E-commerce festive fervour may take a beating this year as inflation bites

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Growth in festive season sales on e-commerce platforms will be muted this year due to inflation, executives and analysts said. Year-on-year growth is anticipated to be 15-20 percent compared with 25-50 percent over the past few years, they said.

Sales of smartphones and electronic appliances are expected to remain flat, although fashion, cosmetics and home decor are expected to log steady growth.

Additionally, the resumption of offline shopping as Covid-19 eases may eat into the growth of online sales, they said.

“With the comeback made by offline, e-commerce sales are now really a function of two things – how the macros play out and the depth of discounts. Again, a large retailer in tier 3-4 markets is suffering a slump in demand whereas a high-end urban retailer is seeing an uptick that has been consistent over the past few quarters,” said a management consultant.

Sales in lower-value segments may increase with deep discounting but that seems improbable this time given how both the public and private markets are asking to see profitability from e-commerce, the consultant added.

Besides, Nykaa, Sugar Cosmetics and Mamaearth, among others, have been aggressive about offline expansion over the past few months. Experts said retailers are mainly counting on offline sales this festive season.

The festive months are typically the busiest shopping season in India. The season peaks during Diwali, which is in October this year, and continues till Christmas-New Year.

Back to malls

“Over the last two years, customers have not been able to indulge in these offline experiences in malls. Now that the fear of Covid is behind, they want to go back to the things that they missed out,” said Vinay Singh, cofounder of Fireside Ventures.

Singh added that during the Independence Day sales, companies recorded massive sales through omnichannel avenues, driven by smaller towns and cities.

The gross merchandise value (GMV) from festivals has been growing twice as fast as online retail in India, according to a recent report by Bernstein. Online festive sales grew 52 percent to $9.3 billion in the 2015-2021 period when the size of the total online retail market in the country was just over $50 billion.

Moreover, festival GMVs have ranged from 18 to 20 percent of overall GMV since 2018, which means the 4-5 week season has a disproportionate bearing on the annual sales of online marketplaces and retailers.

“The planning for festive sales is not very aggressive among the players this year. Compared to their usual business, there will definitely be growth, but not as much as last year,” said an analyst.

However, some companies are also looking at the growth slowdown as an opportunity. Meesho, which started as a social commerce company, has roped in nine celebrities to promote its brand ahead of the festive season.

“More customers looking for value will flock to Meesho at a time when disposable incomes might be decreasing. Our proposition of being the lowest cost destination for the customer would be more attractive,” said Utkrishta Kumar, CXO-business at Meesho.

According to Kumar, the company expects year-on-year growth to exceed industry expectations during the festive sales.

Changing tracks

Moneycontrol earlier reported that sales of high-ticket items such as electronics and premium direct-to-customer (D2C) brands were dropping in July due to inflation. According to executives, more D2C companies will take the marketplace route in order to save costs in the upcoming festive season.

“Consumer brands are clawing back their marketing and D2C spends. The idea is to leverage marketplaces such as Amazon, Flipkart, and Meesho and get more bang for the buck in terms of sales,” said Ashvini Jakhar, founder of omnichannel warehousing company Prozo.

Another segment feeling the heat is smartphones. Always considered one of the most important levers of online retailing in India, smartphone sales are estimated to account for 40-50 percent of total sales for the biggest online commerce marketplaces.

“Around 20 percent of the annual sales of smartphones happen during the festive season. And as of last year, online accounted for about 66 percent of the festive sales of phones,” said Tarun Pathak, the Gurgaon-based research director at Counterpoint Technology Market Research. “Although the value of smartphone sales will probably increase somewhat due to higher average selling prices as a result of more demand for 5G phones, the number of shipments is expected to decline year-on-year.”