oppn parties Is the Ecommerce Cart Flipping?

News Snippets

  • Centre asks states to give shelter and food to migrant workers to stop them from taking to the streets
  • RBI cuts repo rate by 75 bps, the steepest in 10 years
  • Centre writes to states regarding laxity in monitoring people who had arrived from abroad between January and March
  • Kerala reports a spurt in new cases
  • With 124 fresh cases on Friday, the number of reported cases in India stand at 854
  • Five of a family, including a 9-month-old-baby test positive for Covid-19 in Nadia district in West Bengal on Friday
  • The Pakistani army is reportedly forcibly moving all Covid-19 patients to PoK and Gilgit
  • Untimely azaans in J&K mosques spark panic gathering
  • Stocks rise - Sensex up by 1400 points and Nifty goes above the 8600 mark
  • Rahul Gandhi says the economic package is "the first step in the right direction"
  • The government announces wide-ranging measures to help the poor overcome the economic hardship caused by Covid-19
  • G20 leaders to hold a virtual meeting today to explore ways of fighting Covid-19 in a coordinated manner
  • The Delhi government orders testing of all medical staff after the positive test on a Delhi mohalla clinic doctor
  • As a fallout of a Delhi mohalla clinic doctor testing positive for Covid-19, 900 people in the chain quarantined
  • China offers help to India in the fight against Covid-19 and says India will win the battle at an early date
Death toll reaches 27 as Covid-19 cases across India reach 974 on Saturday
oppn parties
Is the Ecommerce Cart Flipping?

By Sunil Garodia
First publised on 2016-03-16 19:46:19

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.