A significant shift in unit economics is on the cards for the country’s e-commerce sector on the back of an expanding catalogue of products sold through the internet.
A recent study by management consulting firm RedSeer says that cash-burn in the e-tailing sector is expected to shrink to “one-third of its current rate” by 2023, driven by changes in product category mix, among other reasons.
“E-tailing as a sector lost $15 for every $100 of GMV (gross merchandise value) in 2018. We expect this to shrink to $12 in 2019 and $5 in 2023,” RedSeer’s recent note said.
The report expects a fall in the share of mobiles and electronics — a category that fuelled the e-commerce boom — in
coming years, and a rise in shares of higher-margin fashion and home need products. The discounts offered by the sector will also likely fall, the report said.
“Under the recent e-commerce FDI norms, the seller base of e-retail platforms is set to expand, and there is larger thrust on smaller sellers compared to large brands,” Mrigank Gutgutia, manager, consumer internet, RedSeer Consulting, told TOI.
This changing seller profile is likely to reduce the share of lower-margin smartphones and electronics sold on e-commerce platforms that will then diversify into other higher-margin fashion, FMCG and other categories, Gutgutia added.
Margins in smartphones and electronics have traditionally been in the lower single-digits for e-retailers, leading to higher burn rates for the companies. As platforms house more fashion, FMCG, and home furnishing products, which garner up to 25-35% margins on average, the unit economics will get better, the report predicts.
As well-funded e-commerce players battle to grow their market, they are investing heavily in expanding categories and acquiring customers, setting profitability aside for now.
Commenting on the products mix for e-retail, Hanish Bhatia, senior analyst, devices & ecosystem, Counterpoint Research, told TOI that consumer electronics has clearly been a bright spot for e-commerce in the last few years, with India among countries with “highest percentage of smartphones” sold through online channels.
“As other categories such as FMCG and apparel picks, the share of consumer electronics in total GMV is ought to decline,” Bhatia said.
RedSeer Consulting also expects new streams of revenue like digital advertising and financing solutions to play a greater role in e-tailers topline as marketplaces evolve.
“Indian e-retailers may soon go the way of Chinese e-commerce players, and start providing value-add services to its
expanding seller base,” Gutgutia said.
Finally, the sheer scale of e-tailing in 2023, which RedSeer pegs to the tune of approximately $90 billion, is expected to result in improvement of unit economies by 2023.―Times of India