How is inflation affecting the E-commerce sector?
Over the past five years, e-commerce has evolved into a highly competitive environment, compelling brands to upgrade their websites and increase their online presence. Competition among big shopping portals like Amazon, eBay, etc., has become tougher than ever before.
E-retailers offer customers discounts to drive sales through summer & festive seasons (similar to what enterprises do during sales events like festive seasons). Lower prices are restricted to home furnishings and almost all categories of products, including groceries and electronics. This may be because of the low price index during the period under consideration compared with last year, or it could also be due to operational efficiency at individual organizations.
Effect on inflation
However, this uptrend will not impact inflation, which would remain largely under control as per official estimates, which means that the central bank would be in a position to maintain its status quo on interest rates.
It can be noted that inflation rose 4.44% year-on-year last month. Inflation for the food basket was reported at 2%, and inflation for the fuel and light category (a 14% weight in the overall index) stood at (-) 5%.
One of the reasons why retail sales were up even during the recession when disposable incomes came down lay in aspirational value of branded products — consumers wanted them irrespective of opportunities to buy such items or not. Keeping this aspect in mind, e-commerce firms like Amazon and Flipkart, with their broad product portfolio and easy access, give customers a chance to buy products even they may not be able to afford offline.
Industry estimates suggest that the e-commerce market in India is likely to rise threefold and cross $100 billion by 2020 from $38.5 billion. The sector has already witnessed significant growth beyond traditional markets such as electronics and fashion, with categories like lifestyle accessories and footwear proliferating. Travel portals have also gained traction in this period, while some old players like HomeShop18 have shut down their home furnishing business after a brief while of operations.
E-commerce firms are going all out for customer acquisition while pitching aggressive deals on the digital platform to draw new users, which means companies would probably report lower unit economics in FY 2017 compared to FY 2016. E-commerce firms have been investing in discounts and marketing activities to drive higher sales while also reducing online prices to compete with brick & mortar stores.
Customers To Recommend
Net promoter scores (NPS), which measure the willingness of customers to recommend a brand or product again to others, remained high for e-commerce companies during this period despite intense competition and slowdown in funding scenarios. This proves that the Indian e-commerce sector has matured enough to take on deep discounting strategies by leading marketplaces.
Amazon launched its Prime service in India last year, after testing it out successfully in the U.S., giving Indian users access to unlimited free deliveries, among other benefits. Amazon Prime Video is another attraction for many consumers keen on buying products from the portal to gain access to services such as free shipping, exclusive deals, and video content.
Amit Agarwal, Amazon India’s country head, says its mission is to provide a hassle-free online shopping experience with fast and reliable deliveries. The company has been improving its product assortment and ensuring timely delivery of products to customers across India.
Amazon India recently celebrated its third anniversary in the Indian market. During this period, it registered massive growth and reached $1 billion in gross merchandise value (GMV) within 12 months of operations, becoming one of the fastest-growing internet companies in India. As per reports, Amazon Seller Services (the Bengaluru-based arm of Amazon India, which runs the e-commerce marketplace) clocked Rs 10,107 crore in revenue last year. Flipkart (which recorded Rs 8,771 crore) was the only e-commerce firm to report over $1 billion in revenue during FY 2016-17.
Sensing heightened competition, both Amazon and Flipkart are focusing on launching new services such as groceries, which has emerged as one of the fastest-growing categories. According to Morgan Stanley, the online grocery market in India is expected to grow at a CAGR of 60%-70% between 2017 and 2021. The market for other vital categories like fashion retailing grew by around 37%, while consumer electronics grew by just 16%. Check RemoteDBA.com to know more.
However, companies must look at their core businesses and think about diversifying into new areas. Amazon has been diversifying its portfolio in India by adding groceries and other services, while Flipkart is exploring the B2B e-commerce space to add a new revenue stream. Both companies have been going slow on discounts to improve profitability in their main businesses, which means margins will remain under pressure in FY 2017 even for established players such as Flipkart and Amazon India.
According to Morgan Stanley, both Amazon and Flipkart need a clear strategy to generate ancillary revenues from users accessing their platforms. They must monetize user data collected from lakhs of customers with better ad targeting. This can be done by offering suitable products or services at discount prices through exclusive tie-ups with other companies.
For example, Amazon has tied up with leading banks for cashback and runs a pilot program to sell food and groceries via its platform. Similarly, Flipkart is tying up with cab aggregators such as Ola and Uber and online ticketing websites like TicketNew to provide discounts on those services. This can be an effective marketing strategy for e-commerce players in the long run by widening their customer base across categories.
What about user experience? ‘Design thinking’ or making design core to product development is one of the most critical concepts Indian startups need to become aware of. The process involves precisely understanding and creating products based on those needs through proper research, testing, and validation.
Every product should be designed in a way that is easy to understand and provides a delightful user experience. Design thinking could play a pivotal role in maintaining a balance between online and offline commerce.
For example, Amazon opted unmanned stores called ‘Amazon Go, which will convert visitors from customers to actual buyers without the hassle of queues, cash counters, swipe machines.
This can also become an essential factor when a surge in e-commerce demand during the festive season every year. According to reports, India’s retail market will touch $1 trillion by 2020, primarily due to its young population and rising income levels. You can click here