Why is India’s e-commerce industry losing money?
E-commerce (electronic commerce) purchases and sells things over the Internet or through online services. E-commerce technology includes mobile business, electronic funds transfers, supply chain management, Internet marketing, online transaction processing, electronic data exchange (EDI), inventory management systems, and automated data gathering methods. E-commerce, the largest electronics business sector, is driven by technological breakthroughs in the semiconductor industry.
Although it may also use other technologies such as e-mail, e-commerce commonly employs the web for at least a portion of the transaction’s life cycle. Purchases of products (such as books from Amazon) or services are common e-commerce transactions (such as music downloads in digital distribution such as iTunes Store). E-commerce is divided into online retailing, electronic markets, and online auctions. The electronic business helps to boost e-commerce-
As of May 2020, India’s Internet user base is 696.77 million, or around 40% of the population. Despite having the world’s second-largest user base, only behind China (650 million, 48 per cent of people), e-commerce penetration is low in comparison to markets such as the United States (266 million, 84 per cent) and France (54 million, 81 per cent). Still, it is growing, with around 6 million new entrants every month. The general perception in the sector is that growth is nearing an inflexion point.
Cash on delivery is India’s most popular payment option, accounting for 75% of e-commerce transactions. Demand for overseas consumer goods (particularly long-tail items) is outpacing supply from authorised distributors and e-commerce platforms in the country. The long tail business approach allows businesses to make considerable profits by selling small quantities of hard-to-find things to many clients rather than selling vast amounts of a small number of popular items. Chris Anderson first invented the word in 2004.
Flipkart, Snapdeal, and Amazon were India’s three largest e-commerce companies in 2017. Amazon surpassed Flipkart as India’s largest eCommerce company in terms of revenue in 2018. Flipkart outsold Amazon by nearly two to one during the festive retail season in 2020.
According to Statista, India ranked second globally in terms of Internet users in December 2019, with around 560 million users. By 2023, this number is expected to rise to 650 million. Despite having such a large number of internet users, India’s internet penetration rate in 2020 was only 50%. However, the rate had decreased significantly since 2007, 4%.
Ecommerce may be thriving across India, but losses are a part of life for eCommerce vendors in the country. Multiple lockdowns had been imposed in India because of the severe coronavirus outbreak. During this time, eCommerce enterprises’ growth rates were in the single digits. The slowing growth rate and significant financial losses impacted large-scale organisations and small-scale sellers and businesses in the online industry. In this article, we’ll look at the reasons why India’s eCommerce industry is losing money.
Why are e-commerce businesses in India losing money?
Ecommerce is quickly becoming the most popular and widely accepted business model on the planet. Every day, an increasing number of people are turning to online shopping to buy everything from every day groceries to valuable and pricey items. There is a slew of eCommerce service providers in India as online users grow. However, eCommerce has been challenging and has suffered losses since its inception due to a lack of a favourable climate and amorphous character.
There is no single reason why India’s eCommerce industry is losing money – there are several! In reality, in 2018-19, the four most significant competitors in the Indian e-commerce sector, Amazon, Flipkart, Snapdeal, and Paytm Mall, reported a combined loss of Rs. 10,879 crores. In the same financial year, Amazon had a net loss of Rs. 5685 crores, Flipkart had a net loss of Rs. 3837 crores, Snapdeal had a net loss of Rs. 1171 crores and Paytm Mall had a net loss of Rs. 186 crores. These figures are in stark contrast to projections that the e-commerce industry will grow to $120 billion by 2020. Let us now investigate the reasons for the decline of e-commerce in India.
Due to the restrictions imposed and the preventive steps that had to be taken at the time, the estimates of roughly 26 per cent growth in the e-commerce industry before Covid were muddled. Almost every business was locked down in the early phases of the lockdown, inventories were in short supply, and customer demand was dropping. Transport of goods and services came to a halt due to the Junta curfew, and authorities were obliged to close their warehouses, and deliveries were prohibited.
Soon after, the federal and state governments intervened, enabling eCommerce enterprises to resume limited operations that covered only the sale of critical products and services. The Corona wave, combined with the lockdowns, harmed numerous small and medium-sized businesses. Disturbance and shortages in supply chains, restricted customer investment, and a lack of essential products during this time have all impacted India’s eCommerce enterprises. Non-essential goods sales totalled $32 billion last year, accounting for 70 per cent of all online sales in the country.
In 2020, the eCommerce industry was predicted to reach a plateau of barely 5% growth, down from a previous forecast of a stunning 26 per cent increase. Even though online grocery purchasing is at an all-time high, eCommerce growth remains unaffected because the food sector accounts for only 6% of the total Gross Merchandise Value (GMV). Personal care and hygiene is another developing industry, and however, it only accounts for 4.5 per cent of total GMV for eCommerce platforms. While the supply chain has liquefied due to the loosening of rules and restrictions, demand for online goods and services remains frigid.
When the FDI laws for online marketplaces were modified last year, the two most major eCommerce businesses in India, Amazon and Flipkart, saw losses. Regardless of the organisation’s size, the virus struck hard just as e-commerce businesses began to conduct business with the new routine. The threat of eCommerce fraud has increased in tandem with the continuous rise of the eCommerce sector. If online companies do not remain alert and proactive in developing solid solutions to combat fraudsters’ malicious activities, the sector’s percentage of losses will rise.
Amazon and Flipkart each have strategies for growing their respective businesses in India. Amazon has made enormous investments in offline assets to establish and boost its presence and offset losses caused by the factors mentioned above. Likewise, Flipkart has heavily invested in a variety of resources to expand its footprint in the Indian online market. The eCommerce industry’s ongoing losses are unlikely to continue in the long run. Whatever the case may be, every eCommerce company thrives in the market like a pro. Furthermore, online buyers choose to shop online rather than offline to keep a safe distance from public locations.
People in India who have never trusted or invested in online eCommerce enterprises are now looking for internet services to help them cope with the present pandemic. And it is for this reason, eCommerce is never doomed in Indian markets. The eCommerce business is likely to explode in India, which has a population of over 135 crores.
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