Cash starved e-tailers focus on profitability

MUMBAI: E-commerce players have shifted their focus towards making their business units more profitable as opposed to their earlier focus on revenue growth, with discounts in online sales narrowing and fresh fund raising becoming a bit challenging.

Companies are also focusing on improving customer satisfaction by shortening delivery times, offering wide product assortments and improved service, in a bid to keep customers engaged with their platforms.

“We believe this may be a function of limited availability of capital, forcing companies to focus on cash generation. Post government regulations that curtailed discounts, companies seems to have done away with the same as most discounts being seen online are being offered by sellers or brands themselves. Most companies we spoke to are also evaluating other revenue streams such as advertising and online content to better leverage their platform,” said analysts at Kotak Institutional Equities.

According to KIE, customer recall, retention and loyalty are key metrics monitored by companies now, as opposed to an overwhelming focus on gross merchandise value (GMV) earlier.

While standard monthly active users (MAUs) and app installs are also tracked, orders from repeat customers, and frequency of ordering are being used as metrics to gauge customer engagement.

Since delivery is a large cost component for most e-commerce companies, its optimisation has now become a key area of focus. Demand prediction, delivery-linked payments to delivery staff, as well as infrastructure sharing are some of the options evaluated by companies to rationalise delivery costs. Companies are using technology heavily to predict peak and non-peak delivery requirements, and optimising resources accordingly. “Cash on Delivery (COD) constitutes a large chunk of payments for the e-commerce companies we interacted with, ranging from 50-70 per cent for online services and products.

The proportion of COD, at least for products, has not declined meaningfully over the past couple of years. Tier-2 and 3 cities constitute a sizeable chunk of sales of e-tailers, and hence remain a key focus area,” said KIE in its latest report.