Covid-19 has spurred a permanent change in consumer behaviour, solidifying online buying habits. That’s been the dominant theme, a mood brightener if you will, in tech sectors for the past two years. What if the shift was only partial? A glass half full. 

Flipkart CEO Kalyan Krishnamurthy put in his two cents at a conference recently. Referring to the global tech rout in 2022 after a record two years, he said markets had overestimated the digital shift caused by the pandemic. The observation, if on the money, will worry consumer-internet businesses at an important juncture.

Ecommerce’s busiest period of the year, the festive sales season, begins in weeks. This is the month when major platforms usually record 18-20% of annual sales; anything lower is rated as underperformance.

Is the segment staring at a slow season this time since the pandemic-era demand surge, while real, hasn’t shaped up to be the ultimate inflection point? Have concerns about the economy dulled shoppers’ enthusiasm?

There is more than one way to pursue this conversation — it’s complicated.

The word from inside Flipkart is that it has forecast modest figures. The Walmart-owned company is counting on a 15-20% order increase during its flagship festive programme, ‘Big Billion Days’, compared to the routine monthly metrics.

Amazon India’s account managers are candidly telling brands to brace for a “conservative spike, and plan inventory accordingly”, meaning festive sales may not create new records. In a way, they are tempering brands’ expectations, preparing them for an inconvenient possibility.

“Beyond the top smartphone and electronics brands making a splash, the outlook is muted,” said a top executive at Amazon.

Now, as the core ecommerce business of India’s two largest internet companies comes across a tightening consumer sentiment, they are going harder after other revenue opportunities.

In the past two years, Flipkart and Amazon have invested and scaled operations in new categories such as payments, air travel, pharmacy, social commerce and even grocery. The expectation is that these businesses will bump up their average revenue per user and drive frequency and retention (ultimately profitability).

But the big question is, if Flipkart and Amazon are nervous about the holiday demand, what chance do the others have? We will find out soon.

As Big As It Gets

The festive season primarily helps consumer-internet startups broaden their user base and drive large-ticket spending. The numbers tell the story.

• Between 2015 and 2021, festival-time GMV grew 2X faster than online retail GMV.
• Flipkart dominated the proceedings last year, capturing a 62% share. Amazon’s share was 27%. (Source: Brokerage firm Bernstein)

What effect did Covid-19 have? It accelerated new customer acquisition by marketplaces. What the platforms would have achieved over two or three years, they covered it in a short span.

Flipkart’s monthly active users zoomed from 132 million in June 2020 to over 200 million in October 2021, according to data.ai. Amazon saw a similar boost.

But after those heady months, things have been quieter, which suggests customer acquisition has slowed down.

Also, over the past two years, conglomerates Tata and Reliance and the likes of unicorn Meesho have made aggressive moves in the sector. So now, more players are competing for the same set of shoppers.

Back to the holiday sales. How should one read big platforms’ borderline downbeat outlook (discussed internally)? Is the streak of high growth ending for online retail in India, are consumer priorities changing or has the arrival of more deep-pocketed companies finally stirred up the space?

Short answer: it’s a bit of everything.

Crawling Along

The curve of online shopping adoption is struggling to continue its upward march in the post-Covid phase, and a litany of factors are responsible.

First up is the macro slowdown in consumption. After the ordering spree in the first half of the pandemic, people are watching their spending again. In the latest Consumer Confidence Survey, commissioned by RBI, 45.5% of the respondents indicated that they were buying fewer non-essential items than before.

Discretionary purchases in fashion and electronics form the largest slice of the ecommerce market. Last year, smartphones made up 45% of festive sales and fashion 16%, according to RedSeer. Long before Covid-19, the massive demand for mobiles was already driving orders. Lockdowns and remote work accelerated the trend as the number of online buyers soared.

But the growth rate is currently losing pace across online retail. Plus, big platforms are contending with the fact that India’s 250-million online shoppers are no longer tied to just marketplaces. Many brands are creating direct digital touchpoints.

Another reason for the disruption is demand shifting back to offline channels. For the first time in three years, families will be stepping out together for Diwali. So, offline retail is anticipating a banner season. If brands were to take positions on where to invest, offline would top the charts at the moment.

The discount gap between online and offline retailers has also shrunk. The latter, apart from matching prices, have also started extending bank offers and EMI options.

Generally, digital platforms draw people through knockdown prices that are hard to beat. But this year, startups and brands are trying to rein in their runaway expenses, especially marketing and promotional spends, to survive the long funding winter.

“No one wants to do anything crazy, like splurging on a huge discount campaign or launching multiple exclusive product lines,” said the founder of a personal-care D2C brand. “A marginal rise in sales this quarter, say, 5-10%, is an acceptable metric.”

2022: Big Moves, Big Disappointments

Late last year, Meesho pulled off an impressive pivot, graduating from being a social reseller platform to a consumer-focused etailer. Meesho wasn’t the only challenger trying to move up a weight class or make an impression in the intense ecommerce fight.

Shopee, headquartered in Singapore, began spending heavily in India at the tail end of 2021, signing up over 20,000 sellers. The launch of super-app Tata Neu and Reliance’s push capped the frenetic pace of activity in Indian ecommerce. Not to forget, a clutch of roll-up brands raised over $700 million to invest in online brands.

But things didn’t go according to Hoyle for some big movers.

Shopee abruptly wound up its India operations and Tata Neu reportedly fell short of the estimates set for its initial months. Roll-up and venture-backed consumer brands have been forced to go slow on investments amid the funding slowdown.

Reliance-owned Ajio also adjusted its hopes. Just six months ago, it was cruising, taking on Myntra in apparel categories and spending on growth. Ajio achieved nearly 40% of Myntra’s volumes before losing some steam, according to brands that sell on these platforms.

More news that everyone had been dreading followed.

• Logistics provider Delhivery said that in terms of shipments, the market failed to grow between Q4 FY22 and Q1 FY23.
• India’s smartphone shipments expanded by 9% over last year in the June quarter, but fell on a sequential basis by 5%. Macroeconomic headwinds affected consumer demand, according to Counterpoint.
• Shiprocket, which offers ecommerce logistics and shipping software, registered nominal growth of 7.2% in packages between August 6 and 10 compared to the corresponding numbers of 2021. Generally, sales in the weeks leading up to Independence Day help companies gauge the festive demand.

Good Ol’ Days

Over the years, Flipkart and Amazon have seen the ebb and flow of online commerce.

Flipkart kicked off the mega sales trend in October of 2014 when it hosted the first Big Billion Days sale, a day-long event then. A year later, Amazon India launched its version, Great Indian Festival.

The two often squared off in a dramatic manner. After Big Billion Days in 2016, Flipkart co-founder Binny Bansal took a swipe at Amazon, saying that selling churan, hing and memberships didn’t constitute real sales. Amazon’s country head, Amit Agarwal, promptly snapped back.

Now, with the markets maturing, the policy framework evolving and competition intensifying, the two have bigger battles to fight. In 2019, the two companies jointly recorded $5 billion in sales in the festive month. This figure soared to $7.4 billion and $9.2 billion in 2020 and 2021, respectively.

Yes, things look out of place this year, with consumer spending patterns diversifying across sectors (travel is up), but it may well be a blip. The long-term outlook is still robust.

As for Flipkart and Amazon, they may prefer the old times of bitter rivalry and bad blood to the current stage where the market is sending mixed signals.