World Retail Voice Blog Post
Customer base in place, e-tailers move to improve margins
By Sharleen D'Souza, originally published in The Financial Express on 3 May 2015
Having spent the past few years on customer acquisition, e-commerce players are now moving into the next phase of growth, with profitability as the aim.
Not only are the discounts tapering off, bigger players like Flipkart and Amazon have started levying delivery charges on certain products, irrespective of the price.
Till last year, e-commerce players only focused on creating a customer base by offering a higher level of discounts than brick and mortar stores. With that in place, now they are looking to reap the profits. For example, Myntra, a fashion and lifestyle retailer, hopes to see an increase of 300% growth based purely on the customers it has acquired over the last few years.
“Bigger e-commerce players are now focusing on moving towards profitability after burning cash all this while in an effort to acquire consumers. Many have started to decrease the level of discounts offered on various categories and have also started to charge for delivery, which is a way for players to generate revenue,” said Devangshu Dutta, chief executive at Third Eyesight, a retail consultancy firm.
A Snapdeal spokesperson said ultimately all businesses will look at profitability, but growth will not take a backseat. “Profitability is the ultimate goal for every business. However, currently our focus is on growth. Our vision is to build the largest digital commerce ecosystem in the country. The company has grown 600%, or seven times, in the past 12 months. We will continue to work towards not just maintaining, but bettering the growth momentum this year as well. Fashion, electronics and home categories will be the largest contributors to this growth,” said the spokesperson.
Some players have also started their own in-house brands and are witnessing higher margins from them. Private labels tend to give at least 20% higher gross margins than main brands. Main brands gross margins are at 40-45%, but private lables give e-commerce players an advantage, as they yield around 65% gross margins.
“Approximately one-fourth of our business is currently driven by Myntra’s in-house fashion brands. Some brands like Roadster, Dressberry and Mast & Harbour have grown significantly and are already category leaders on the website. Leveraging this opportunity, we are now building them as standalone brands that can grow beyond the Myntra platform,” said Abhishek Verma, head, Myntra fashion.
“E-commerce players are now tactfully reducing and offering select discounts,” agreed Arvind Singhal, founder and chairman of Technopak Advisors.
While Flipkart has started including delivery charges while displaying the price of the product, Amazon, which offered free delivery even on items costing less than Rs 100, now levies a delivery charge on a total bill of less than Rs 499.
All these years, sales may have been increasing for e-commerce players, but their losses have just widened. Flipkart India’s net sales rose to Rs 2,846.13 crore compared to Rs 1,180.07 crore in FY 13.
“The Indian e-commerce space is still at a very nascent stage with significant potential for innovation and growth. As a company, we are focused for the long term. We firmly believe that customers will continue to shop with us as long as they don’t find a better shopping experience elsewhere. We are, therefore, focused on ensuring that our flywheel that impacts customer experience keeps spinning. Our strategy is that you start with the customer experience and work backwards from it,” said an Amazon India spokesperson.