While we all are looking towards the year 2017 with a new ray of hope and happiness, here’s a news that might dampen the ecommerce industry’s spirit.
According to recent statistics released, despite the fact that the Indian retail consumer spending saw a massive jump to a whopping $750 billion, Internet penetration grew by 40% and increased investor interest in the sector in the year (2016) gone by, the country’s ecommerce industry saw a growth of a meagre 12%, a figure that has got many stakeholders worried.
The 2016 figure of 12% growth looks highly disappointing when compared to the 2015 figure when the ecommerce industry grew by 180% to become a $13 billion sector.
According to a research study done by RedSeer Management Consulting, a combination of a number of events over a relatively short period of time have led to the floundering growth numbers of the sector.
It all started in the year 2015 when e-tailers went through the heavy discounting phase and a significant percentage of GMV was being driven by retailers and wholesalers buying goods and in turn selling them to end customers.
Soon, these e-tailers realised the mess that they had created and jumped into action to clean it. All of this resulted in an immediate fall in retailer orders and brought in the much-needed correction to the market.
According to a statement by RedSeer CEO Anil Kumar, this industry-wide circular trading correction was one of the various reasons why Snapdeal’s growth figures have come down significantly and it had vacate its number 2 position in the Indian e-retail market for Amazon. He also said that while it is still largely unknown what led to the significant drop, but he believes the new found discipline around cash burn and focus on revenue versus GMV was as a crucial contributor to the situation.
Kumar also talked about how the first quarter mass exodus episode of senior leadership from Flipkart in the year 2016, followed by a deep quest on ways to fill the gap and defining the new leadership structure. This lost them between 3-4 months as they practically ended up not doing anything significant around growth.
When the DIPP decided to put regulations on the extent of discounting and the percentage GMV contribution by captive selling arms of e-tailers in the first quarter of 2015, the industry received another hurtful blow. While the first regulation ended up putting all the e-tailers in a fix for the duration of first few months on how they should be realigning their strategy, course correction had to be done in order to manage the 25 percent limit put on captive sellers – which ended up again shifting e-tailers’ focus from growth.
The final blow for the industry came on November 8th when the Indian Prime Minister announced the demonetisation drive, according to the Redseer report titled ‘The Indian E-tailing Market in 2017’.
According to Kumar, for an industry which relies heavily on cash, the demonetisation drive served as a major roadblock on the success the sector had been able to pull in the October festive period. Overall, the industry suffered ~20% of the GMV in the months of November and early December, and the growth figures from there-on haven’t been very inspiring.
This further ended up having a domino effect on the comparatively young and fragile ecommerce industry, leading to a slower new customer acquisition and a cap on funding. This lead to leading players in the market focusing their energy fully on the existing market share fight, rather than working on creating new ones.
However, while 2016 proved to be a dud for the Indian ecommerce industry, the study expects the industry to pick-up year-on-year growth rate and become a $80 billion sector from the existing $14.5 billion figure by the year 2020.