Will Indian e-commerce giants show profit anytime soon?
Currently, there are three major players in the Indian ecommerce space - Flipkart, Paytm and Snapdeal. Recent analysis based on the fiscal results of 41 Internet start-ups/companies shows that Flipkart has incurred a loss of Rs. 5,769crore, Snapdeal has Rs. 3,316crore in the red and although Paytm is a new player in the market, it has already run into a loss of Rs. 1,534crore.
The money spend to fulfill a order is higher than the profit margin. Good logistics support unless developed in-house is a big liability. The young crowd may shop online, but the major buying pattern remains traditional. Acquisition cost is high as the firms need to offer massive discounts to attract consumers. The online market is still nascent in nature and is erratic in behaviour.
Around half the population of India is in the 20-29 age bracket, a surge in demand may happen in the coming years. There are less traditional costs like acquiring real estate for physical presence. There is an infinite possibility of scaling-up if proper mechanism is in place. A wider inventory offers more options than what is available at a traditional store.
Instead of aping foreign models, Indian e-commerce players need to read into the mindset of the consumers to gauge their demand. They need to invest in proper brand recall and understand the needs of a consumer base that has limited spending capabilities. Additionally, they should channel resources to push services further down the economy rather than a particular section of consumers.
There have been rumours of Alibaba making its proper entry very soon and also of a merger between Alibaba backed Paytm and SoftBank backed Snapdeal. Alibaba sees profit through money it gets from ads and add-on services it provides to the sellers on its platform. However, in India platforms make money based on a cut they get from the sellers on every product sold.
India is one of the biggest markets in Asia but it still runs second to China. China sees a lot of products having a immediate release, whereas in India you still have to scour International websites to get your hands on the latest tech-products. Alibaba enjoys monopoly in China but here there is competition from local as well as foreign entities.
Amazon is bleeding money from its e-commerce platform but that is being bandaged by the cloud computing arm which has generated a massive $3.53 billion in the fourth quarter of 2016 cushioning the fall and making the firm capable of showing a profit.
According to YourStory estimates, things are not going to look up unless GMV per transaction reaches to Rs. 5,000 from the now GMV of Rs. 1,750. YourStory noted that at present, burn per transaction is around Rs. 845 which is five times more than their net income of Rs. 175 and it will persist unless customers can't be coaxed into buying more online products.
According to statistics, in China, 71% make use of the Internet or have a smartphone, whereas, in India only 21% have access to smartphones or Internet. Even in basics there is a stark difference, 98% of Chinese own a phone compared to 72% in India.
Currently the e-commerce platform has to shell out Rs. 150 for logistics cost and marketing cost over every potential avenue of revenue. This is coupled with the recurring costs of maintaining staff cost and also keeping the inventory fully functional. Although, mobile and electronics sell most, the profit margin is just 3.5% whereas books give margin of 10% but is the lowest selling product.