Nonetheless, the market is getting competitive as players like Reliance Industries scale up and new entrants like the Tata Group come in.
As experts point out, it’s not as though the business models are in themselves unviable, it’s merely that companies continue to invest in acquiring customers.
While e-retailing continued to gain momentum in 2019-20, most players reported losses for the year. For a clutch of e-commerce companies — Amazon, Flipkart, Myntra, Paytm, Zomato, PhonePe, Amazon Pay and First Cry – losses rose to Rs 17,617.15 crore from Rs 16,747 crore in 2018-19. Combined revenues, however, grew at a brisk pace, increasing by over 40% to around Rs 26,384 crore.
As experts point out, it’s not as though the business models are in themselves unviable, it’s merely that companies continue to invest in acquiring customers. “It is not so much of a unit economics challenge for some of the scaled-up players,” observes Arpit Mathur, partner, Kearney. Mathur explains it is about what is the pace at which they want to continue to acquire new customers because that is the key determinant of their overall profitability. He believes that attaining profitability in the next 18-24 months should not be a challenge because on a per transaction basis, the companies can still make money.
Of course, companies are taking a closer look at costs and losses, as Ankur Pahwa, partner at EY, observes. Discounts are smaller, procurement is more efficient and many are charging for delivery. Pahwa points out several players are rolling out private labels, which then helps improves their gross profits.
Nonetheless, the market is getting competitive as players like Reliance Industries scale up and new entrants like the Tata Group come in. To be able to grow their catchments, e-retailers will work on strategies to reach out to the next lot of potential customers. Today there are an estimated 200 million online shoppers whereas close to 600 million use mobile broadband services. While lockdowns have given online shopping a push, e-retailers would need to work hard to get more people to transact on the Internet. Kearney’s Mathur believes it may take more than just regular discounts and prompt deliveries. “There could be some behavioural reasons for more people not going online, it is not only about affordability,” he said, adding companies will need to do something different.
The omni-channel route is likely to be used to grow the user base signalling more partnerships between online and offline companies. Already, RIL is picking up stakes in online firms Urban Ladder, Netmeds or partnering with kiranas to fulfill orders for JioMart. The Tatas for instance are understood to be nearing a deal to buy a stake in BigBasket while ed-tech firm Byju’s is reportedly looking to acquire Aakash Educational Services.
With capital likely to remain abundant, as new investors look to bet on the India Internet story, Pahwa believes e-retailers are likely to continue to spend on acquiring customers. Indeed, Mathur estimates we could have as many as 350 million online customers by 2024.