India’s offline retail is suffering amid a country-wide cash crunch, while credit-driven e-commerce giants Amazon and Flipkart soar in 2019 Diwali shopping.
- The sales at offline Indian retailers from FMCG, gift items, electronics, and mobile phones, is considerably down by 40 percent from 2018.
- On the contrary, Amazon and Walmart-owned Flipkart have seen sales rise by 33 percent in the Diwali 2019 festive season.
- With deep discounts from e-commerce taking the major share of customers, 70% of offline retail investment on inventory for the festive season is turning into a ‘dead’ investment.
40% dip in sales and 60% less footfall: India’s biggest buying fest of the year, Diwali looks bleak for offline retailers in 2019. Diwali is a five-day extravaganza where India celebrates with sweets, renovations, decorations, and exchange of pleasantries. Days like Dhanteras traditionally see thrift buying and if perhaps the real festival for Indian retailers, bringing them economic prosperity.
While Indian Marketplaces and Malls are seeing empty storefronts, Amazon and Walmart-owned Flipkart are witnessing record sales.
However, in 2019 the fate of India’s sparkling Bazaars is different. Among lights is an absence of a crowd. With Amazon and Walmart-owned Flipkart now dictating the Diwali shopping in 2019, India’s small business owners are witnessing empty storefronts.
33 percent YoY rise for Amazon-led E-commerce Diwali Revenue
Media reports on interactions with various analysts, brands and logistics partners of Amazon and Flipkart estimate their sales at USD 3.5 to 3.7 billion combined over the last six days (September 29th to October 4th). This is a rise of 33 percent from 2018 Diwali.
As per Nielsen, Amazon has the most transacting customers across categories with a 50 percent share of the 2019 Diwali buying. During the recent festive e-commerce sales, Amazon also took home 46 percent of the total share from September 29 and to October 4. Similarly, another report suggests Amazon and Flipkart also saw an overwhelming sale worth Rs. 19,000 crores.
40 percent YoY fall in India’s Diwali Shopping at malls and markets in 2019
On the contrary, the CEO of a global fashion retailer stated last weekend that his brand saw sales dip by 25%. Likewise, at a ZARA store in New Delhi, a senior executive estimated a drop of 50% in customers’ footfall. Sales are down by 40% on average across markets amid slower Diwali 2019 shopping compared to 2018.
The sales at offline Indian retailers from FMCG, gift items, kitchen tools, electronics, mobile phones, to the computer and its accessories considerably gone down. Confederation of All India Traders (CAIT)’s Sunil Kumar Jain said that offline retail in India already fears a dreaded scenario with sales expected to decrease by 50% this Diwali festive season.”
Diwali and Dhanteras on the deathbeds for the offline Indian retailers
Estimates suggest a 50% decline in offline sales due to e-commerce’s deep discounts on almost every product. Praveen Khandelwal, Secretary-General of CAIT, said that offline retailers including malls has taken a hit of almost 60%. He further added that for Diwali, almost 70% of offline retail investment on inventory is turning into a ‘dead’ investment.
Gold sales are likely to decline by 50% on Dhanteras compared to 2018. This can be directly attributed to higher import duties imposed on the gold, Surendra Mehta, National Secretary of Indian Bullion and Jewellers Association (IBJA), told to IANS news. Furthermore, the recent market liquidity crunch in India has further accelerated the problem. Dhanteras and Diwali offline buying which is mostly done by hard cash.
Indian Retailers voice Concern: ‘Unethical Business’ by E-commerce?
CAIT’s Sunil Kumar Jain also blamed the significant slump on “unethical business” by e-commerce firms. Furthermore, a delegation of retailers is looking forward to an appointment with Union Minister of Commerce and Industry Piyush Goyal.
India’s retailers are witnessing an unprecedented slump in Diwali shopping in 2019. They claim this is due to the massive discounts available on e-commerce platforms. CAIT has urged the government to intervene and save the struggling offline retailers. Associations have already met the Competition Commission of India, Niti Aayog and DPIIT (Department for Promotion of Industry and Internal trade).
Offline Retailers demand a ‘high-level inquiry’ into the ‘unholy nexus’
CAIT has also demanded a ‘high-level inquiry’ by a Group of Ministers (GoM) to probe the “unholy nexus” of e-commerce firms. Jain alleged that banks were also a part of this unethical concoction. Furthermore, he claims that these large companies that own brands and banks come together to cause price distortion.
Arvind Khurana, President of AIMRA (All India Mobile Retailers Association) said, many organized trade retailers and offline retailers have started talks with the big mobile manufacturing companies. They want brands to give them the same benefits, exclusive deals, discounts, and exclusive models that they perpetually provide Amazon and Flipkart.
The Magic of Monopoly
The e-commerce giants are able to purchase vast quantities of products and several warehouses (fulfillment centers) across cities to store them. So, these massive inventories enable them to substantially bring down costs. In spite of unreal discounts, they are able to and scale-up margins.
On the other hand, the same unreal discounts to the customers make it impossible for small store owners to compete. So, s.all retailers cannot take the high risks of purchasing a large inventory. Even their wholesale costs are much more. Thus, in literal terms, Indian shop owners buy at higher prices and fail to match the heavy discounts of Amazon and Walmart’s Flipkart.
Competition of Unequals
The gradual relaxation of FDI restrictions has helped foreign (mostly American) e-commerce firms to continuously penetrate the Indian retail market. Increasing investments also come with high purchasing power. This gives them an almost unfair advantage over offline store owners and even retail chains.
E-commerce giants Amazon and Walmart-owned Flipkart lure Indian buyers through unprecedented low discounts, backed by massive inventories. In fact, there’s an undeniable convenience with online buying with features like 15 days to 1-month return policies, EMI facilities, doorstep delivery in a single day.
Digital India has enabled a budding online market dominated by foreign companies. Unfortunately, the phenomenon has also sickened a thriving domestic industry.
The Government is not helping the cause
If Nobel Laureate Economist Abhijit Banerjee is to be believed instead of the government, India’s economy is in a bad shape. India’s public sector banks are struggling and there has been a relentless cash crunch ever since demonetization, which in itself was more or less a nightmare for every citizen.
Indian government’s recent decision to merge public sector banks saw around 3 lakh bank employees went on strike. The protest also partially hit the Indian banking system. It also affected wholesale and retail markets, which transact mostly via RTGS and cheques.
Market Liquidity Crunch: Is foreign E-commerce to blame?
Prior to the deep penetration of the online buying ecosystem, the Indian market was a self-sustaining ecosystem of sorts. Consequently, the money used to stay in between sellers and consumers all of whom were Indians. However, foreign e-commerce disturbs this chain. A major chunk of revenue now goes to the American coffers of Amazon and Flipkart.
Although the foreign e-commerce companies are bringing investment to India, the capital is certainly not helping traditional retailers. The liquidity crunch crisis has reached the extent where it is now affecting corporates. Businesses in India which have cut down Diwali shopping and gifts in 2019. A Mumbai executive Bibhas Chakraborty told AFP news that the business associates used to give quality goods which often included gold and silver-plated bowls and frames. But now, the ongoing economic slowdown has changed it. Now gifts have been replaced by the sweets and nuts.
- Offline retailers association CAIT demands a ‘high-level inquiry’ into the “unholy nexus” of e-commerce firms.
- Indian shop owners buy at higher prices and fail to match heavy discounts of Amazon and Walmart’s Flipkart.
- Furthermore, countrywide cash crunch since demonetization coupled with recent public sector banking woes and government controlling transactions at banks has resulted in the death of offline retail sales.