oppn parties Is the Ecommerce Cart Flipping?

News Snippets

  • Trouble brews in Bihar JD(U)-BJP alliance as Bihar police asks special branch officers to keep tabs on RSS activities
  • Trust vote in Karnataka assembly today. With rebel MLAs deciding to stay away after the SC order, the Congress-JD(S) government is likely to fall as it does not have the numbers
  • Amit Shah says the government will identify and deport illegal immigrants from all parts of the country
  • Reports from Pakistan confirm that Hafiz Saeed has been arrested and sent to jail
  • After the SC order, Karnataka Speaker says he will go by the Constitution in deciding on the resignations of the 16 MLAs
  • Rebel MLAs say they will not attend the trust vote on Thursday
  • Supreme Court rules that rebel MLAs cannot be forced to attend the assembly and vote in the floor test
  • Both the Centre and the Assam government have sought re-verification of up to 20% of draft NRC data
  • Pakistan opens its airspace for Indian planes
  • Dilapidated building collapses in Mumbai, killing more than 10 people while many were still trapped
  • Kulbhushan Jadhav case verdict to be delivered today by the ICJ
  • A Vistara flight landed in Lucknow with just 5 to 10 minutes of fuel left in the tank
  • Supreme Court to decide on Karnataka MLAs plea today
  • Karnataka alliance to face floor test on Thursday
  • China says that the next Dalai Lama will be appointed by it
International Court of Justice agrees with India, stays Kulbhushan Jadhav's execution. It asks Pakistan to allow consular access to the accused.
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Is the Ecommerce Cart Flipping?

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.
Is online retail headed south? Are top etailers like Flipkart experiencing a cash crunch and is this crunch a result of falling sales or on account of deeper discounts being offered due to competition? Or is it due to lack of funding from VC’s and falling valuations? These questions need to be asked since etailers are now in the market for bank loans, an area of funding that no blue-blooded etailer would have looked at even six months ago.

It all started in the last quarter of 2015 when the prima donna in the etail space, Flipkart, got as much as Rs 1400 crore from Kotak Mahindra Bank and Deutsche Bank by pledging assets. In March, it disclosed that it had accessed a further credit line of Rs 450 crore from HDFC Bank by pledging fixed deposits.

Now it has been disclosed that Paytm has borrowed Rs 300 crore from ICICI Bank in two tranches by pledging fixed deposits and mutual funds. While Paytm has said that this is a treasury management move to shore up working capital without liquidating paper assets, analysts are viewing this as a sure sign that the sector is witnessing a slowdown in terms of VC investments.

As is well known, etailers fund the discounts on their marketplace from their own pockets (read the article How Flipkat, Amazon and Snapdeal Fund Discounts in Livemint here). Increasing competition in the marketplace, with up to 80% discounts being offered in mega sales which now occur at alarming frequency and an urgency to grab customer eyeballs making these players spend big bucks on advertising has meant that the drain on the kitty is much more than what they are getting from the VC’s or internal revenue generation.

Pledging assets to “shore” up working capital in their business model can be dangerous. These firms are hoping that VC sentiment will improve and funding will start again so that they will be able to pay back the banks and get the assets released. They are also betting on continued upward revision of valuations. But where will the profits come from? In the absence of solid figures on the balance sheets, there will come a time when the VC’s will look the other way. The sellers on the marketplace also need to be wary. Pressed for cash, these etailers might choose to delay payments, as they are the ones who collect from the customer. If that happens, sellers can leave in droves. Then, the cart will truly flip.