The year 2016 might kick off on a sad note for online shopaholics as huge discounts and luring deals might not last long. Some of country’s eCommerce majors such as Myntra and Jabong will now cut down on the discounts on their products due to the accumulating year-on-year losses. These companies now plan to gain profitability.
Flipkart-owned online fashion retailer, Myntra has already trimmed its discount offerings by 6 percent in December 2015 and further plans to reduce it by another 3-4 percent. “Myntra dropped its discount rate to 6 percent during the Diwali quarter, but discounting won't go away entirely. Fashion works in that manner, there are always going to be some discounts in the system,” said Prasad Kompalli, Head, eCommerce platform, Myntra.
Heavy investments, marketing and operational units itself costs much in addition to discounting to lure customers and this is the reason most eCommerce of the companies end up posing losses despite nabbing huge sales mark every year. Even investors that have infused billions of dollars into these companies now want them to work on their balance sheets and start making profits.
The Bengaluru-based eCommerce major Jabong has too planned to cut on discounts further to reduce losses. Though the company crossed 1,000 cr sales mark in the last fiscal, but its net loss scaled to 43.6 cr from 16.6 cr a year earlier.
Commenting on the same, Sanjeev Mohanty, CEO & MD, Jabong said, “We will bring down discounts by selecting better products and assortment of products. We are looking at creating efficiencies at various levels such as warehouse, supply chain and other aspects." Sanjeev recently took over as the CEO and MD at Jabong after its co-founders Praveen Sinha and Arun Chandra Mohan decided to call it a day, Indianretailer reported earlier.
This paradigm shift in discounting mechanism in the eCommerce space will surely be challenging. Discounting is considered as one of the biggest weapon for online retailers and it will be interesting to see how these companies will manage to retain its huge user base. This will also be an add-on for brick-and-mortar retailers to rise as online discounting is one the main reasons that pushed them on the back-foot. India is no doubt a price sensitive market with a belief that ‘the more you discount the more we buy’. But from a business standpoint, a company can’t run unprofitably for long. One has to earn profit to be sustainable.
Increasing year-on-year losses, pressure from investors to gain profitability, brand dilution fears and a massive user-base are some of the factors that can propel these eCommerce players of the country to slice down on discount offerings.