Shein re-entry could be high tide that lifts all boats in e-commerce: Delhivery CEO

Sahil Barua, co-founder & CEO, Delhivery

The re-entry of Shein into the Indian e-commerce market, through its partnership with Reliance, could help revitalise the e-commerce sector that has slowed down over the past year as it's dealing with macro headwinds like the funding winter and drop in demand, according to Delhivery co-founder and chief executive officer Sahil Barua.

“They obviously were a fairly high-volume player the last time they were here. I think they will significantly improve the sourcing capabilities for Reliance. In fact, I think Ajio has been one of the fastest-growing ecommerce platforms in the last 12 months. And I think this certainly bodes well for the market,” Barua said in a post-earnings call.

“I think category spending by any single large player is like a high tide which lifts all boats. And so when Shein comes in, category spending hopefully comes in. Because of that, I think other e-commerce companies also stand to benefit,” he added.

Almost three years after getting banned in India, Chinese online fast fashion brand Shein is re-entering here in partnership with the country’s leading retailer Reliance Retail, according to news reports. It was one of the apps that were banned by the Ministry of Electronics and Information Technology in June 2020 after tension with China escalated on the Himalayan borders.

Meanwhile, the e-commerce sector in India has slowed down after fast growth during the pandemic years.

According to consulting firm Redseer, e-tailing gross merchandise volume (GMV) grew by about 44 percent from $25 billion in FY20 to $36 billion in FY21. And then the GMV further increased by around 36 percent year-on-year (YoY) to $49 billion in FY22. However, the pace of YoY growth slowed sharply to 22 percent in FY23 when the GMV increased to $60 billion.

"I don't want to become the Cassandra of this industry. But I must say when I said that three quarters ago, it was generally met with widespread disbelief… My own estimation hasn't changed. I expect e-commerce to continue to grow between 15% and 20% year on year," said Barua.

The sector's slowdown is attributed to inflation pangs hitting consumer demand, funding crunch for private e-commerce players who relied on discounts, and returns and refund policies favourable to customers.

“I think individual players will continue to see headwinds through the year because they have to fundamentally re-architect some portions of their business. And I think ultimately, that will cause a drag on the sector to some extent, but I think if you look at the news from on Shein, for instance, I think that is going to drive growth in the market next year,” Barua said.

The Delhivery chief also added that the increased focus on profitability in the e-commerce sector is a good thing for the company as it is able to gain market share by offering its logistics services at more affordable costs. However, he denied that there was pricing pressure on the industry.

After Delhivery posted a 10 percent year-on-year decline in revenue, Barua pointed out that the drop was on account of Chinese e-commerce company Shopee’s exit from India last year. He argued that — adjusted for the revenue that Shopee had brought — Delhivey had actually grown 17 percent year-on-year in the March quarter.

Barua said that Delhivery was ready to get back on the lane of fast growth as its integration with Spoton, which it acquired last year, is now complete.

“At the start of the year when we did the Spoton integration and there were multiple questions around growth. I had mentioned at the time that the company's primary focus was not getting the growth strap on, but really was making sure that the margins were intact,” he said.

“Because there's no point driving fast if you don't know where you're going. In our case, we have four sequential quarter quarters of margin improvement, I think it's quite clear as to how the margin improvement will continue. And now turning on the growth tap for us is not going to be very hard,” he added.

The Delhivery chief also said that the logistics company was already seeing some volumes from Open Network for Digital Commerce (ONDC), but the network had yet to sort out issues on fronts like returns and refunds.

Delhivery's net loss widened to Rs 159 crore in the fourth quarter ended March 2023, as the logistics company's revenue dropped for the second straight quarter amid a slowdown in e-commerce.

Delhivery reported an operating income of Rs 1,859.6 crore for the quarter ended March 31, 2023, 10 percent lower than Rs 2,017 crore in the same period last year, the company's filings with the BSE showed. The logistics company had a net loss of Rs 119.8 crore in the fourth quarter of FY22 (2021-22).

The company's revenue has now declined for two consecutive quarters. In the December quarter, the logistics company's revenue had dropped 8.5 percent from a year earlier.

(Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.​)