Demonetisation hits ecommerce growth, Forrester slashes projections by over a third
US banks Morgan Stanley and Goldman Sachs had upgraded the market size to $70 billion in 2015 and $120 billion in 2016 and haven’t revised their projections.
Forrester said India continues to be the fastest-growing online retail market, ahead of South Korea and China. US banks Morgan Stanley and Goldman Sachs had upgraded the market size to $70 billion in 2015 and $120 billion in 2016 and haven’t revised their projections.
“Government actions, a slowdown in venture capital funding, logistics challenges, and slow growth in the number of online buyers are holding back India’s online retail market,” Forrester analyst Satish Meena said in a report.
The move to demonetise high-value currency notes in November led to a slowdown in the sector where over 50% orders are driven by cash on delivery. The government’s guidelines for foreign direct investment in ecommerce in March 2016 curbed discounting by marketplaces and set limits for sellers.
A market survey of 2,000 respondents by Forrester revealed that after jumping 50% to Rs 29,006 in 2015, online spending per buyer slipped by 17% to Rs 24,092 in 2016. “There are two assumptions in terms of growth rates (which have not panned out). Verticals like grocery and furniture have not picked up significantly, and we expected that discounting will go on for at least one more year,” said Meena, adding that while the market was expected to expand 70-80% in 2016, it grew by about 30%.
According to investors and analysts, the online retail market stood at $14-16 billion at the end of 2016 from about $11billion in 2015. The slowing market is reflected in the gross value of merchandise sold on the online platforms of companies including Flipkart and Snapdeal, which are also finding it hard to raise fresh funding at existing valuations.
Flipkart, India’s largest online retailer, hasn’t been able to cross the $5-billion mark in gross merchandise value after surging from a $1-billion annual run rate in 2013-14 to $4 billion in 2014-15. Snapdeal’s GMV shrank from a peak in 2015 as the company switched to focussing on profitability.