Bye-bye discounts: Is the age of e-tail steal deals ending?

Moneycontrol Bureau

By now, it has become widely known that Indian ecommerce websites are probably the cheapest places to shop for just about anything – from phones to shoes.

Thanks to an aggressive business strategy with a focus of bringing as many offline customers to the online fold, e-retailers such as Flipkart, Snapdeal and Amazon, have, somewhat notoriously, made a name for themselves by offering discounts on several goods that their physical counterparts simply cannot match.

Case in point is the slew of flash sales launched by the trio this Diwali when the price of an iPhone 5s dropped to a ridiculous Rs 25,000 for a short while, compared to its maximum retail price of Rs 53,000. The flash sales also got the websites in some hot water after traditional retailers complained about their predatory pricing strategies.

But it appears that before the law catches up with them soon enough to probe whether they were guilty of under-cutting the competition, the invisible hand of the market will. Here's how.

Most of the leading Indian ecommerce companies have attracted plenty of interest from investors from abroad. Much of this borne out of the industry's fast-growing nature. The ecommerce industry has gone from USD 2.5 billion in 2009 to USD 13 billion in 2013 and is expected to reach USD 100 billion by 2020, according to NASSCOM .

The reasons for this are simple: increasing purchasing power of consumers coupled rising Internet penetration. As a result, those who have missed the Alibaba growth story are busy looking for the next Alibaba in India.

Amid all this, with billions of dollars being poured into such companies, increasing revenues and acquiring market share has become the name of the game for them.

As a result, every single major ecommerce company is likely making heavy losses and burning cash through – from the multi-million-dollar capital rush that has taken place.

"For a Rs 100 sale of a book, the e-tailer incurs a loss of Rs 24, a loss of Rs 13 in mobiles, and Rs 8 in apparel," says a Business Standard report citing a Motilal Oswal study.

But now, e-commerce companies have started cutting down on their daily or weekly discounts that were generally given on a wide range of products, according to Jabong.com co-founder Praveen Sinha who spoke to the Economic Times .

ET had earlier reported how Jabong's rival Myntra had cut down on discounts and had now laid out an 18-month target to start making profits.

The need for profitability was highlight by a PriceWaterhouseCoopers director Saurabh Srivastava who told Business Today that if ecommerce companies do not become profitable "private investors will run out of patience".

Even to list on the stock exchanges and provide for an exit for these investors, these businesses will have to show consistent profits and so in order to be sustainable, ecommerce firms will have to work out a profitable business model, he added.

So, even as in principle, e-tailers should be able to offer slightly lower prices compared to their offline peers thanks to lower costs with respect to real estate and human resources, etc, it appears the age of eye-popping could soon reach the end.