E-commerce firms hit hard as govt scraps permission for non-essentials3 min read . Updated: 19 Apr 2020, 11:52 PM IST
- According to industry estimates, during the lockdown, sales of larger ecommerce platforms have been down by almost 90%
- E-commerce firms are urging the govt to add items such as laptops, mobile phones under essential goods and services
BENGALURU/NEW DELHI : E-commerce companies faced a rude shock on Sunday when the Union home ministry revoked permission to sell non-essential goods from 20 April.
Most e-commerce firms which were gearing up to list non-essential products on their platforms have started re-focussing on essential goods and services, as in the first lockdown.
According to industry estimates, during the lockdown, sales of larger ecommerce platforms have been down by almost 90%. This is because a large part of their gross merchandise value (GMV) continues to be focused on smart phones, consumer electronics, apparel and large appliances.
To recover from the losses and ensure business continuity, e-commerce companies over the past few weeks have been ramping up their online grocery business, a high in demand but low value and low margin segment. But as costs continue to escalate, the low margin grocery sales are unlikely to compensate for the losses incurred.
Food and grocery still comprises only $2.5-$3.5 billion of the overall $38 billion e-commerce sector in India, according to Technopak estimates.
“...About 93% of the sales in e-commerce are not happening, and are based on discretionary spends. The traction and continued business by the likes of the online grocery segment still doesn’t match larger e-commerce players not selling most of their inventory," said Ankur Bisen, senior vice-president, retail and consumer products, Technopak, a management consultancy firm.
An Amazon India spokesperson said the new guideline will disappoint not only consumers, whose list of essentials had expanded to work from home and study from home products, but also the thousands of small businesses, sellers and manufacturers, who had geared up in the last 48 hours to provide millions of people with safe access to products.
“...On behalf of consumers and sellers, we hope that this situation is rectified soon so that the urgent need of consumers is met and that there is revival of economic activity," the spokesperson said.
Amazon India was one of the first to say they have temporarily suspended non-essential services in late March. To be sure, even if the lockdown is lifted on 3 May, it is unlikely that such services will fully operate in major cities such as Mumbai, Delhi and Hyderabad with a high number ‘containment zones’.
The home ministry's fresh directive came just days after it had given the go-ahead to e-commerce companies on 15 April to supply non-essentials, if the vehicles carrying such products had the necessary permissions and passes.
Since then, large e-commerce firms such as Walmart-owned Flipkart and Amazon bounced back to action, interacting with sellers and putting its supply chain and delivery workforce in place to restart non-essential delivery.
“We were planning to go live in non-essential categories including consumer electronics, utensils and apparel. But now, we will keep those plans on hold and will double down on provision of essential categories and build efforts in that direction. We look to add another 15-20 cities for delivery of essential items until 3 May 3," said Srinivas Mothey, senior vice-president, Paytm Mall.
Paytm Mall, among others, are urging the government to add items such as laptops, mobile phones and accessories under essential goods and services.
"...To ensure that sellers aren't hurt by the current circumstances, penalties on non-delivery of shipments is waived. Further, Snapdeal is also working to help sellers of essential goods to come online, through manual support over calls," a Snapdeal spokesperson said.
Smaller online retailers too are facing the heat.
"...Everyday lost is causing a pile-up of fixed costs including wages payable for these small sellers, together with their inventory aging. The opening would have helped inject liquidity into the system for the thousands of small and medium businesses who are equipped to work online with players like us, without jeopardising public health. It would have helped clear up the nearly ₹35,000 crore of estimated product and large amounts of cash stuck in courier networks," said Suchi Mukherjee, Founder and CEO of online apparel shopping portal, Limeroad.
According to the industry experts, with the uncertainty still looming as to when ecommerce deliveries will return to normal, in the coming months, companies will require to do 130% of the sales recorded last year to break even as a business.
Technopak’s Bisen said from a retail standpoint, discretionary spends will continue to be down by 30% through the year. This is because of a ‘drag’ effect in the supply chain and the negative sentiment on consumer spending, he said.