While e-commerce platforms have been incurring huge losses in their bid to get more and more customers on board, the cash burn for e-tailers is likely to get a significant cut from current 12% to about 6% by 2022.
While e-commerce platforms such as Amazon and Flipkart have been incurring huge losses in their bid to get more and more customers on board, the cash burn for e-tailers is likely to get a significant cut from current 12% to about 6% by 2022. Over the coming years, cash burn for online commerce companies is expected to drop to half as these companies get larger share of higher-margin categories such as fashion, private labels and fast-moving consumer goods, according to management consulting firm RedSeer. Coupled with a bigger share of high margin categories and by finetuning supply chains, companies are likely to rationalize costs, the report added. The online companies have already managed to bring down cash burn to 12% this year from 15% in 2018.
Further, there are various other levers as well which may help e-tailers in reducing cash burn. According to the RedSeer report, revenues from value-added services such as advertisements, subscriptions and lendings will have a high impact in bringing cash flows to the companies. However, companies’ own advertisement spends due to competition will also have a low impact on bringing cash. According to previous RedSeer estimates, e-tailers across the globe lost $15 for every $100 of GMV in 2018.
As India gears up for the festive season which also brings with it the festive season sales across various online platforms such as Amazon and Flipkart, it is expected that the companies will burn major cash as they provide hefty discounts in a bid to acquire more and more customers and spur sales. Last year, online retailers found them $1 billion short of cash because of month-long festivals and festive sales, according to a then released report by RedSeer.
In India, Amazon, Flipkart, Paytm and Snapdeal are among the major online players and Amazon and Flipkart are soon to kick-off their flagship, annual festive sales. Meanwhile, many online platforms spring up every month and vertical platforms like Jabong and Myntra are also gaining momentum.