Big ticket-size items hit the most as e-commerce feels inflation pinch

A fintech unicorn founder told Moneycontrol that purchases via larger e-commerce platforms like Flipkart and Amazon through its payment gateway have remained stable, whereas transactions on D2C platforms have seen a massive drop.

“Typically, spends on D2C platforms are quite premium, and, hence, could be said to be more discretionary,” he said.

D2C brands are also grappling with supply-chain issues as costs are increasing. Shankar Prasad, founder of vegan beauty brand Plum, said that this could be a post-COVID impact and since many of the new-age brands are just a few years old, supply-chain issues create a larger impact.

The D2C segment became the next big thing in e-commerce in the last couple of years, which saw a proliferation of new-age consumer brands in India selling directly to consumers through their apps, websites or via e-commerce platforms rather than through the traditional and expensive offline route.

The brands mostly target millennials and GenZ, who are more discerning about what they use and are ready to experiment and discover products via social media or through peers.

Moneycontrol had earlier reported that stagnating growth, customer-acquisition challenges and intense competition, combined with a sharp decline in funding, forcing companies to conserve cash, have given the industry a reality check.

“The transactions via big platforms are growing slower, but still trending up. The days of pandemic-fuelled e-commerce growth are over as people go back to offline stores. If a platform saw 50-70 percent annual growth in the last two years, even 20-30 percent would be considered good now,” he added.

Inflation impact

“Growth slowed down last month but we are seeing a bounce-back. We understand that there were multiple factors. Apart from inflation, reopening of schools in many parts of the country meant there was more cash outflow from households, leading to a cut in discretionary spends,” said Prasad.

There will be some impact on demand in the next few months. This could lead to lesser experimentation among consumers, looking for more discounts, he said.

“Consumers could be looking for small packets which are less-priced while experimenting with new products,” says Prasad. “We are looking at cost optimisation and would also be looking to increase prices in the coming months.”

The increase could be up to 10 percent. Another person tracking the space said that the majority of the fashion brands had already increased their prices earlier this year.

“It is no mystery that the tolerance limit of inflation in India is around 4 percent. High inflation and stagnant economic growth will have an impact on every category of spending,” said Arvind Singhal, founder of Technopak Advisors.

“However, some of the e-commerce companies may still sound optimistic as they have to put up a bold face in front of investors,” he added.

Festive season to the rescue
The brand and e-commerce marketplaces are also optimistic that with festive season round the corner, sales will likely double up as it’s the peak season for them.

“We are bullish about growth and are cautiously optimistic about the festive season despite higher inflation and funding winter in the ecosystem,” said Kapil Makhija, CEO of supply chain Saas technology platform Unicommerce.

This optimism stems from the fact that, on an overall level, companies are not seeing a slowdown, though certain categories have declined.

Plum too expects to grow 2.5 times at least this festive season, despite the unfavourable macro factors.

Experts say it is only a matter of time before inflation catches up with the e-commerce sector. Now, with sales spread across the year, experts say that e-commerce sales are levelled, signalling maturity of the ecosystem and inflation will be a short-term impact.

Inside India’s e-commerce 

Ashustosh Sharma, an analyst who tracks the e-commerce market for Forrester, said that the inflation impact in India might turn out to be lower than in the US, but it can’t be absent.

“The US e-commerce space was earlier growing at the rate of 20 percent annually. It has now dropped to around 6-7 percent with the cut in discretionary spending. If you take out the inflation impact, it has flat-lined,” he explained.

“Something similar is bound to happen in India if the inflationary environment persists. At present, retailers might be thinking that they need to get their inventory out as soon as possible, offering discounts. That could be helping e-commerce consumers in the short term,” he added.

“We are seeing almost 45-50 percent growth, if we compare the first six months of 2021 vs this year. We will see some impact of inflation but we expect CY22 to grow more than 35 percent YoY,” said Mrigank Gutgutia, partner at RedSeer, a consulting and research firm.

According to RedSeer, post-Covid, e-commerce saw an accelerated growth to reach a gross merchandise value (GMV) of $53 billion in CY21. Pre-pandemic, the GMV for e-commerce was $40 billion in 2019.