oppn parties Is the Ecommerce Cart Flipping?

News Snippets

  • The Army conducts an operational alert exercise in eastern Ladakh
  • The IAF reopened the Vijaynagar advance landing ground, an airstrip in Arunachal Pradesh near the Chinese border
  • Amit Shah says he never sought to impose Hindi
  • Government bans the manufacture and sale of e-cigarettes in India
  • Mamata Banerjee seeks an appointment with Home Minister Amit Shah today
  • Bengal CM Mamata Banerjee meets PM Modi in what she later described as a government-to-government meeting
  • Supreme Court sets a deadline of October 18 for completing the hearings in the Ayodhya case
  • Pakistan rejects India's request for use of its airspace when PM Modi flies to the US later this week
  • Crude prices fall sharply as Saudi Arabia assures normal production in a few weeks. Prices fall by 5.4% to $65.30 per barrel
  • Sensex tumbles 700 points over fears that rising crude prices will deal a body blow to the tottering Indian economy
  • As Rajeev Kumar fails to appear before the CBI despite several notices, the agency forms a special team to locate and apprehend him
  • S Jaishankar says Pakistan is not a normal neighbour and its behaviour is a "set of aberrations"
  • External Affairs Minister S Jaishankar says PoK in Indian territory and the country hopes to have physical jurisdiction over it one day
  • Barasat Sessions court near Kolkata rejects Rajeev Kumar anticipatory bail application citing lack of jurisdiction as the reason
  • PM Modi celebrates his birthday with Narmada aarti and later has lunch with his mother.
Sunni Wakf Board and Nirvani Akhara write to the Supreme Court for a negotiated settlement to the Ayodhya dispute
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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.