
RedSeer Consulting founder Anil Kumar said with a fair amount of rejig completed in Snapdeal and Flipkart that is reflected in improved delivery performances, both firms are gearing up for the big festive season sales.
“Snapdeal and Flipkart were going in for major cost rationalisation. Discounts reduced subsequently. However, now we see the discounts coming back and services made more efficient. This combined with the festive season should see sales increasing now,” said Kumar.
But, he was cautious on how it would fare compared to last year.
Last week, Snapdeal said it has lined up as much as Rs 1,000 crore through financiers to provide collateral loans to its vendors so that they can stock up goods. Snapdeal has revamped its logo and plans a new campaign to reach out to customers nationally.
“I have met all the portal heads just two days back. They are very positive about the festive season. Attractive things are being planned to have consumer traction from their side,” said Thakur.
Flipkart, India’s largest marketplace says it is geared up for the big sales ahead and has beefed up its backend teams such as engineering, supply chain and customer support. It plans to offer discounts and interest free loan packages for customers and improved product exchange policies.
“Sales are expected to grow significantly over the next one month, owing to the festive frenzy. Preparing for the season, we have a stellar product line and many new launches and exclusives, across categories," Flipkart said in an e-mail response. "We believe in expanding the market with initiatives meant to meet aspirations of Indians in every category. With that objective, we will be going big in making quality products affordable to as many households as possible."
Amazon, which claims that this year it would be its biggest shopping season ever in India, plans to offer 80 million products through its 1.2 lakh seller community. It has added newer warehouses, introduced prime service besides offering guaranteed same day and next day deliveries
On Monday, Mint claimed Amazon has seen higher sales than Flipkart for the second successive month.
Capital Float, which has pre-approved loan offers - from 25 to 100 per cent of their sales to all its clients to gear up for the sales is also looking at how business would turn up this festive season.
“We see an uptake now (festive season), but the question is what happens in January, February and March. This is the testing time now September, October and November to see where it is going,” said Hinduja.
