Indian e-commerce firms are together expected to burn a whopping $370-400 million (about Rs 2,400-2,600 crore) on an estimated gross merchandise value of $1.5-1.7 billion (Rs 9,700-13,000 crore) during the 2017 festive sale season, according to research firm RedSeer Consulting.
That’s a significant jump from the $200-250 million (Rs 1,300-1,620 crore) the industry spent on discounts and cash back in festive sales last year, when it clocked a GMV of $1.05 billion (Rs 6,800 crore).
“Due to higher discounting spend and supply chain expenses, overall cash burn for the industry this year is expected to grow 40-50% year-on-year,” the report reads.
To be sure, 2016 was a year of cautious optimism following valuation markdowns, funding drought and subdued sentiment around the e-commerce ecosystem. However, the recent multi-billion-dollar infusions in the homegrown Flipkart and Alibaba-backed Paytm Mall, besides Amazon’s bottomless war chest, may have prompted the increase in marketing spend this season.
Flipkart is most likely to step up discounts to acquire new customers and widen its lead over rival Amazon. The company claims to have sold over 1.3 million smartphones in the first 20 hours of its Big Billion Day extravaganza. “The mammoth order book is two times the number Flipkart had sold in the same time-frame last year, and three times the number of smartphones sold by the nearest competitor,” it said without revealing the total value of products sold.
“Among other players, Paytm Mall is most likely to increase its cash back spend to gain traction during the sale,” the RedSeer report said.
Besides discounts, supply chain expenses, including payment costs, are expected to increase as customer demographics have changed over the past one or two years, with Tier II cities gaining prominence.
Advertising expenses will, however, remain flat or see a dip because a significant share of the marketing fund is going towards low-cost digital marketing channels and discounts, the report added.
“As e-tailers focus on offering better-than-ever discounts and faster-than-ever delivery experience, including in Tier II cities, we will see significant growth in cash burn year-on-year. This could pay off if the industry can deliver top-class experience to the millions of new shoppers and retain them, going forward,” said RedSeer CEO Anil Kumar.
In the past three years, festive sales have been crucial to India’s e-tailing industry, contributing significantly to overall sales.
Like this report? Sign up for our daily newsletter to get our top reports.