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E-tailers want to discontinue discounts

By Sujata Sachdeva

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Retail

It is a devil that they have created and now want to get rid of it. E-commerce companies in India such as Flipkart, Snapdeal, Shopclues among others, sold 11 billion dollars (Rs 728 billion) worth of goods this year by offering irresistible discounts and cashbacks. Now these freebies have started to hurt them, forcing the companies to question the strategy that brought them huge profits.

The discounts are creating a dent in the balance sheets as some e-tailers have realised. For Snapdeal’s parent company Jasper Infotech, the losses grew fourfold in one year. Jabong’s losses were Rs 230 crores in the first six month of the year ;last year they were Rs 155 crores. Ananth Narayanan, CEO, Myntra.com, agrees that in order to grow the business, the company can’t afford to lose money. He says that a way has to be figured out ‘to make the economics work’. In the next 12-18 months the company will try to reduce discounts.

Backing of deep pockets necessary

It is important that large e-commerce portals have the backing of cash-rich investors. A report by Goldman Sachs recently said that many large e-commerce portals are losing an estimated 1.35 dollar (Rs 89) for every dollar of sales transaction on their platforms. So if they have rich investors, the financial setback can hurt less. Softbank Corp is Snapdeal’s biggest investor having ploughed in 627 million dollars (4,151 crores) Rs last year. Tiger Global and Naspers Ltd are Flipkart’s backers. Both Softbank and Tiger Global have put in more than 10 billion dollars (Rs 66,200 crores) online ventures, which are now making losses.

So far, Flipkart has a control of the e-retail market with 67 per cent share of footwear and apparel segment. It is four times of the second largest Snapdeal. Jabong is at third place.

Doing it their way

Not all companies are keen to follow deep discounting strategy. E-tailers such as Snapdeal, Myntra and Jabong prefer to cut losses in their own way. While Snapdeal doesn’t disclose whether it will adopt discounting, Myntra and Jabong believe that schemes such as tie-up with celebrities, wide variety of goods and customised apps with customer data can help to develop customer loyalty. As such, over a period of time, these customers wouldn’t mind paying full price for in season products. In addition, Myntra specifically is trying new ways of luring customers. It organised a makeover contest at Infosys Ltd’s headquarters. Narayanan believes that creative solutions are needed to solve the ‘discount conundrum’. He puts it aptly when he says that ‘we have trained consumers to look for discounts, and now we are slowly trying to get them off it’.

Flipkart
Jabong
Myntra
Snapdeal