Source | LinkedIn : By Prashant Gupta
I remember, in early days of e-commerce, everyone used to talk about how e-commerce is far more efficient than physical retail because one doesn’t have the cost burden of physical stores. And therefore, e-commerce players can offer great discounts and free shipping by “passing on” these benefits to consumers. I guess everyone wanted to emulate Amazon, whose legendary head, Jeff Bezos, has repeatedly said that their only goal is to keep bringing down costs and pass on these benefits as reduced prices to consumers.
Now, as the pressure to improve P&L mounts, one is beginning to see some crucial changes in the way e-commerce business is conducted in India. We have seen Jabong shrink in size. Jabong’s Net Revenues, as reported by Rocket Internet in their 14th April 2016 filings, for Q4 of CY2015 were at Rs 218cr, down 19% YoY (yes, you read it right) versus Rs 271cr in Q4 CY2014. Total transactions in the same quarter for Jabong shrunk even more – 1.9 million v/s 3 million, which is shrinkage by 37%.
One of the headlines in recent news reports was Myntra’s categorical statement about systematic reduction of discounts – “1 percentage point every month”. This would, obviously, directly help reduce cash burn. Assuming Myntra has a monthly GMV of, say, USD 50 million, every 1% discount reduction would mean $6 million less funding requirement in one year. 5 percentage points reduction means $30 million less funding for the year, and that’s a lot of capital saved.
That’s not the whole story though. Another important chapter of the story is the slow death of “free shipping”. A couple of years ago, everyone had Free Shippingas the norm – with no minimum purchase requirements. Then came the minimum purchase requirement, which varies across portals, for availing Free Shipping.
And in recent times, players have upped the charges for delivery. Myntra is one of the examples. In fashion e-commerce, typically, customers have a basket size of about Rs 1500. In this context, Myntra’s minimum order value requirement of Rs 999/- is significant. Also, the charges for order value below Rs 999 are now at Rs 149. Yes, you read it right, it is Rs 149/-. A player like YepMe, which serves more value-conscious consumers with merchandise that’s at the lower-end of pricing as compared to Myntra’s assortment, is now charging Rs 99/- for each order. No free shipping at all, no matter what’s your order value.
Now, this is a crucial development. It obviously helps players reduce their cash burn and helps them progress on the path to profitability. But for a consumer, this is quite a departure from the norm of “free shipping”. Most players continue to talk about free shipping with usual T&C applied, but looks like more and more shipments are now with delivery charges.