Flipkart, Amazon return to deep discounts, mega ad spends to kickstart festive sales

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Deep discounts and mega ad spends by Flipkart and Amazon have spurred a two- to five-fold demand spike, compared to business-as-usual (BAU) days in categories like smartphones, fashion, home furnishings and personal care in the first three days of the festive sales season, according to industry players.

The first tranche of the festive season sales of Amazon and Flipkart started on September 23 and will last till September 30th. With a gap of 2-3 days between every phase, they typically organise more such weeks of offers and deals till Diwali.

“For us, the first few days have definitely been better than last year’s festive sales. We are seeing a 2-4X rise in demand, compared to the BAU days. In 2021, much of the pent-up demand was captured in July after the lockdowns and so the festive season was a bit depressed,” said Varun Alagh, co-founder and CEO of skincare brand Mamaearth.

As the scale of freebies and social media ads to attract traffic during sales have gone back to pre-pandemic levels, online sellers are seeing a simultaneous spike in their cost-per-click and declines in conversion ratios.

This is because sellers have to bid for search terms that consumers use to discover products on e-commerce portals.

For example, Mamaearth’s most important search keywords in the personal care space like ‘face wash’ have become costlier by as much as 30-50 percent.

“The bid prices have gone up by 25-30 percent across all major categories, compared to last year, even as ad spends by the platforms on social media in the first two days have risen by a similar amount," said Brij Purohit, co-founder of seller onboarding platform SellerApp.

Analysing a sample size of 7 million purchases placed during the first two days of sales, SaaS platform Unicommerce has estimated that the volume of orders had shot up 28 percent year-on-year (YoY). Its data does not include smartphone sales.

The personal-care segment was seen to be the fastest-growing segment with over 70 percent order volume growth YoY, during the first two days of the festive season sales of 2022.

The fashion category continues to be the dominant one, with maximum order volumes although it has logged a 7 percent growth in order volume YoY, according to Unicommerce’s analysis.

Multiple sellers in the fashion category have seen a concurrent decrease of the average selling price (ASP) in the last few days even as sales have risen.

“Although my sales on Flipkart, Meesho and Amazon have gone up by 4-6X, the higher ASP products are not selling. Perhaps, it is because of the sales being more focused on Tier 2 and Tier 3 cities this time. Another thing is that the increase is looking bigger because business in July and August was not up to the mark,” said Tirupur-based seller of men’s and kids’ clothing Madhusudanan S.

Madhusudanan is bang on about the geographical spread of this year’s sales. More than 60 percent sales for Amazon Fashion came from Tier 2 and 3 cities. The majority of Flipkart’s sales across categories was from Tier 2 cities and beyond. The SoftBank-backed e-commerce challenger Meesho said 85 percent of its 8.7 million orders placed on the first day of the season was from such geographies.

Unicommerce also reported over 32 percent YoY growth in festive order volumes for Tier 3 cities and over 20 percent growth in Tier 2 volumes. Tier I cities reported a 28 percent order volume growth.

Cost of doing business 

Industry insiders are of the opinion that aggressive bidding by private labels of ecommerce players, digital commerce arms of large legacy consumer brands and a multi-fold rise in the number of merchants selling online over the past few years have contributed to the race for keywords.

This has also forced many online vendors to rethink their festive season strategy. Take, for instance, shoe accessories seller Frido. Although it has seen a 3X spike in sales on Flipkart and a rise of 3X on Amazon, Frido founder Ganesh Sonawane is not too happy.

“At the same time, we were seeing a drop in sales on our online storefront as the discounting by platforms have gone up. The costs associated with sales on the marketplaces is high. So, we had to go ahead and match the discounts on our D2C channels,” said Sonawane, whose company currently does more than Rs 30 crore in annual revenue.

The smallest merchants have been hit hard. An innerwear seller, based in Chandigarh, saw his sales drop in the last few days as he could not keep up with the rising bids. He said that he is taking a step back in the first week of the sales as returns are also going to be higher than the usual 30 percent rate as consumers are lapping up the discounts now, but are expected to have a change of heart once deliveries happen.

Another issue that has cropped up in the festive sales is delayed dispatches. While some categories like fashion and home care are seeing dispatch dates being pushed to a week after the purchases, electronics dispatches are delayed even more with delivery timelines being stretched to as far as Diwali.

“For Flipkart, the expected time of delivery even in metro cities has fallen from T+2 to T+5 or T+6 days. Their listings are also going out of stock faster,” said an industry expert.

Amazon did not respond to Moneycontrol’s queries, regarding the festive season sales till the time of publishing this report.

"Out of 100 million deliveries that Flipkart does in a month, more than 30 per cent are enabled by these kiranas. We are working closely with our seller partners who are working ingeniously to meet the overwhelming demand we have seen from consumers," said Flipkart.

“During BAU days, 100 percent of our orders are dispatched in 48 hours, Despite the surge in orders, we have maintained the same dispatch timelines during the festive season,” said Meesho.

The festive winners

Some categories of sellers are jubilant at how the sales have started. Take, for instance, Boldfit, which sells fitness and healthcare products on the marketplaces. In last year’s festive sales, it saw a lot of competition from new brands in the category floated by Thrasio startups, which had seen a funding rush.

“That kind of investing, just for growth in sales numbers, has not happened this time. As such, our sales have gone up by 2X compared to the previous season whereas the cost-per-click has reduced by half,” said Pallav Bihani, founder of Boldfit.

Sellers of smartphone and phone accessories are also happy. A Chennai-based online vendor recorded sales worth Rs 50-60 lakh in each of the first three days of sales, compared to Rs 30-40 lakh last year.

“This year, the discounts have gone up a lot as marketplaces are giving add-on discounts and card players have jumped into the fray in a big way. Last year, only the smartphone brands were giving discounts,” he explained.

On Amazon, smartphones also witnessed a strong double-digit growth versus last year and a 20X uplift versus an average business day. In the broader consumer electronics category, it witnessed a 12X growth in smart watches,  with customers buying across price segments versus an average business day.

According to Flipkart, early trends indicate that the overall consumer sentiment towards festive shopping is very positive, with categories such as mobiles, large appliances, fashion, furniture, and home appliances witnessing the greatest interest and demand among buyers.

“Categories like laptops, smart watches, and TrueWireless witnessed the highest demand, as consumers displayed an appetite for making high-value electronic purchases online,” the Walmart-owned e-commerce company said.