BackOnline discounts may come down over time
E-commerce sites Flipkart.com, Myntra.com and Jabong.com are looking at exclusivity, private labels, and international brands to get consumers to buy more full priced merchandise
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Mumbai: Aakash Mehta, 21, a law student and working professional who maintains 18-20 hour workdays, buys everything online except his trousers. He also doesn’t recall the last time he paid the full price for an item he bought online, his life having been made easier by applications like Makhichoose, a browser add-on that shows the lowest price of a product across websites.
That could change.
E-commerce sites Flipkart.com, Myntra.com and Jabong.com are looking at exclusivity, private labels, and international brands to get consumers to buy more full priced merchandise.
Earlier this month, Jabong set up a team of 15 in London, including people hired from Zara, Mango, Asos, River Island and other global fast fashion brands, to help launch new styles every week, according to Arun Chandra Mohan, the company’s founder and chief executive officer. The collection will be “great fashion at a great price", he added.
The coming months will also see over a dozen new global brands come to India through the e-commerce sites. Myntra will launch one new international brand every fortnight, said Ganesh Subramanian, chief operating officer. Jabong, too, plans to launch almost half a dozen global brands in the next six months, said Mohan.
The discounts won’t go away soon and won’t go away entirely. After all, most online retail companies are making investments to acquire customers.
At present, discounts are a large part of online sales, said Mohan, adding that Jabong sold 85-90% of its merchandise at MRP but that there are discount coupons available that make the purchase cheaper for the consumer.
According to Ajay Srinivasan, director, Crisil Research, “Many large online retail firms are well funded currently and the need to add consumers is top priority. The battle to garner more consumers means that the discounts will continue over the medium-term."
Gaurav Gupta, senior director, Deloitte Haskins and Sells, agrees with Srinivasan, “it will be a while before the discounting by online retail companies comes down." he said.
The attractive discounts are also a reason why the online portals continue to grow at record rates even though consumers have cut back on discretionary spending and overall retail growth has slowed down in the past two years. Companies such as Shoppers Stop Ltd and Future Retail Ltd have been struggling with muted same store sales growth for a while now. Though the June quarter performance has been better for Future Retail, which clocked 9.2% same store sales growth in its value segment and 5.5% in its home retailing segment, Shoppers Stop saw just 3.7% like-to-like sales growth last quarter.
Same store sales growth, or like-to-like sales growth, refers to comparable sales growth from stores that have had operations for over a year and does not take into account growth coming due to new stores.
However, with these initiatives and with some conscious deliberation by etailers to increase profitability, “the discounts offered will come down by 10-20 percentage points in the mid-term," said Subramanian while sharing that the portal is moving towards premium offerings and increasing its fashion quotient.
At Jabong, one out of every five units leaving the warehouse is a private label, Mohan said. Likewise, at Myntra, private labels contribute to a fifth of the revenue, said Subramanian, adding that in a year’s time, the contribution of private labels to the overall business will increase to a third of the overall business.
Online retail is the second largest segment for the India e-commerce sector currently (after travel), estimated at $2 billion in size in 2013, according to Forrester Research. It has been the fastest-growing segment with revenue growing at a compound annual growth rate (CAGR) of 59% between 2009 and 2013, said Nomura Global Markets Research in a report dated 23 July.
Online retail is expected to see 50-60% CAGR in the next three years, added Srinivasan of Crisil.
India’s overall retail market is estimated to be $554 billion, with organized retail making up 8% of the market and online retail just 0.4%. To be sure, e-commerce is nascent in India, with just 25 million consumers buying online, as compared with close to 300 million people in China. The small base makes “enticing buyers to the Internet an expensive affair," says the Nomura report while pointing to the fact that brand investments for e-commerce portals can be as high as 66% of total gross profits for companies with strong marketing abilities and more than 100% for companies with not-so-strong marketing abilities.
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