E-commerce may be the winner amid GDP growth gloom
Bengaluru/Mumbai: Economic growth may be slowing and consumer sentiment tepid, but that hasn’t had an impact on e-commerce sales in the key festive season that culminates with Diwali, the Indian festival of lights, on 19 October.
The festive season may have also marked a turning point for e-commerce in 2017, as online retail is now set to grow by more than 25% for the full year after a sluggish first-half performance, according to analysts and company executives.
In its five-day Big Billion Days sale that ended on 24 September, Flipkart generated gross sales of more than Rs5,000 crore, driven by booming sales of Apple Inc.’s iPhones, Xiaomi phones and VU televisions, according to two people familiar with the matter. Flipkart’s numbers include sales at Myntra and Jabong, its specialty online fashion retail businesses. Amazon India (Amazon Seller Service Pvt. Ltd) generated gross sales of Rs2,500-2,700 crore in its four-day Great Indian Festival sale, three other people familiar with the matter said. Gross sales are net of discounts but before product cancellations and returns, which tend to jump during sale events.
For the better part of the past two years, the Indian online retail market has languished and grown at a sluggish pace, largely due to a mismatch between the growth of the number of Internet users and the purchasing power of those very same users.
Now, with Flipkart and Amazon India ending their respective sale events on a high, the market has finally shown signs of life, according to several e-commerce experts that MintAsia spoke to.
For much of the past 24 months, analysts and investors in India’s consumer internet economy had overestimated the size and potential of India’s e-commerce market. Some had even made outlandish forecasts of Indian e-commerce being a $100-billion market by 2020.
A much-needed reality check shook those rosy predictions. E-commerce sales in India were just around $14-14.5 billion in 2016, little changed from 2015, according to estimates by e-commerce executives, investors and research firms. Earlier this year, in the June quarter, shoppers bought goods worth $15.5 billion on an annualized basis, according to RedSeer Management Consulting Pvt. Ltd, a consulting and research firm. That implies growth of just 5% from the March quarter, and an increase of 19% from the year-ago period, RedSeer data show. This was despite the heavily advertised sales events that Amazon and Flipkart held in May.
Privately, executives and investors at both companies have conceded that earlier predictions were way off.
However, with the latest boost from the festive season sale, concerns around the future of online retail in India have been assuaged for now and investors may stand to gain more bang for the buck over the next 6-12 months, if the online retail market delivers consistently strong growth for the next few quarters.
For now, though, Flipkart and Amazon India both continue to dominate headlines.
After winning last year’s make-or-break Diwali sale battle, Flipkart has repeated its success and come up with arguably an even more impressive and clinical performance this year.
With its latest performance, Flipkart has well and truly thrown down the gauntlet to Amazon India and proved that it has the staying power to keep the American retailer at bay over the coming months and quarters, with a war chest of at least $4 billion at its disposal. Flipkart has already raised at least $2.8 billion in fresh funding this year in two separate tranches from marquee strategic investors such as SoftBank Group Corp., Tencent Holdings Ltd, eBay Inc. and Microsoft Corp.
In separate statements, both Flipkart and Amazon India said they surpassed sales from last festival season’s sale events by a considerable margin, driven by strong demand for smartphones and televisions.
Flipkart’s sales doubled from last year, the online retail firm said in a statement on Sunday evening. Flipkart claimed it accounted for at least 70% of total e-commerce sales in India during its five-day Big Billion Days sale which concluded on Sunday, indicating it had beaten Amazon by a wide margin.
Amazon India declined to comment on its performance in comparison to Flipkart.
“This Diwali for us at Amazon.in was the biggest shopping event ever—the largest in terms of units, sale value, sellers, number of customers, number of pin codes we served, etc.,” said Manish Tiwary, vice-president, category management, Amazon India.
Flipkart’s sales and volume were yet again driven by categories such as smartphones and large appliances. Earlier during the week, Flipkart claimed that it sold at least 1.3 million smartphones during the first 20 hours of the sale launch for the category.
Last week, Flipkart had claimed it was on track to double sales from last year’s Big Billion Days sale—which would indicate gross sales of at least Rs6,000 crore (nearly $1 billion). While Flipkart fell slightly short of that figure, its latest performance counts as a major victory and vindication for the company’s strategy under chief executive officer Kalyan Krishnamurthy, who likes to maintain a low profile and shy away from frequent interviews with the media.
Amazon said it is consistently well ahead of Flipkart on metrics such as app downloads, desktop visits and mobile website visits. According to data from market intelligence firm SimilarWeb, which tracks website traffic, Amazon India’s desktop visits stood at 276 million for the quarter ended 30 June, compared with 167.6 million for Flipkart. For its mobile website, Amazon India recorded 311 million visits during the June quarter, compared with 157 million for Flipkart, according to SimilarWeb. Amazon also said its methodology of calculating gross sales could be different from Flipkart’s.
“Amazon.in remains the largest marketplace and the fastest growing one in Indian e-commerce landscape. The recently concluded Great Indian Festival has been our biggest shopping event till date, with a remarkable spike in customer acquisition from tier-II and III cities across India, with 85% of new customers coming from these areas. We saw tremendous customer response across categories—from high-value products such as smartphones and appliances to everyday essentials such as shampoos, biscuits and pet supplies,” Tiwary said in an email through a spokesperson.
The robust sales season sets the stage for India’s top e-commerce firms to finish the year strongly and, as mentioned earlier, could well be the turning point for a sector that has been plagued by sluggish expansion over the past one and a half years.
Even physical retail chains are optimistic of sales receiving a welcome boost in the festive season, which includes the Navratras that culminate in Dussehra on 30 September.
“There is pent up demand since demonetisation and the implementation of the goods and service tax (GST) and the festive is a good trigger to buy,” said Rakesh Biyani, director, Future Group, the parent of listed retail firms Future Retail Ltd and Future Lifestyle and Fashion Ltd.
Biyani’s optimism is based on the fact that after GST kicked in on 1 July, the group has been able to correct its prices and in categories such as footwear, prices have come down by 6.5-7% and in apparel by about 1-1.5%.
“We have been seeing a like-to-like growth of 15-17% for the past 3-4 quarters and will maintain this growth trajectory through the festive,” said Biyani.
Even brand retailers Pepe and Adidas and companies such as Arvind Retail Ltd’s brand division are expecting double-digit sales growth over the previous year’s festive period.
“During the festive period, a lot of new people come to the market. These consumers buy just 2-3 times a year and the festive season is usually a good reason to buy,” said J. Suresh, managing director of Arvind’s brand business which sells foreign labels such as Tommy Hilfiger, Nautica and Ed Hardy, GAP, Aeropostale, Sephora and The Children’s Place (TCP). “We are looking at a double digit growth this festive,” said Kavindra Mishra, managing director and chief executive officer, Pepe Jeans India.
Even consumer durables firms are expecting a 10-40% increase in sales from the year-ago period during the Dussehra-Diwali.
Samsung India, the local arm of South Korea’s Samsung Electronics Co. Ltd, and Godrej Appliances, a division of Godrej and Boyce (Manufacturing) Co. Ltd, are expecting double-digit growth across product categories on the back of new product launches, supported by easy availability of consumer loans and promotions.
“Our marketing spends for the festive season have increased in double-digit percentage terms over the year-ago across all media points,” said Rishi Suri, director of consumer electronics, Samsung India.
At Godrej Appliances, the expectation is for a 25% increase in sales over the past year, because the monsoon has been normal and rural demand is picking up, said Kamal Nandi, business head and executive vice-president, Godrej Appliances.
Arushi Kotecha in Mumbai contributed to this story.