How Was 2016 For The Indian E-Tailing Industry?

'Speed-Breakers' of 2016

Circular trading Correction: Due to heavy discounting by e-tailers throughout 2015, there was a significant percentage of GMV (varying estimate puts this numbers to be 20- 30%) which was being driven by retailers and wholesalers buying goods, and in-turn selling it to the end customers- with some e-tailers facing this issue more than others. However, post the completion of the festive season 2015, e-tailers started to clean this mess, resulting in an immediate fall in retailer orders and bringing in a much-needed correction for the market

Market leader restructures: The first quarter of the year saw the mass exodus of senior leadership from Flipkart, followed by a quest on how to fill the gap and what the new leadership structure should be like. It took 3-4 months for Flipkart to fix the internal organization and associated strategies, and they practically lost this time to do anything significant around growth. A flat growth for the leader in first two quarters contributed to pulling the market down.

The next one also slows down: Snapdeal, which was the second largest e-tailer by GMV share at the end of 2015, and was growing with the fastest rate, reversed its trajectory. It not only stopped growing but shrank significantly, to give up the second position to Amazon. While there are various theories on what led to this drop, we believe it was caused by a combination of- a) industry wide circular trading correction, and b) new found discipline around cash burn C) Focus on Revenue vs. the GMV.



Govt. Regulations on Discounting and marketplace: The first quarter of 2015 also saw another blow for the industry, in the form of the DIPP regulations on the extent of discounting and the % GMV contribution by captive selling arms of e-tailers. While the first regulation put all the e-tailers in a fix for first few months on how to realign their strategy ( which earlier was so heavily dependent on discounting) , there was also heavy operation jugglery to be done to 'manage' the 25% limit on captive sellers- which again shifted the focus of the e-tailers from driving growth

Demonetization: Demonetization was the final big blow of 2016 for the e-tailing industry. In an industry which relies so much on cash (65%-70% orders are CoD), demonetization put brakes on the the momentum achieved post a successful October festive period. The industry lost ~20% of the GMV in Nov and early December, and the growth from there-on was not so great.
With the above five levers pulling the growth down, it had a domino effect on a fragile and young industry, leading to further two more impacts:

Slow new customer acquisition: The leading players were focused on the market share fight, rather than going aggressive and creating new markets. This did lead to a change in the pecking order of e-tailers, but the new players didn't drive growth in the overall market- with the proof coming from the slowing growth in addition of first time customers.

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