In festive sales, investors look for a winner

The high-stakes battle that starts next week will be watched closely by investors for a glimpse of the leader in the crowded Indian e-commerce space

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The billboards are all over, setting up the mood for online festive sales starting this weekend. While this has been an annual feature since 2014 when Flipkart launched its Big Billion Day and Amazon jumped into the fray right after, the 2016 edition will be more important than ever for top e-commerce players as well as for marquee investors.

This year’s sales, which kick off on October 1 with Amazon taking the lead, followed by Flipkart and Snapdeal a day later, will in many ways show who matters the most and who’s the real winner. As Arvind Singhal of Technopak Advisors says, “It’s a make-orbreak festival season for both Flipkart and Snapdeal, which have been losing momentum to Amazon.’’

With 30 to 35 per cent of the annual sales expected from the five-day window when the e-commerce players will unleash the largest range of products and services, this will be a chance for them to convince investors that they are worth their money. Investors, who’ve been mostly stingy through the year, will be watching these sales closely before opening their purse-strings for the next round of fund infusion after a long dry spell, say company executives.

An investor, who does not want to be quoted, says this will be the last big Diwali sales for some of the top players unless they are able to raise funds quickly as investors don’t have any tolerance left for exuberance.

As Flipkart, Amazon and Snapdeal start the countdown to the big event, other prominent players are shying away from a marketing blitzkrieg. Paytm, which has China’s Alibaba as the biggest investor, is keeping its sale strategy a closely guarded secret. “We haven’t decided on the festive sales yet,’’ a Paytm executive says.

Paytm’s secrecy at this point is curious because back home in China, Jack Ma-led Alibaba, which is also planning a direct entry in India’s e-commerce space, is all set for its biggest online bonanza—Single’s Day Sale on November 11. Recent reports indicate that this year’s Single’s Day shopping fest (an annual 24-hour event) would exceed the $14 billion clocked in 2015. Although there’s an economic slowdown in China, domestic consumption remains strong, is how analysts explain the optimistic estimates.

Can India sales match?

Sandeep Aggarwal, a serial entrepreneur in the start-up space, puts China’s sales numbers in perspective. China’s online market is pegged at $400 billion to $500 billion and Alibaba has 85 per cent of the total pie. Given the hold Alibaba has over the market there, $14 billion worth of sales on a single blockbuster shopping day makes sense, according to Aggarwal. However, in India, the online market is pegged at $10 billion and no player commands a market share of more than 30 per cent. Aggarwal’s estimate is that the week-long October fest could rake up sales worth ~2,500 crore ($385 million) in India, up from the ~1,500 crore ($230 million) garnered last year.

As the first four to five days of October could account for a large chunk of festive sales, brick and mortar retailers too are looking to go into an aggressive discounting mode early this time, says Singhal. This is despite Diwali, the biggest shopping occasion in most parts of the country, falling at the end of October.

Online vs offline

Sreedhar Prasad, partner e-commerce, KPMG, argues that online players are not likely to eat into regular brick and mortar retail sales because e-commerce is to a large extent about trigger purchase. For example, while random web browsing, he came across boiled egg cutters on a site, bringing back childhood memories. On an impulse, he bought five of them to send them across to his cousins who grew up with him. Price, novelty or association with something one had earlier are among the triggers to hit “buy’’, he says. E-commerce in India still accounts for only 5 per cent of the total merchandise sold, while the remaining 95 per cent comes from physical retail.

However, there will be a clear spike for the top five e-commerce companies during this festival season, says Prasad. “Having experienced festival sales for the last few years, they are far more mature and prepared now. Also, a lot of newer brands are expected to be active as it is the right time for them to attract eyeballs.’’

Apparel and shoes will be top of the list, but electronics and phones will be in huge demand as well, says company executives. Even home products — furniture and white goods — will be quite popular. Even home cleaning services are figuring in prominently in the list of online buys.

Popular items

On a modest scale, analysts expect an average ticket size of ~2,000 this season, but it could be higher. Although there was a question mark over online discounts this season after the government earlier this year prevented e-commerce companies from influencing pricing, sellers and vendors are ready to offer products at significantly reduced prices. This means there will be be sharp discounts this time as well although e-commerce companies will be able to safely say they are not touching pricing. Zero-interest EMIs are already being hard-sold during the sale days.

Another trend is that premium services are likely to be showcased during this period. Amazon could launch its membership service, Prime, over the next week. The American company recently tied up with Bollywood production houses for India-specific content.

Among other premium services, Flipkart launched a free service called Assured in addition to its subscription-based service, Flipkart First. Snapdeal rolled out Snapdeal Gold, a free service meant to effectively help it reduce cash payments.

The coming days are going to be a test for all these services and more as the industry waits to raise the next big round

of funds.