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E-commerce\nin India has long been accused of being built on massive discounting\nand catering mostly to well-to-do customers in large metros. While this\nhas been largely true for the past four years or so, today, large\ne-tailers including Amazon, Snapdeal and Flipkart argue they are at an\ninflection point where e-commerce becomes universal in the country.That\ninflection point came during the festive sales these players held at\nthe start of this month and has been in the making for at least the\npast nine months. For the first time, more customers outside large\nmetros shopped for products online and were even willing to pay more\nfor convenience – a stark contrast to how the industry has been\nperceived.
Amit Agarwal, country manager at Amazon India, said:\n“A week before the Great Indian Festival sale started, a popular\ncomment would have been that e-commerce in India is primarily limited\nto well-off families in urban India. But more than 65 per cent of our\nshipments go to Tier-II and below cities and during the festive sale,\nit was higher – closer to 70 per cent.”
One of the biggest\nreasons for this has been the trust e-commerce companies have built in\nconsumers’ mind. Cash payments, which allowed customers to pay for\ngoods only when delivered, are at an all-time low, indicating an\nincrease in trust. While not only making it much easier to accept\npayments, e-commerce companies see this as a way to reduce returns.
During\nthe recent festive sales, which kicked off at the start of this month,\nFlipkart said cash-on-delivery (COD) accounted for 60 per cent of goods\nsold on its platform, down from 75 per cent a year ago. Rival Snapdeal\npulled off an even better show, claiming that for the first time, more\nthan 50 per cent of all its orders were prepaid.
“The festive\nseason is an inflection point for the growth of e-commerce industry,”\nSnapdeal said in response to a questionnaire sent by Business Standard.\n“The increase in smartphone penetration and the explosion of choice at\nthe sub-Rs 10,000 price point shows the importance of digital access\nfor all.”
Flipkart pegged the share of orders coming from\nTier-II and Tier-III cities at 65 per cent, saying it was nearly double\nof last year’s Big Billion Day sale. Snapdeal said 60 per cent of its\nsales came from outside metros, while Amazon said the number of\nshoppers from smaller cities grew 30 times during its sale.
While\npenetration is growing, it’s forcing e-commerce companies to change the\nway they do business. Marketplaces, by definition, cannot stock their\nown inventory, so they rely on sellers. But to get products shipped to\ncustomers from smaller cities, they’ve now begun stocking their\nsellers’ inventories at their own warehouses strategically placed to\nensure quick deliveries.
“With 27 fulfilment centres across 10\nstates and among the strongest distribution and delivery network, it is\nno surprise that this festive sale saw such a strong degree of\ntransactions from Tier-II & -III cities,” said Amazon.
Chief\nExecutive of Flipkart Binny Bansal said in a recent interview more than\n60 per cent of the 15.5 million orders the company processed during its\nfive-day Big Billion Day sale were fulfiled by the company itself. This\nwas in stark contrast to just 20 per cent during its sale last year,\nwhich led to a massive pileup of deliveries and disgruntled customers\nbecause deliveries were delayed.
Experts,\nhowever, argue the changes seen this festive season are part of growing\nsensibilities at e-commerce companies to reduce cash burn. With the new\nforeign direct investment norms for e-commerce marketplaces disallowing\nsuch players from discounting products, it’s gotten much harder to play\nthe price war.<\/span>
Chief\nExecutive at consulting firm Third Eyesight, Devangshu Dutta, said:\n“There is a pressure within the e-commerce businesses to discover more\nmargin. Discounting is less aggressive and the focus is as much on\nbuilding margin during the festive season as on gathering turnover.\nProduct mix and merchants are being reconsidered.”<\/span>
E-commerce\ngrew in India on the back of books, a model Jeff Bezos had perfected in\nthe US with Amazon years earlier. Books were cheap enough for customers\nto trust relatively new e-commerce companies with, were easy to ship\nand had an almost universal demand. In a decade, that story had\ncompletely changed.
Indians are now buying everything from\nsmartphones, clothing, consumer durables to even vehicles and homes\nonline. The ticket prices for purchases are on the rise, too, and\nexperts credit this not just to growing income levels, but acceptance\nby consumers to make larger purchases online. Out of the millions of\norders Flipkart got during its sale, for instance, over 100,000 had a\nvalue higher than Rs 50,000.
For Amazon, an estimated two\nmillion orders out of its 15 million during its sale were subscriptions\nfor its Prime membership. While the membership cost just Rs 499 a year,\nPrime members in the US spend on an average $1,200 a year on the\nplatform, double what a non-Prime member spends.
Amit Agarwal,\nwho heads Amazon’s India arm, said it was a huge win, indicating that\nIndia’s e-commerce market was evolving even faster than what was seen\nin the US. It took a decade for Amazon to roll out Prime in the US and\nanother decade for it to become a norm – half of all households in the\nUS are estimated to have one Prime member. In India, it’s taken just\nthree years and adoption is already off the charts.
But India’s\ne-commerce market has been built on an immense amount of capital being\npumped into offering discounts to hasten adoption. This could come back\nto hurt e-commerce companies as all they’re doing is pulling customers\naway from offline channels with the lure of discounts, and once they\nstop, people might just go back.
“If\nthe industry insists on having e-commerce being seen as separate from\nthe rest of retail, it will be fighting a battle against itself in\nwhich there are no real winners except for advertising media and the\nlast player left standing with money in the pockets,” added Dutta.<\/span>
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