Online sales eating into offline retailers profits

Bangalore:As online shopping trend sweeps digital India, offline retailers are a worried lot, with sales of electronic goods, consumer durables and utility products declining across cities and towns even during the peak festival season.

With e-commerce players Flipkart, Snapdeal and Amazon pitching for more orders, offering hefty discounts and freebies in the virtual world, vendors in the real world are crying foul of unfair competition and a non-level playing field.

"Growing competition among them (e-retailers) for ramping up sales at any cost is affecting our business, as we do not see the kind of footfalls we got even year ago and our retail sales have taken a severe hit because many asmart' buyers prefer shop online where prices are lower than we are able to give on several goods," manager of a leading consumer showroom told IANS here.

Though the annual sales turnover of the offline retail sector is estimated to be $25 billion (Rs.150,000 crore) as against $3 billion (Rs.18,000 crore) of the emerging e-tail sector, many retail formats are feeling the heat of their tech-savvy counterparts.

"Unlike them (e-retailers) who sell goods at factory price and save on overheads by delivering them to buyers through courier, we have to factor intermediary costs and profit margin within the MRP (maximum retail price). They (e-retailers) also do not pay value added tax (VAT) on sales, as they claim to be just shipping the goods from source (factory) to end-user," the manager said on anonymity.

The online price war, triggered by Flipkart Oct 6, with steep discounts, crazy deals and lucky draws on a range of products, has brought to the fore the threat the sun rise e-tail sector poses to the traditional retail sector.

Flipkart's 'Big Billion Day' sale also resulted in its website crashing for hours and outrage in the social media for acheating' its online shoppers, with deceptive offers and false promises.

Flipkart, however, claimed that it got a billion hits and sold products worth $100 million (Rs.600 crore) on the day, with a whopping five-lakh mobile handsets, five-lakh clothes and shoes and 25,000 television sets flying off its shelves within hours of opening its discounted sale at 8 a.m.

When complaints reached the government a day after Flipkart apologised to millions of its customers Oct 7 for its failures, Union Minister of State for Commerce and Industry Nirmala Sitharaman said Oct 8 her ministry would look into them.

With Snapdeal also offering same day similar discounts and lower prices on a host of like products as Flipkart, traders expressed concerns over the fallout of cut-throat competition among e-retailers on their retail sales.

The Confederation of All India Traders also urged the commerce ministry to regulate e-retail business and trade practices of its companies, as they were offering huge discounts during the ongoing festival season.

According to a survey by Assocham (Associated Chambers of Commerce & Industry), online shopping growth is projected to zoom 350 percent during Diwal and may result in footfalls at shopping malls in Chennai plunging 46 percent this month.

"During Diwali alone, online shopping is estimated to cross Rs.10,000 crore and going forward, the trend will not only continue, but also grow dramatically to cross Rs.100,000 crore over the next four years," the survey pointed out.

The survey also found that e-commerce sales in August and September grew 200 percent from 120 percent year ago (2013), with mobile sales booming 100 percent, as more and more consumers tend to shop online, which is fast, with simple payment and quick delivery service.

"This festive season, traditional retail shopping has taken a back seat. Apart from convenience, rising fuel price, security reasons, online discounts and choice of products are making consumers shop online more," Assocham secretary-general D.S. Rawat said in a statement, citing the survey findings.

Even small-time dealers in this tech hub and Mysore, about 150km away, have seen a 30-40 percent fall in sales of IT hardware and electronic products due to tech-savvy buyers switching over to e-retailers like Flipkart and Snapdeal over the months because of huge discounts, ease of transaction and getting the goods delivered at home or workplace in a day or two.

"We are not able to match the discounted prices offered by them (e-retailers) on same products we have been selling over the years even after our buyers bargain for price reduction," Ganesh Shetty, a dealer in the city's wholesale market, told IANS.

Worried over the impact of e-commerce on their business, many dealers and traders recently appealed to the state government to bring e-retailers under VAT net and ensure a level-playing field for their survival in the long-term.

"We can't afford to sell below the procurement price, as we have to absorb other costs such as shop rental, staff wages, sales tax and transportation," Shetty added./Eom/750 words.