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E-commerce sector stares at a USD 1 billion loss amid lockdown in India

Forrester projects the e-retailers to grow by 5% this year in the best-case scenario, as compared to about 26% growth they enjoyed last year.

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Even as online retail giants like Amazon India and Flipkart turn to grocery deliveries amid the ongoing three-week lockdown that has suspended all but essential services in India, it may not be enough for them to turn things around.

Local media Economic Times (ET), citing data collated by market research firm Forrester Research, said the halted e-commerce operations in the country may lead to an estimated loss of USD 1 billion for the e-tailers. The Cambridge-headquartered company has also projected the e-tailers to grow by 5% this year in the best-case scenario, as compared to about 26% growth last year.

The steep fall in the growth forecast stems from the fact that many e-tailers are staring at zero-revenue this spring from their e-commerce operations (barring groceries), while last year they collectively saw USD 50-60 million in daily sales, the ET report said. Moreover, smartphones, electronics appliances, and fashion, which are the top drivers of gross sales for e-tailers and contribute 60-70% to their total sales, are in a slump due to the nation-wide lockdown till April 14.

Overall, the country’s e-commerce sales, including movie tickets, furniture, and other similar platforms, stood at USD 32 billion in 2019, with about 130-140 million online shoppers. Of the total online retail sales, e-tailers like Amazon and Flipkart constituted USD 23-24 billion.

To offset the impact of the suspended e-commerce services, Amazon and Flipkart have been focussing on streamlining the supply of groceries to millions of people stuck at home. But until last year, e-grocery attributed to less than 10% to their overall sales.

According to industry estimates, e-grocery in the country grew from USD 1.5 billion in 2018 to over USD 2 billion last year. With deep-pocketed companies such as Amazon, Flipkart, Softbank-backed Grofers, Alibaba-backed Bigbasket, and Naspers-backed food giant Swiggy gearing up for expansion in this nascent category to tap the growing demand, the e-grocery market is projected to grow 10-fold to USD 10.5 billion.

Industry veterans believe that over the next few months, there will be a slowdown in discretionary spends even after a potential recovery. However, there is a hope that after the coronavirus crisis blows over in the next few months, sales would pick up in the second half of 2020. By then e-tailers are hoping they would have an increase in customer base as a lot of new people have started using online platforms to buy groceries.

Amazon and Flipkart continue to pour millions of dollars in India despite making losses for the last seven years, in the hope of adding new customers. Selling grocery products online fits perfectly in their grand scheme of things.

However, customers from beyond tier-1 cities that Amazon and Flipkart so desperately want haven’t been coming online as fast as these companies would like. Forrester expects it would take another five years for the next 100 million Indians to become online shoppers.

Satish Meena, an analyst at Forrester, told KrASIA in an earlier interaction, that the biggest bottleneck of consumer internet companies’ growth is a slow rise in income, and since disposable income is not rising as expected, transactions on the internet will not see a meteoric rise.

Now that COVID-19 outbreak has forced millions of home-stuck Indians to shop online for their everyday essentials like fruits, vegetables, dairy, staples, among others, this could be a silver lining for online retailers.

“There will be some permanent behavioral change in consumers due to coronavirus and they will come back after getting used to purchasing online, especially for must-have categories,” T C M Sundaram, MD at venture capital firm Chiratae Ventures told ET.