Flipkart, Amazon buck the spending slowdown in India; grow festive sales 50% YoY


It’s festive time for the world’s second-largest population but Indians are in the middle of a pervasive slowdown in consumer spending. But, early trends show Flipkart and Amazon India, the two biggest online retailers in India, bucking the trend helped by discounts and attractive consumer finance options.

Flipkart and Amazon don’t disclose the total value of goods sold but company and industry sources say that they sold goods worth about $750-$800 million each between September 20 and 24, the first wave of online festive sales this year.

That’s a big jump over the same time last year when the companies sold goods worth about $500 million each.

Still, experts suspect that something is off about this year’s sales. “The buzz is not there this time,” says Satish Meena, who tracks e-commerce for Forrester Research, adding Flipkart and Amazon, though doing well, maybe slightly behind internal targets. “When we talked to the companies before the sale, the idea we got was a little bit higher than what they are doing right now.”

Meena is yet to come out with a forecast for the whole year but says that he’s likely to revise total sales figures downwards. Forrester predicted in December 2016 that e-commerce industry will touch $20 billion in total sales this year.

The slowdown isn’t endemic to online retailers and reflects a slowdown in overall consumer spending. The newly introduced Goods and Services Tax framework coupled with the effects of last November’s demonetisation seem to have triggered the deceleration.

“That impact (demonetisation) has not worn off yet. A lot of festive season sales depends on how the consumption economy is doing. If there a fall there, the sales will also get affected,” says Praveen Sinha, former CEO of Jabong.

A truck being loaded at Amazon’s Jamalpur warehouse in Haryana. Read How Amazon is doubling down on delivery in India.

Online retailers count on two types of purchases during the festive season – planned purchases and impulse buying. Upgrading your phone or an old home appliance is mostly a planned purchase. But buying an expensive dress usually falls under the unplanned category. Both Flipkart and Amazon are doing a series of sales, the next of which will be the coming week.

“Planned purchases happened… but the extra 20-30% unplanned buying that happens in the festive mood is not happening,” said Forrester’s Meena. Nearly 50-60% of sales for online buyers came from smartphones for both players, he added. While smartphone sales push up gross revenues, they aren’t very healthy for the margins.

A bulk of sales for online retailers in India has in the past come from the top 50 cities and about an equal number of smaller cities. A recent survey of heads of trade bodies in 10 major Indian cities pointed to a slowdown in purchases. There’s been an average of 36% drop in sales in those cities, says the NDTV survey. India’s financial hub Mumbai saw the biggest drop of nearly 50% during festive sales.

Manish Tiwary, VP – Category Management, Amazon India said nearly 85% of new customers this season came from smaller cities and towns.

Amazon said that volumewise, it has grown nearly 85% in the first quarter of 2017 and 88% in the second quarter as compared to the corresponding periods last year. “Even last year, in an industry reportedly flat or negative, Amazon India continued to show a remarkable growth of 124% YoY,” said Tiwary in an e-mailed response.

In an interview with FactorDaily on the third day of the Big Billion Day Sales (read our behind the scenes narrative here), Flipkart CEO Kalyan Krishnamurthy had said that though Flipkart thought its targets were a bit high in the first two days, sales started picking up thereafter.

“When we started off, the team believed it was a bit aggressive but today in the middle of the event, our confidence is very very high. It’s almost like we’ll get there,” said Krishnamurthy. Flipkart’s target was to more than double (2-2.5x) its sales during the festive season this year.

Read the full interview with Kalyan Krishnamurthy here.

The two e-commerce companies did their bit to help consumers loosen their purse strings: both companies made it easier for consumers to buy, even if they are short of money. Flipkart introduced options like ‘Buy Now, Pay Later’, zero cost EMIs, and deferred payments even on debit cards. Amazon had low-cost EMIs for products above Rs 3,000 as also pay-later options. EMI is short for equated monthly instalment. Flipkart did not comment on questions specific to this year’s sales figures.

“They (Flipkart) took a big bet on giving EMI options to debit card holders and that’s worked well for them,” said an industry insider requesting anonymity. Without disclosing specific numbers, Amazon said that it saw a 34 times increase in customers who used EMI in its Great India Sale and 48 times increase in customers who used no cost EMIs on Amazon on a normal day.

 


Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.