It is still to be determined, whether the huge spike in e-commerce spending is coming at the expense of the brick-and-mortar stores or an increase in demand
Festive season – seen as the biggest consumption period in India, contributing usually 35–40 percent to annual sales of most consumer facing companies – begins with Navratri and goes up to Diwali. Brands and retailers have pinned their hopes on this opportune time after a dismal performance in the first half of the year as a result of the COVID-19 pandemic followed by nationwide lockdown.
With the economy reopening, businesses resuming operations, and the government and RBI injecting stimulus into the economy, early signs of recovery began to emerge from August. The best August sales in the last 5 years — this high impact good news came from India’s leading consumer electronics and appliance manufacturers. One of the reasons for rise in sales is that consumers these days are looking for a substitute for domestic help amid health safety concerns due to COVID-19. These products are seeing a double-digit growth.
Equally significant and indicating a consumer willingness to again buy high-value items, best-selling products in August were larger capacity refrigerators and washing machines as well as dishwashers and top-end microwaves. Independence Day sales on e-commerce were massive and the return of consumer financing schemes also helped. Companies estimate they grew sales by 25-40 percent in August from a year earlier while sequential sales growth over July is more than 20 percent.
Sales of consumer durables have been growing month-on-month since India unlocked itself due to change in consumption habit. The demand was more for large capacity products — refrigerators above 300 litres, washing machines over 6 kg. Consumers also bought large televisions with screen size of 40-inch and above. In fact, most large companies had reached pre-COVID level of business in July. The pent-up demand continued, thus, in September, GST collections grew by 4 percent over those in August, manufacturing activity expanded at its fastest pace in almost 8 years, rising to 56.8 (PMI).
Focus on rural strategies
Rural India is being seen as a key element in recovering the ground lost to the COVID-19 pandemic. The rural economy is getting a lot of attention, as it has been outgrowing the urban one because of the limited perceived impact of COVID-19, a rich harvest, and reverse migration of labor from towns and cities to villages.
A study by Nielsen has observed that the revival witnessed in the FMCG segment was driven by consumers in semi-urban and rural areas in the June-August period. The study shows that in September, 57 percent of brands focussed on central India or semi-urban areas, and 50 percent strived to look at rural areas closely in a strategic shift, with the objective of taking advantage of rising demand from these regions.
Big brands have already begun closing the gap with smaller players, with the larger entities tiding over supply-chain issues, distribution challenges, and retailer woes during the unlock phase. National and regional brands have been fighting to make their presence felt over the last few months, with the gap at around 11 points in March-April, when the bigger players had to temporarily suspend operations.
This gap narrowed to 8 points in May, as national brands fought back to revive operations, increasing again to 11 points in July when vertical lockdowns were introduced in various pockets of the country, before reducing to 9 points in August.
This comes as operations get back to normal after disruptions witnessed earlier. National brands have also increased distribution and visibility. Many are pushing their presence aggressively into rural areas to tap growth there.
Festive sales expectations
As Onam and the 10-day Ganesh Chaturthi festivals passed by quietly unlike previous years, sales during this period offered a glimpse of how the rest of the festive season could pan out for the brands and retailers. And, a trend for Diwali sales was predicted that it may lack sparkle this year. At the same time, the industry relied on consumers to step out and spend money, so that they are able to put the demons of the negative impact of pandemic lockdowns on sales behind them.
Even as the brands began to brace themselves for 2020 festivities with longer tenure EMI schemes, lower down payment, cashback offers, and extended warranty schemes across segments, the big question remained whether this will materialize or if the Indian economy is in for a dull Durga Puja-Dussehra season and a low-key Diwali, even though it is likely to be better than the previous two quarters (April-June 2020 and July-September 2020).
Brands planned bigger discount on mid-to-premium range of products, going up to 50 percent, in the e-commerce discounting season to clear out the piled-up inventory. E-commerce sellers planned lower than last year average discounts due to global supply disruption.
However, discounts remain high for models where inventory stocks are high.
Also, aggressive discounts were not planned on refrigerators, washing machines, or microwave ovens due to an already high demand. For television sets, the scarcity of supplies for some brands restricted the discount within 10-20 percent over the selling price.
Festive sales reality
Consumer durables have moved from a passive to an active space, enabling daily household chores and supporting everyday care. Demand for washing machines, large refrigerators, mobile phones, and small kitchen appliances continued through October, giving brands and retailers reason to believe that they will record growth over the previous festive season. Some brands’ premium portfolio is growing at a faster pace.
For brands this Diwali is turning out to be one of the best, despite COVID as they are reporting high double-digit growth in sales, with e-commerce platforms seeing good traction as consumers opt for contactless buying. Earlier, mainly small-sized appliances had a preference across online purchase. However, this year there is a significant increase in online demand for large appliances too.
Consumers who have not faced the economic fallout of the pandemic have been saving up on several expenses such as traveling, eating out, and shopping for formal wear. Such customers are finding the need for a larger refrigerator, or better capacity washing machine or larger screen size television. While consumers confined to home are driving sales, online learning and remote work culture are helping growth of superior quality tablets and notebooks.
There is also a strong push by the financial ecosystem to try and get people to spend. Credit card finance has grown rapidly led by private lenders such as ICICI, HDFC, apart from SBI. Also, finance houses such as Bajaj Finserv, IDFC, and HDB have introduced attractive cash vouchers. They are running aggressive programs not just to give EMI approval but actually pushing hard to incentivize spends.
The industry is also benefitting from the government’s offer of `10,000 special festival advance and option to receive cash vouchers in lieu of Leave Travel Concession (LTC) to all its employees as a one-time measure to stimulate demand. There are around 3.5 million government employees estimated to benefit from this scheme. If availed by all, these schemes are expected to pump `36,000 crore worth of consumer spends through the LTC (`28,000 crore) and festival advance (`8000 crore) schemes.
However, the increase in demand is posing a challenge on the supply side owing to import restrictions and COVID-led supply disruptions.
This is especially true for open cell panels used, leading to stock shortages.
India’s traditional festive shopping season has begun and the country’s top e-commerce platforms, Walmart-owned Flipkart and Amazon, are trying to outdo each other with sales as well as fending off a fresh challenger, Reliance Industries’ newly launched e-commerce venture JioMart. Other e-tailers offering mega deals during the period include Snapdeal, Paytm Mall, ShopClues, and the newly launched online Apple Store.
The pandemic has cast a pall over the season this year with India having the second-highest number of total cases in the world behind the US. Yet, Forrester Research expects e-commerce sales to hit USD 6.5 billion to USD 7 billion in this festive season with around 55–60 million online buyers participating. Year-over-year growth in online retail spending during the festive month will see a growth of 34 percent.
A fundamental shift in buying behavior is occurring. The current crisis has transformed buying behavior, with general averseness to go out; consumers have latched on to online channels. The inhibitions of buying online are gone, and a transformation that would have taken 2 years has happened in 5 months. The jump in the share of online orders has not gone unnoticed by brands.
With flashy ads, new product lineups, more delivery executives hired, and unprecedented discounts, the e-commerce companies have thrown their hats into the ring to grab more market share and increase revenue, giving offline traders sleepless nights. To further sweeten these deals, the e-tailers have joined hands with banks and other digital financial services to extend additional discounts, cash refunds, and no-cost fixed monthly installment offers.
To go hyperlocal, most of the e-commerce companies have on-boarded SMBs and MSMEs and are also focusing on Tier-II and Tier-III cities/towns. From 8-9 percent in the last season, the share of online channels in the durables market has grown to over 15 percent this time.
E-tailers are actively addressing increased online demand on multiple fronts, with sellers making big investments to ramp up infrastructure, workforces, and technology across lower-tier cities and metropolitan areas to drive overall fulfillment. Ahead of the sale, Amazon planned more than 900 new product launches from top brands. It had ramped up its delivery infrastructure, adding nearly 200 delivery stations and tens of thousands of delivery partners to its network. Flipkart had increased its last-mile reach with more than 3000 facilities across the country.
The Confederation of All India Traders (CAIT) has reiterated that the deep discounts being offered by Flipkart and Amazon is predatory pricing. In a letter to the government, it requested that either such sales be banned or a special task force appointed to monitor them to ensure that there are no goods and services tax revenue losses to authorities. That indicates that owners of traditional brick-and-mortar stores have a strong sense of crisis amid the pandemic. Overall online sales are certainly increasing, at the cost of physical retail this time.
Industry leaders are hoping that the extraordinary festival demand for premium products would translate into a sharp rebound that stays on beyond festive sales. However, the uptick in high-frequency indicators of economic activity in October are unlikely to prompt an upgrade in growth projections for the current fiscal any time soon.
In fact, the possibility of a resurgence in COVID-19 cases after the festive season is expected to lead to a reinstating of the pandemic-related restrictions to varying degrees. First, a second wave of coronavirus infection can reintroduce restrictions, though more lockdowns are highly unlikely. Second, loss of jobs and income has not yet levelled out. Third, there is no clarity on the size and nature of a post-festival government stimulus, if any. Hence, normalcy beyond COVID is bound to take time. TVJ Bureau