India’s leading online retailers are struggling with a sharp slump in sales and order cancellations following the scrapping of high-value currencies, raising fears that this would erode some of the gains from the just concluded festival season.
Order volumes for online retailers have plunged by 50-60% since the surprise announcement on
demonetisation on November 8, according to ecommerce industry experts, logistics providers and company executives ET spoke with.
In India, at least 60% of online purchases are still paid by cash. The paucity of currencies that are still legal tender as the country recalibrates its money supply in its fight against corruption is discouraging such online purchases as well as resulting in high order cancellations.
There slump could negate the gains earned from October’s festival season bonanzas, say experts. “It will be considerable,“ said Sreedhar Prasad, partnerecommerce and startups, KPMG. “If it takes about two weeks for the country to come back to normalcy , that means 60 lakh orders are at the risk of not getting placed, which will have a considerable impact on cumulative sales.“
Flipkart and Amazon India declared blockbuster sales from their flagship events last month, which offered much relief to an industry that had been weltering under a funding crunch. Now, fears of another slump, even if temporary , seem inevitable. “On the 9th, there was a general drop in sentiment so orders decreased from that perspective. The drop in business across the board is real,“ said Sanjay Sethi, chief executive of online retailer ShopClues. “While we are supportive of (demonetisation), the move is painful for us in the short term. It will take 45-60 days to stabilise.“
While ecommerce executives said it was too early to be able to gauge the full impact of the recall of the Rs 500 and Rs 1,000 bills, the immediate fallout is evident.“The orders placed a week to two weeks before the announcement also have been impacted and the logistics supply chain is choked,“ said a top executive at an ecommerce company. “There is very less liquidity in the market, which is causing a temporary disruption.“
None of the online retailers ET reached out to agreed to disclose their order volumes and value post the announcement. Flipkart, the country’s largest ecommerce company, and online marketplace Snapdeal insisted the impact was only marginal.
Cash on delivery payments (CoD) “overall dipped by 20%. However, prepaid volumes have increased by more than 60%,“ a Flipkart spokesperson told ET. “There has been a marginal dip in order volumes but nothing very significant,“ a Snapdeal spokesperson said. “Close to 50% of our orders are prepaid. Additionally , every Snapdeal client has a Freecharge (digital) wallet account, so it’s very easy for them to switch if they want to.“
A reduction in the quantum of cash-based payments is expected to help online retailers save on the cost of processing such orders and also minimise product returns, which is pegged at 20-30% of all online retail orders. The cost of cash-on-delivery orders is 2-2.5% of the order value or . 30-50, whichever is higher. That is a major ` cost centre for ecommerce companies, who continue to operate on wafer-thin margins.Given that every online retailer has been making a concerted move to woo, and retain, consumers hailing from India’s small cities and towns, where a significant portion of the populace do not have access to credit and debit cards, and even bank accounts, the demonetisation move could not have come at a worse time.
“The orders coming from tier-II, tier-III and beyond will also reduce this month as shopping is no longer the priority of those buyers, leave aside shopping online,“ said KPMG’s Prasad.