Ecommerce in India: 11 things that happened in FY17

“Ecommerce: Path to Profitability” is Praxis’ annual Ecommerce publication, which talks about how categories and players have moved in terms of share, economics, and strategies. Our E-commerce practice conducts over 100 interviews, scans >50 data sources and runs >10 different projection modelings to create one of the most detailed and exhaustive industry views of the Indian e-commerce space."

We would like to announce our most recent publication “Ecommerce: Path to Profitability”. In this report, we talk about how the economics, category shares, and player dynamics have moved over the last fiscal year, leading one of the most interesting and turning point years in the e-commerce history in India. From Amazon spearheading growth, to demonetization killing COD, to low discounting reducing growth, to players reducing burn to turn profitable, to Snapdeal’s acquisition drama, the trends in the space have outwitted most investors and startup evangelists. Our E-commerce practice has conducted over 100 interviews, scanned >50 data sources and run >10 different projection modelings to create one of the most detailed and exhaustive industry views of the Indian e-commerce space, covering a view on profitability at a company and category level. In this transcript, we would like to talk about 11 things that surprised us the most through this research:

• Amazon’s share growth: Amazon managed to move to a market share of 30% in FY17. This was backed by a burn of ~$1B, primarily on infrastructure creation and customer acquisition. Amazon is only 5% market share behind Flipkart (excl. Myntra). Without Snapdeal’s acquisition, we will not be surprised if Amazon surpasses Flipkart in the market share in FY18.
• Flat growth: FY16 GMV for Ecommerce in India stood at ~$16B and in FY17, this number moved only to ~$17B. This sharp decimation of growth was primarily a result of reduced customer acquisition spends and lower discounts on products. However, this has translated to a net increase in the NMV between FY16-17 and the results reflect in the improved economics of certain players like Flipkart & Snapdeal.
• Fall of COD: COD% (by value) declined sharply to a mere ~40% of GMV. COD formed a majority of the overall GMV the previous year, but after demonetization, the impact was visible across all firms. PayTM, which does not allow any COD was the least affected by this development but players like Flipkart, Shopclues & Snapdeal, which had a high reliance on COD, primarily for mobile & apparel sales, saw the biggest decline in orders. But this decline also moved the needle on the greener side for two things – one, the overall return rates for products and two, the collection costs per order.
• A decline in SCP per order: The reduction in COD%, lower discounts, improved asset utilization, and stringent cost control measures across firms led to an overall 2-3% reduction in shipping, collection and packaging costs per order (net of inflation). The number was closer to Rs.140 for FY17, a tad bit lower. One point of good news for the industry in terms of improving economics.
• A decline in mobile’s category share: Upto FY16, mobile phone sales constituted roughly 50-55% of the overall GMV. This dropped to ~45% in FY17 driven by increased growth in other categories like home/furniture, electronics/peripherals, apparel, etc., the decline in COD, which formed as the largest medium of payment for mobile orders and decreased AOV of mobile phones because of entry of lower price variants.
• A larger share of repeat purchase customers: Repeat customers formed ~30% of the overall GMV for the Ecommerce players in FY17 (though these numbers may vary across players). But this is not owing to improved customer loyalty, rather, it has been driven by a decline in the # new customers being added to the online shopper category. The decline has been driven by lower customer acquisition spends, lower discounts, and lower incomes/sophistication of the next wave of online shoppers underway for penetration (which are in fact harder to lure)
• Parents welcome: One of the most interesting phenomena on the customer side was the high inflow of new shoppers who were parents of millennials. As smartphone penetration has increased, and the generations above millennials have become more tech-savvy, developed higher comfort with online payments and have had successful experiences with online ordering, parents of existing shoppers formed as one of the most distinct new shopper archetypes. Interestingly, not many Ecommerce firms have tapped this trend in terms of marketing. From our research, we believe ~20-30% of millennials have got their parents into the online shopper category.
• Positive CM2: We believe for select Ecommerce firms, CM2 has been close to positive for FY17 (CM2 is NMV – COGS – SCP). But this is not likely to stay as a lot of the volume has been driven by past marketing efforts and past discounts. Customers have increasingly become aware of lower discounting in the Ecommerce websites and have started moving again to offline channels, given the cost neutrality and benefits to touch and feel the products. We believe that if e-commerce firms do not return to discounting & marketing, the CM2 levels will again sharply decline to FY16 levels in FY18.
• Cost control: Flipkart reduced the annual burn in FY17 to ~$0.5B, almost half of Amazon. All other Ecommerce players reduced burn by about 50%, as compared to FY16. BigBasket, for example, reduced the burn-in FY17 by 70-75% as compared to FY17. This cost control has resulted in a short relief in unit economics, as compared to FY17 levels, but we do not believe this is steady-state.
• Volume leaders: Apparel, with an AOV of ~Rs. 800 drove the volumes for FY17, representing ~35% of the overall order volume, with the home segment following closely.
• Overall losses: The industry, in FY17, saw an overall loss of ~$2.5B, of which, Amazon drove 40% of the value. This translates to a monthly burn rate of ~$200M. Customers and suppliers have benefited the most in this burn and domestic players have further dried their funds' arsenal.

In our publication, we talk about scenarios for profitability in industry and the timeline/scale implications, profitability of individual players & categories, category mix and player share movements, 20+economic metrics (e.g., SCP, AOV, Returns%, Discounts%, Margins%, etc.) and more. 

If you are interested in getting a copy of the report, or the TOC, please feel free to write to us.

Authored by (at the time of writing):

Aryaman Tandon, Leader, Consumer and Retail Practice

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